Commercial Real Estate For Dummies...

[sswift]

I'm considering getting into the market in the near future. I am a new investor in real estate. I have been doing some research on the topic, and gathered the best way to start is with apartment buildings. My questions are as follows:

1) Before you ever signed the papers and got a property, what were the first steps you took? did you have cash on hand, were you able to do it while in debt? (Basically, I don't have a lot of liquid assets (or any assets) at the moment. Can I still get this done?

2) Can some-one explain to me a nonrecourse loan in lamens-terms? How do I go about obtaining one?

4) If you could go back and start over again, what would you do differently?

5) Are apartments a good place to start? what does the perfect first time property look like in your eyes?

Or any other general information/ thoughts/ comments/ concerns would be greatly appreciated...

Thanks.

 

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[andviv]

Great topic.

1. You created this thread in the wrong forum. There is one just for this purpose, Real Estate (Commercial).

2. Have you done a search about this here? We discussed this 2 or 3 years ago and had input from real experts in the field.

 

[Runum]

Great topic.

1. You created this thread in the wrong forum. There is one just for this purpose, Real Estate (Commercial).

Thread moved.:cheers:

 

[sswift]

nothing else? common', I know you all started somewhere... where'd you start?

 

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[kwerner]

I can't speak from experience, but if you're looking for the fundamentals I've heard the following books recommended on here before:

"How I Turned $1,000 Into Five Million In Real Estate In My Spare Time" - William Nickerson

"The Complete Guide to Buying and Selling Apartment Buildings" - Steve Berges

"How to Buy and Sell Apartment Buildings" - Eugene Volluci


Hope this helps!

 

[LagunaLauren]

1) Before you ever signed the papers and got a property, what were the first steps you took? did you have cash on hand, were you able to do it while in debt? (Basically, I don't have a lot of liquid assets (or any assets) at the moment. Can I still get this done?

2) Can some-one explain to me a nonrecourse loan in lamens-terms? How do I go about obtaining one?

4) If you could go back and start over again, what would you do differently?

5) Are apartments a good place to start? what does the perfect first time property look like in your eyes?
Thanks.

1) First steps I took before investing were definitely read, read, read. So many people have done what you want to do. Learn as much as you can from them. It will minimize learning the hard way in practice. I bought my first property with a loan from my parents. It was my first primary residence. I made $200k on that investment in 2 years and reinvested that to get my start. You can start with no money. You need to find a property owner who is willing to do a carry-back for financing or Master Lease Agreement (lease-to-own). You can do an AITD where a property owner puts the property deed into an LLC that you both are a part of. You take over the payments on the property without putting a down payment. Can do conventional financing and a hard-money loan, but think those are higher rate, short-term loans. Keep reading stuff...

2) Nonrecourse loan basically means a lender is taking more of a risk because you are not personally responsible for the loan, etc. For example, I rolled my 401ks into a self-directed IRA LLC, from which I can invest. Theoretically, I can buy a property with these funds in the LLCs name, but it would be a non-recourse loan because the LLC would own the property. The lender would not come after me personally for the money should the property go into foreclosure. For a non-recourse loan, typically you need at least 40% down and not many lenders are willing to do non-recourse loans these days. Don't think this is right for you right now.

4) If I could do it over again, I would have done the high-end multi-million dollar primary residence home flips every 2-3 years like I did (but the market was great for that back then.) I wouldn't have bought high-end condos-the HOA kills you and if anything goes wrong, somehow the HOA isn't responsible and you end up buying your downstairs neighbor a new ceiling, new walls and foundation repairs. Single Family Homes were OK investments, but not worth the property management issues and vacancies. Apartment buildings are great, but you usually have to have some big money to be a serious player. And if you don't know what you're doing, property management and repairs can kill your profits.

5) Any property that makes good financial sense on paper. Buying below fair market value. Something that positive cash flows. Not too much risk. In a good or up and coming area.

