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Real Estate One More Reason to LOVE Commercial

Discussion in 'Real Estate Investing' started by AroundTheWorld, Sep 19, 2007.

  1. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    If you could buy a 4,000,000 property with ZERO down - and break even on the property - would you do it?

    (okay.... I know.... not realistic... but go with me)

    I would. Here is why. My tenants are paying my loan.

    In 5 years, I have made: $330,698.01
    In 10 years, I have made: $811,299.57

    Can't argue with that. Now - you couple that with: adding value, appreciation, depreciation, and leveraging your money you've got an amazing opportunity in commercial real estate!
     
  2. JesseO
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    JesseO Contributor

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    If I could buy a $4M property with $0 down of course I would do it. Even if I only made $100 a month I would jump at the opportunity. Even if it only appreciated at 3% per year that would earn me $120,000 per year in appreciation. Assuming you had an interest-only loan (which nobody would) your cashflow alone would be worth it. If you did your homework and bought a mis-managed property you'd probably make a million in 1-2 years with ZERO cashflow. I can handle making no money per month if I get a one million bump in net worth. If you invested a couple hours of research, your profit margin would be HUGE....think 1-2 million in as many years.
     
  3. yveskleinsky
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    yveskleinsky Bronze Contributor Speedway Pass

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    Great question. I suppose I focus on the "what ifs". Like, what if it sat vacant for a month- game over for me! Maybe I focus too much on the things that could go wrong.
     
  4. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    no, no, no. that is a great place to start.

    What if that did happen? That is how you reduce your risk. What if it did. What would you do? Is there anything you could do before the purchase to prepare for it?
    (cash reserves)

    What else could go wrong? Think through it now.... come up with your answer.

    where is that reduce your risk thread when you need it?
     
  5. EasyMoney_in_NC
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    EasyMoney_in_NC Contributor

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    What type of property?
    Why 0 down?
    Is 4 mil its value or is that a deep discount price?
    how many tenants paying that mortgage for you?
    where did the 5 and 10 yr # come from if you are breaking even? depreciation and write offs?

    Interesting
     
  6. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    I should have made my post more detailed.

    0 down just to eliminate the "I can't afford a 4,000,000 property
    4 mil is the value of the property. You are not getting a discount
    how many tenants are there? I don't know... lets say 1000
    The 5 and 10 year is simply from the amortization on a loan. I can't remember what I did now... 25 year note at 7.5% interest. No write offs factored in.
     
  7. EasyMoney_in_NC
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    I would say, with that many tenants, you're "what ifs" would go right out the window. What a few tenants when there's that many. Now if it takes every one to make it work........
    So thats what......30K a month, 1000 tenants......what like $30 buck per tenant? Is that right? Double that for T & I......yeah thats a keeper :)
     
  8. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    opps... got crazy with the zeros.. 100 tenants.
     
  9. EasyMoney_in_NC
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    EasyMoney_in_NC Contributor

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    LOL......okay, $300 per tenant.....still not bad. wouldn't want to many vacant....rooms? Apartments? whatever they are, that'd get costly!
     
  10. yveskleinsky
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    yveskleinsky Bronze Contributor Speedway Pass

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    I suppose I would start whoring myself. :smxB: No, really- I'll play; I would figure out how many tenants, what type of leases do they have and what kind of track record they have. I would line up lines of credit for when it would sit vacant or major repairs came up (unless this 4 leaf clover is a triple net). Like someone mentioned, the greater number of tenants the less risk. I would be able to sleep at night knowing that I had 30 tenants in there v. 1 tenant. I suppose anything thing else that could go wrong- fire, flood etc., would be covered through insurance and business insurance coverage.
     
  11. venom
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    venom New Contributor

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    The poster said "if you break even"
    I am sure that Sonya means after all expenses :)
    The point meaning that you wouldnt cashflow. Not that you would have negative cashflow. I would have posted similar arguments on the richdad site
    of course I like to throw in a nice discount to value on purchase.
     
  12. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    It has been pretty interesting to me to see where this thread went...

    I think I did not communicate my point very well.

    I was simply trying to isolate one of the many advantages to owning commercial real estate (that is financed)...

    By taking away any other benefits (positive cashflow, instant equity, possibility of future appreciation, etc.) I was trying to isolate the beauty of having others (your tenants) pay down your note for you.... therefore increasing your net worth.
     
  13. ProInvestor
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    ProInvestor New Contributor

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    Why wouldn't you have an interest only loan? I can see why one wouldn't have a adjustable ARM, but why wouldn't you with +CF real estate?

