As the new tax season approaches more and more real estate investors are wondering whether or not they qualify as what the IRS calls a “real estate professional.” If you’re new to real estate investing and are curious to find out whether you fall under this category, keep on reading. You’ll be surprised to find out that there are actually 3 different categories you could possibly fall under.
CALLING ALL INVESTORS, especially those of you who are new to investing and are looking into purchasing your first rental property. There is a ton of paperwork that comes along with any commercial real estate transaction, but what you may not know is that there are 10 very important seller documents you may have to review when it comes to buying a rental property.
Are you an investor considering whether or not it is time to sell your apartment property? The decision isn’t as easy as one may think, there is a lot to consider before taking that big leap. Today we’ll visit a video by BiggerPockets’, Michael Blank. Michael will take us through his decision process with one of his own properties.
Is it time to sell now? Sell in a few years? Or refinance?
Which of our 3 different scenarios will allow us to maximize our overall returns? In order to answer this question we should consider these 4 questions:
1. Have you created most or all of the value there is to create?
2. How attractive is the future cash-on-cash return?
3. What do you expect the market to do?
4. What yields a higher return?
The best way to answer these questions it to look at the Internal Rate of Return or IRR for each scenario; selling now, selling in a few years or refinancing. Calculating an IRR can be confusing to calculate on your own, but there are a number of tools that can aid in calculating this number, especially if you’re new to investing and the different metrics involved in commercial real estate.
Internal Rate of Return takes into consideration a number of things; 1.) capital going in and out of an investment, 2.) cash flow generated by the investment, and 3.) the passing of time and the time value of a dollar. Michael’s objective at this point is to calculate the IRRs given each scenario in order to help determine which option is the best for your circumstances. The goal here is to pick the scenario that has the highest IRR.
As mentioned before, IRR can be a confusing concept to grasp and calculating it can get tricky. According to Michael, in order to accurately calculate all three IRRs you’ll need to have a detailed financial model that will help you calculate all of your cash flows, cash investments, and any returns of capital. We like to use our IRR Calculator PRO, which not only calculates IRR but also calculates; cap rate, NPV, 10-year cash flow, NOI, and cash-on-cash returns.
Once you’ve calculated all 3 IRRs, compare them to each other – the scenario with the highest IRR will yield a higher return. But remember that one scenario isn’t fitting for every case, so make sure you do this same process for every property you consider on selling in the future and most importantly consult with an expert who can help you determine the best options.
Increase profits on your investment properties by:
1. Increasing the rent
2. Providing additional services
3. Allowing pets
4. Staying on top of maintenances
5. Working with a trusted team
To learn more about how to increase profits on your investment properties, visit: https://www.forbes.com/…/five-ways-to-increase-profits-on…/…
How do we attract shoppers to malls this season?
“Shopping centers could find ways to draw consumers out of the house and into retail stores by offering ‘seamless frictionless’ experiences such as curbside pickup.”
How much construction is too much construction?
According to a survey conducted by NREI, “41 percent of respondents believe occupancy rates will rise over the next 12 months…”
Buyer’s interested in a retail property will find a strong investment at 4229 Meridian St Bellingham, WA . 98226.
The multi-tenant building is located on 1.82 acres off the Guide Meridian. The well-situated retail property is anchored by Sleep Train, a dependable tenant which accounts for 60% of the income! There is plenty of room for expansion of the existing buildings, and renovation plans are available for adventurous investors.
4229 Meridian St. is available for $3,000,000. You can find more photos and details on the property by visiting 4229meridian.com.
It doesn’t matter if you’re an amateur or adept in the industry — if you’re interested in advancing a career in commercial real estate, consider pursuing an education.
These days, aspiring brokers and investors are looking to the ample amount of educational opportunities available online in order to better serve their clients and improve their ability to navigate the market with ease and proficiency.
We’ve compiled a list of high-ranking educational resources that have been tried-and-tested by investors at all skill levels. Many of the courses below are available online, offering users flexibility and ease of use along with a formal certification or designation.
The CCIM Institute has continued to lead the effort in educating real estate professionals across the globe — so much so that it’s considered an industry standard in education. The institute reports that Certified Commercial Investment Members (CCIM) make 42 percent more transactions than a brokerage specialist per year.
CCIMs are tasked with completing rigorous coursework and must demonstrate a serious commitment to the commercial real estate industry. Nearly 70 percent of members are owners, partners, principals, presidents, vice presidents or brokers.
The Institute for Real Estate Management (IREM) offers a number of different professional development courses which focus on topics about client-based communication, risk management and asset and financial management, just to name a few.
IREM specializes in offering a series of credentials to real estate professionals through its education and information-sharing platform. According to IREM, more than 19,000 take advantage of what the organization has to offer.
The Counselors of Real Estate organization pulls expertise from an approximate 1,000 real estate professionals who’ve demonstrated knowledge and expertise in the industry. Membership is invite-only, but opens doors to a plethora of unique resources and educational opportunities.
All of the educational institution’s mentioned above are affiliated with the National Association of Realtors, which claims the title of America’s largest trade association.
In additional to its direct affiliations with several educational resources available today, it offers one of its own called Center for Realtor Development, which provides a series of online courses, certifications and designations for commercial real estate investors.