 

[sswift]

I bought my first property with a loan from my parents. It was my first primary residence. I made $200k on that investment in 2 years and reinvested that to get my start. You can start with no money.

Thanks Laguna! Speed +++! I needed to hear that... seems like everywhere else I turn (parents, friends, coworkers, etc) is the same old "oh,you cant do that, you need a lot of money to start with. This will go wrong, that will go wrong, you just cant do it. blah blah blah"

But I knew my fellow fast laners would come through for me!!! Bought all 3 books kwerner!

Any other suggestions/comments?

 

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[LagunaLauren]

sswift-Yeah, don't listen to the people who say you can't get into real estate with no money. I never listen to anyone who says I can't do something. I think most people got started in RE with little or no money. There are always ways. My best friend started with a $240k house while he was a waiter. He got the down by cash advancing a credit card. He now has several (8+ by my last count) multi-million dollar homes for himself, including a $29Million house in Laguna Beach, a 900-acre ranch and an $11Million house he bought his mom. (He's 38 now).

I've read the books recommended above. They're great. Another good one I read when getting started was "How to make millions in real estate in 3 years starting with no cash" by Tyler Hicks. Stupid title but really great, specific info, from what I remember. Trump has a lot of books on real estate. Think those are all good as well.

You may want to check out your local real estate investor club. You can become a member and meet with other investors. You can probably find other mentors there that would be willing to help.

Best of luck!!

 

[LagunaLauren]

Oh yeah-and I would start window-shopping properties on LoopNet.com. It's free and gives you access to all kinds of properties for sale in every area. (houses, dulplexes, commercial, apartment buildings, etc.). Start looking at all the numbers-taxes, maintenance, insurance, repairs, vacancy rate, etc. Calculated Industries makes the Real Estate Master IIIx calculator (amazon.com). You can punch in the loan amount, interest rate, term, etc and it will tell you the amortized monthly amount (Interest-Only or P&I, etc). Will really help you understand numbers and what properties make sense.

 

[Forza]

Hi LagunaLauren,

How did your best friend acquire his properties and hold them? Did he flip his way up? How does he get multi million dollar homes to pay for the mortgages, assuming he has them?

 

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[LagunaLauren]

Hi LagunaLauren,

How did your best friend acquire his properties and hold them? Did he flip his way up? How does he get multi million dollar homes to pay for the mortgages, assuming he has them?

Yes, flipped his way up. He started out by remodeling his personal residences every 1-2 years, then sell and trade up to the next level house and replicate that. He started with a $240k house, then got to $800k house that he sold for 1.5Million, 2.1 Million house he sold for 3.4Million, etc. He started doing 4-5 houses a year just to remodel and flip, buying in the $2-4 Million dollar range, but he wouldn't touch it unless he made at least $1 Million profit on each house. One house he did he bought for $2.5 Million and after a huge remodel/rebuild was worth $11 Million (gave it to his Mom). One purchase he made was a 14.5 Million house that he had had in escrow to a buyer 2 years later for $29Million. (He kept it and didn't sell it, but great appreciation after remodel!). So, he made at least a Million on each of the 4-5 properties a year he would flip. **These were all pre-2007/2008 when the market was super hot in Orange County, California (Laguna Beach, Corona del Mar, Newport Coast, etc.).

I followed his lead over 10 years ago and started with my first house of $390K, sold it 2 years later for $600k. Rolled the profit from that house into my 2nd house for $1.15 Million, remodeled and refinanced that 2 years later and pulled out $400k for investing in other properties, etc. Sold it 3 years later for an even bigger profit, bought another bigger house, etc. My friend taught me that "the house pays for the house"...

He also bought Class A commercial buildings with corporate renters (like Chase bank) and makes money on those.

He also bought a private jet for himself, then chartered it when he wasn't using it personally to a big Casino in Vegas who would fly out their high-rollers from California. He made $30K a month positive cash flow from chartering his jet, so he bought a second jet for chartering. Has slowed down with the current economy, but he still breaks even, so he essentially has free jets that pay for themselves.