    Points for
    > Lower Repayments
    > Higher Cashflow
    > You only get tax deduction for the interest component

    Points Aginst

    > Not building equity (though with th higher cashflow you could just add it to the loan regardless).
    > Get a tax deduction for interest
    > Potentially higher fees,depending on loan product (though usually only a couple of hundred dollars, which is tax deductible).

    I have no probs. with Interest Only loans at all, but for some reason Americans hate them.... In fact I saw a lot of investors get '5 year fixed' IO loans, with those kind of loans you can create +CF.

    Rgds.
    ProInvestor
     
  14. yellowpad
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    yellowpad PARKED

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    too many "if". I would stick to reality. The reality is, no lender will give you $4mils, 100% LTV, zero down financing on a commercial loan. Even if the lender is dumb enough, there are other factors to consider after you got the building.........maintenance, vacancy, depreciation.....and so forth.
     
  15. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    To that, I wonder if you read this...

    I was certainly not living in make believe land. Simply trying to illustrate a point. Of course when one is ACTUALLY looking at A REAL DEAL these things are important.

    Geeze. I give up on this one. :bgh:
     
  16. SteveO
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    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    From my vantage point this is a very limiting way of thinking. A number of years ago I posted something on a forum that drew a lot of critisizm. It was along the lines of "if I could buy zero cashflow properties with zero down, I would do it all day long".

    Well, I went out and bought a couple of $5M apartment buildings that had negative cashflow with zero down. After turning them into cashflow machines, I refinanced and sat back to enjoy.
     
  17. yellowpad
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    yellowpad PARKED

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    Current market condition won't make it happen......Some won't even allow the seller to carry second on it. A number of years ago, guideline was on the easy side.
     
  18. JesseO
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    JesseO Contributor

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    I'm not sure you've got your facts straight on this one, yellowpad. There are many ways to do $0 down deals on commercial properties. I agree that lenders are tightening up, but there are still $0 down (by using OPM) deals all over the place.
     
  19. SteveO
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    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    These market conditions were not too long ago. There is still money looking for investment opportunities out there. When the 100% money came available to me, I did not know anyone else that was getting it. That does not mean that it is absolutely not available.

    I still have ways of accomplishing this using investor money. It keeps my returns limited for a period of time.

    There are a lot of creative ways if you continually dig deep.
     
  20. yellowpad
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    yellowpad PARKED

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    I am sure there are many ways to finance the deal....creative ways. However, if you play with a lending institution that is to hold most of the risks, I still stand strong on my position. If you have a friend, buddy, or banking institution that will finance 100% LTV.....do PM me. I would really appreciate the info.
     
  21. bflbob
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    bflbob Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    I'd think 100% LTV is tough.

    But 100% financing is easier.

    If you're paying retail, you're probably paying too much.

    I'm working a deal with my local bank and the seller that should give me around 140% financing on my next purchase.

    Don't say no for them...let them decide that.
     
  22. yellowpad
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    yellowpad PARKED

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    you must be buying NY apartment properties :) Congrats.....do share your experience when done.
     
  23. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    It reminds me of a yahoo article recently written by RK in which he mentioned that he had refi'd a commercial piece for a pretty low rate... 4.5 or something.

    Many people commented and bashed RK because it was "impossible" and called him a liar.

    I have done 3 zero money out of pocket deals this year. And yet, I would guess there are many people out there that would call me a liar or say it can't be done.
     
  24. yveskleinsky
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    yveskleinsky Bronze Contributor Speedway Pass

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    Can you elaborate on how you structured these deals?
     
  25. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    Sure:

    #1) Partnership. We provided credit, knowledge, some time. Partner provided money down, time. Too close on the land quickly - and help with initial cashflow - we got a hard money loan. 10% Interest accruing - no payments for one year. We built (self-storage) and then did a re-fi w/ a local bank. All the accrued interest was paid in the re-fi.

    #2) 40% owner carryback. 60% local bank. We did put 10,000 earnest money up... but my hubby has is RE license and guess how much his commission was on the deal? 10,000 back to us at closing. Net is a 0 down deal.

    #3) Investors put up the down. We provide credit, knowledge, work. As an interesting sweetener... the seller on this one found himself in a jam after we were under contract. He had ordered a steele building he decided he did not want to take delivery on - but he had already paid for some of the building. It was an 80,000 dollar building. He had already paid 30 but didn't have the 50 that was due on delivery. He asked us to lend him the 50. In return, he would reduce the purchase price on the land by 50 and throw in the building. So.... we actually got an 80K building at closing.
     

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