The National Association of Realtors represents specialized organizations within the industry that also offer educational course offerings. The Realtors’ Land Institute, for example, sponsors a series of in-person and online coursework solely dedicated to the sale of land. On the other end of the spectrum is the SIOR Center for Career Advancement, which specializes in the sale of industrial and office space.
To learn more about the National Association of Realtors, visit www.realtor.org.
Search “commercial real estate” online and right away you’re inundated with thousands of sites vying for your attention. I know finding the right site isn’t always easy, so I’ve compiled a list of what I’ve found to be the most essential throughout my career in real estate.
The lead contender among sites that specialize in commercial real estate, particularly in sales, is loopnet.com. The site is owned by the information-driven CoStar Group Inc. and has become one of the most used and valued tools in my real estate toolbox, and for many others in the industry as well.
LoopNet generates an approximate 5 million visitors per month and contains 800,000 to 1 million listings at one time. About 400 to 500 billion is available for sale and at least 6 billion square feet is on the site for lease. The numbers are staggering, and that’s why they’re a leader in reaching brokers and investors online.
LoopNet is free for brokers to search, however a monthly subscription is required for investors looking to gather more information on listings in locations within the United States and beyond.
The CoStar Group Inc. is also the driver behind its own site, costar.com. Specialists in compiling stats on the industry, the site is filled with a variety of data points for serious brokers and investors.
The website shares some data with its subsidiary LoopNet, but provides more extensive research, including comp data, same sale data, and any data from the majority of commercial real estate on the market. CoStar also features information about lease terms, such as availability times and expiration dates. So if you’re looking to get serious about investing, I advise you to spend the $200 per month to access the site in-full.
Auction.com is another great site that focuses on auctions for housing, commercial, multi-family and luxury real estate. You name the property type and they most likely have it covered on their site.
Created by Ten-X LLC, which holds the tagline “where real estate is moving,” the site contains a calendar outlining a series of upcoming auctions. Often, especially in the last 10 years, property owners offer a minimum bid on items they want to sell through the site. Brokers pay a fee to participate, but all can gain access to the sites calendar which lists upcoming auctions throughout the nation.
If you’re looking to search for multi-family properties, I recommend Zillow.com. Based out of Seattle, Washington, the team at Zillow provides online users with a comprehensive search tool to look for not only residential, but commercial properties as well.
When a realtor lists a property through a multiple listing service (MLS), it will often get picked up by sites like Zillow or realtor.com. Specializing in multi-family assets, realtor.com is a great source for agents that participate in the commercial market but don’t want to pay for services like LoopNet.
Speaking of free, don’t forget craigslist.org. Craigslist offers users a look at a variety of mostly small and some commercial properties and investments. If you’re a broker and you’re looking for a for sale by owner or multi-family listing, keep Craigslist in your bag of tricks.
If you’re looking to catch a glimpse at the latest foreclosures, I’d recommend realtytrac.com. The site features up-to-date listings and outlines the basics of foreclosure. Most properties listed on the site are single-family and sometimes multi-family. If you’re looking for retail or commercial office space, for example, I’d still recommend LoopNet and CoStar.
If you’re looking to localize your search I recommend looking at your local commercial multiple listing service in your area. Here in the northwest, we have commercialmls.com, which encompasses Washington state as well as parts of Oregon and Idaho.
Remember that online search tools are crucial for serious investors — knowing where to look will give you an edge.
As a certified appraiser and broker, I know the best practices of valuing an investment property. My go-to list boils down to three approaches related to cost, income and sales. So if you’re not so sure how to value your commercial property, keep reading.
1. The cost approach
Start by identifying the cost to replace the property. This means accounting for all costs associated with construction and property value.
If you come across comparable properties that are priced above the cost to rebuild it completely, educate your clients — the same goes if properties are priced below the cost of reproduction.
If a property is listed 30 percent below its estimated value, for example, acknowledge the edge you have over new complexes on the market that require additional cost to build. Ultimately, they’ll have to charge a higher rent and you’ll have a competitive edge.
2. The income approach
Consider the Gross Scheduled Income (GSI), or the amount of rent collected for the entire property if it was completely occupied, even if some units are vacant.
You’ll need to consider external income generated through on-site laundry, parking or whatever else is accrued through tenant property expenses.
Next, subtract the stabilized vacancy rate from the equation. Depending on your market, you’ll want to stick to about 2 to 5 percent. I always consider vacancy because it’s so unpredictable. It’s rare that an apartment will become available the same day a tenant chooses to move out. Typically, it takes about 5 to 10 days to clean, fix damages and get a new tenant in an apartment.
Once you calculate the stabilized vacancy rate, you get the Effective Gross Income (EGI), which is then subtracted by expenses including taxes, insurance, utility costs, water, sewage, garbage — you name it.
From there, you’ll be able to calculate your Net Operating Income (NOI) which clarifies the amount you’ll profit each year before debt service, tax treatment and depreciation.
Finally, divide that figure into the cap rate, which is the annual return on a property paid for in cash. Simply take the cap rate and divide into the NOI to get the final valuation of your property.
3. The sales approach
Once you’ve identified expenses, you’ll want to break it down to a per-unit basis and compare properties. Compare properties on a per-square-foot basis or even a per-bed basis, depending on your market.
Reconcile the numbers and compare a handful of properties. You’ll then want to make adjustments to your property valuation based on what you find.
Weigh each of the above approaches and determine which works best for you and what gives you most confidence. It’s different for everyone, but it works.