He and one partner also started a company years ago that now has probably 65 employees now. He put the right systems and people in place for it to practically run itself with little involvement from him. He makes Millions every year on that as well as all the $Millions he made in real estate.

He started out in the beginning as a waiter with 2 jobs. Cash advanced his credit card for a down on his 1st house. He's easily worth over $100 Million now and did it in just over 10 years.

We're both 38 years old fyi.

 

[Jill]

Inspiring stuff. My first reaction was, as you mentioned, "yeah, but this is in Ca, AND when the market was ridiculously hot". Then I remembered that some of your properties are in North Texas. We will never see the kind of market appreciation as some areas, simply because there are no natural borders (like oceans or mountains) restricting expansion. But it is a GREAT time to find undervalued properties, due to foreclosures and the like.

Thanks for sharing the details. Very Encouraging!!!!

 

[LagunaLauren]

Inspiring stuff. My first reaction is, as you mentioned, was "yeah, but this is in Ca, AND when the market was ridiculously hot". Then I remembered that some of your properties are in North Texas. We will never see the kind of market appreciation as some area, simply because there are no natural borders (like oceans or mountains) restricting expansion. But it is a GREAT time to find undervalued properties, due to foreclosure and the like.

Thanks for sharing the details. Very Encouraging!!!!

Hey Jill! :wave:

You're absolutely right about the opportunity and timing being right previously in Southern California for stupid appreciation. Was a great time to make a lot of money. But there are lots of opportunities there now as well. My friend is buying tons of multi-million dollar properties before they go into foreclosure in Orange County. He's doing AITDs with current owners, putting the deed into an LLC. He takes over payments without putting any of his own money down or without the property being on his credit. He gets them for the amount owed, so on some properties, he gets them for Millions less than what they were worth a couple years ago. He gets renters (not all of them cash flow, so he's out-of-pocket on some monthly). But he estimates that when the market comes back in 7+ years, he will easily make $100 Million off these new properties alone. Not a bad opportunity for a crappy market.

And yeah, I do buy my rental income properties in North Texas. I didn't ever bank on much appreciation on those SFHs I bought in the past, but I did make sure that when I bought them, they were at least $80k below fair market value at the time, so I had free equity even if the market stayed flat. Properties in Texas were easy to cash flow and most of them I got were 100% financing, so free money and free equity for me.

Had different investment strategies in CA and TX. But opportunities are always around in any market.

I've seriously learned so much from my friends and am always inspired by what they're doing. They give new meaning to the word "leverage".

 

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[sswift]

thanks for all the advice! speed +++ laguna! I just stumbled across the broward county forclosure auction website, and I'm freaking out. Are the bidders actually walking with a valued 200,000 home for a 2,000 winning bid? I'm bamboozled? whats going on here?

https://www.broward.realforeclose.com/index.cfm

 

[LagunaLauren]

sswift-I checked into the website. Thanks for sharing that! First, I'm impressed that a county has their act so together!! Unusual even in this day and age. Not sure what the properties are actually going for, but they may get bid up close to value if there's a
"foreclosure frenzy" of a lot of people bidding online. Definitely look promising, though and warrants a deeper dive into it to check it out. Good luck with that! Might be a really good thing. *May also want to check into county laws for foreclosures and make sure you get ownership and title free and clear and that previous owners don't have recourse of 12 months or something. Seems like the other lower amounts listed may just be back property tax due values. If the previous property owner brings that amount current (~$2k or whatever) in a certain time frame, like 12 months, they may get the property back. Probably not the case, but is in some counties in some states, so make sure before you buy.

 

[Chitown]

Lauren,

Not only were your posts informative but they were also inspiring. Thank you for some great info.

Speed++:eusa_clap:

 

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[sswift]

thanks again Lauren, they offer a training course, so as-soon-as I go through it i'll post my knowledge... I'm in the process of reading "making big money in foreclosures without cash or credit" by Peter Conti, and theres a lot of great information in that book. The one thing is, most of the strategies in the book (at least up to the chapter I'm at) rely on finding a motivated seller. Where can I find a motivated seller, actually sit down with them on terms of one-2-one, I'm a person to, let me help you get out of this situation. The only way I can think of personalizing their selling experience is by finding sellers through networking or door knocking. I was thinking of advertising on Craigslist and the local paper and websites, but I feel that it creates a more "corporate" approach. How did you find your first motivated seller & buyer?

 

[LagunaLauren]

hey sswift-From what I've heard, there are a lot of people who try to approach sellers who are in pre-foreclosure or foreclosure. You may have some competition there, but I'm not saying that to discourage you. Also, if you're dealing directly with people facing foreclosure, you have to have cash on hand to get them current and stop the pre-foreclosure/foreclosure process. Personally, I never did that approach or the door-knocking thing. I found a real estate agent who specialized in pre-foreclosure and foreclosures. She has incredible relationships with banks, etc so I got 1st dibs on properties that were pocket listings before the public knew about them. I had to be willing to act fast, though. She would fax me contracts and I would fax them right back and open escrow/buy properties without seeing them. (These properties were out of state). She knew what I was looking for and I got lucky finding someone I could trust intrinsically to get me the right properties.

 

[sswift]

lauren! your the best! you know, i'm reading all these books, and I get it. I am simply just scared shitless to take action. You know, like that first deal you did, I just get a crunchy feeling when I even think about it. I mean, I know Its going to happen eventually, and try to train myself to enjoy the feeling of "out of my comfort zone". When you lost your investing virginity, how did you know the house was the right fit? did you have your buyers lined up? I think what worries me the most is purchasing my first property, and then having to MAKE SURE I find a buyer in the 30 days I have to pay for it cash. The books I read and the investors I talk to make it seem like the easiest thing to do, But I keep reiterating in my head, the property I bought was on the market for 2 years, how am I supposed to flip it? then I tell myself stop thinking like that, and then myself tells myself "but..." and so on and so forth. I think next week my mission will be to find an investor to shadow. I know once I SEE the process take place, I will have a better understanding of how to do it on my own... Thanks for all the amazing advice! you should write a book. I will buy the first copy.

 

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[LagunaLauren]

you know, i'm reading all these books, and I get it. I am simply just scared shitless to take action. You know, like that first deal you did, I just get a crunchy feeling when I even think about it.

lol. I totally know the feeling! Just educate yourself as much as you possibly can, make a good decision and just take the leap.It's cake after your 1st deal.

did you have your buyers lined up? I think what worries me the most is purchasing my first property, and then having to MAKE SURE I find a buyer in the 30 days I have to pay for it cash...I think next week my mission will be to find an investor to shadow. I know once I SEE the process take place, I will have a better understanding of how to do it on my own... Thanks for all the amazing advice! you should write a book. I will buy the first copy.

Thanks, sswift!! Personally, I didn't wholesale/fast flip properties. Back when I was buying SFHs, I did lease-options for renters who wanted to buy later. A couple of options for your strategy: you can lock up a property in contract and "assign" it to another buyer during escrow period before you would close. If you don't find another buyer, you have an out clause in your contract so you don't have to go through with the purchase. Another way is to purchase it, like with hard money and have a simultaneous close or close within 30 days to another buyer, like you're talking about. My real estate agent in Texas has another investor client who wholesales properties-he does about 20 a month and makes an average of $20k per house. He has a pretty big pool of other investors/people who are interested in his properties. Her investor hasn't gotten stuck with a property yet (that I know of.) He started with hard money instead of his own and does simultaneous closes. PM me. I don't do this wholesaling myself, but I previously talked to her and took notes on her system in case it came up that anyone else wanted the info.

 

[NJRealEstate]

Lauren, thanks for all the GREAT info.

Could you give us some details on wholesaling. In the NJ standard RE sales contract it specifically says the contract will not be assigned.
Is this a state by state rule, or just the standard contract?
I have been told that wholesaling is not a viable concept in this market, however it would seem like the easiest entry into RE investment for someone with little cash.

 

[andviv]

In the NJ standard RE sales contract it specifically says the contract will not be assigned.

Well... what if you don't use a standard contract?

Hire a lawyer (this will cost you probably between $100 and $200) to write you a contract that works for you and that includes a clause that says the contract can and may be assigned.

I have been told that wholesaling is not a viable concept in this market, however it would seem like the easiest entry into RE investment for someone with little cash.

Do the people who told you that are millionaires?
if not, disregard what they are saying.

And then go find somebody that is making money wholesaling.
And ask them questions.
And offer to work for them for free for a month and help them and learn from them.

Many (most, actually) will say no.
But you just need one to say yes to make it happen for you.

Are you, by any chance, a realtor? --sorry, you sound like the typical, indoctrinated agent who's been told by their broker they can't do anything other than the standard so they can make money for them.

How many of the REI clubs have you visited in your area?

 

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[NJRealEstate]

Thanks for the response, I appologize for my delay in getting back.

I am not a realtor, but much of the information I have about REI comes from books (which are hard to discern what info is real and what is fluf), and from agents, specifically one who represents the banks on REO properties.

I attended my first REI club meeting this week, and it was an eye opening experince, I will deffinatly be attending many more meetings. Met a few hard money lenders and a few full time fix and flip guys, but no one who wholesales as a specialty.

I think the next step is to figure out who to wholesale deals to? I am asking the money guys I met at the meeting, as well as other investors I work with if they ever buy wholesale deals.
Is there a better way to find buyers of deals?

Also Lauren, do you know how your friend was able to arrange financing for such big deals with a job like waiter? Was it due to the ease of getting cash pre 08? I currently work as a golf professional and much of my money comes in the form of cash and is totally variable and traditional financing is difficult to find even with a great credit score.
I am working on my first deal and will take LOTS of pictures to build a portfolio to show investors on future deals to try and get access to private money.

Any other siggestions for getting $$ to do more deals?

 

[andviv]

Books are a good source, problem is, they may get outdated rather quickly, especially in today's market when the lenders and HUD are changing the rules constantly.

Realtors, in general, won't understand anything other than the standard contract. They don't want to deal with anything that may delay their sales... remember, they are just that, sales people, and as such make money by selling more units. Anything out of the ordinary delays them and they don't make money.

Glad you attended that meeting. About who to sell the deal to, that is easy... and you are doing it right. When you find that great deal you just simply call the hard money lenders, tell them about the numbers, and they either finance it for you or tell you who would be interested.

Have you studied your local market? How much are the rents going for? sales price per SQ.Ft?

A suggestion for getting more money for RE deal? hmmm win more tournaments? (just kidding, not that aware of the way financing is working in NJ... here in DC prices are going up and lenders want traditional lending, nothing out of the ordinary as they know there is money to be made)

 

[NJRealEstate]

My issue with traditional financing is that I am:
1. relativly young, just turend 24 and a very recent college grad with limited work history
2. make the majoriy of my income via cash, and my on the books income was primarily from overtime
3. I took unemployment for a short period of time last year ( i know this seems lazy but I figured I payed into it, might as well take advantage.) My time away from traditional job is what lead me to the fast lane. The idea that you can do ANYTHING, and that you do not have to settle for long hours for moderate pay.

I am going to look at Hard Money Lenders, and a few groups that offer lines of credit for flipping houses, however I am concerned about identity theft as many of these groups are not as squeaky and clean as Chase bank per say.
Any recommendations of Red Flags to look for or of things I should watch out for to make sure I am not being scammed, or ways to seek out good non traditional sources of capital? I am currently using the internet and then calling in to people,

 

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[wgayler]

My recommendation is to take a few of these classes. They are the best educational tools a commercial real estate investor could ever possess.

Education | CCIM Institute