Let’s Do This Together

Commercial Investment Services is incredibly blessed to work with tenants, landlords and a vast array of businesses in our community, as well as throughout the region. As a commercial brokerage, we are fortunate to work with Buyers & Sellers of commercial properties and businesses, and have listened to the array of issues facing these principals, so many of which could never have been imagined. As a property management company, the conversations that we’ve had with our tenants that own businesses have been frank, raw, and at times, gut-wrenching. By and large, our landlord conversations have all been the same…let’s see where this goes before we make any decisions regarding rental payments, because, how do we know what this will look like next week? Next month? Three months from now?

Listen – this virus is scary and there is no doubt it must be taken seriously. The prescribed health measures are understandable. Those health providers on the front lines deserve accolades – truly, thank you for all you’ve done. The employees that are checking groceries, bringing meals to your car, operating offices from a six-foot distance or remote basis – they deserve recognition as well. There is a lot of fight against this unseen enemy and that is very heartening.

However, from the “front line” of working with so many businesses, the economic impact is also very real. Livelihoods are in the balance. We have had a tenant literally drop off keys, with a hand-written note, and remorsefully admit they’re done. Another letter from a decades-long tenant stating that at the end of the month, their doors will close, for good. Our salons, our massage therapists, our tattoo providers, some of our retailers – done (for now). Other retailers are trying to be as creative as possible to entice customers, all the while trying to be cognizant that many in their customer base have experienced loss of income as well. Countless other tenants have significantly abbreviated their operating hours, in an effort to simply make it through this. The stifling of our businesses cannot end soon enough. This. Is. Real.

Commercial Investments Services stands with all local businesses during these unfathomable times. We feel your pain and wholeheartedly support your efforts to battle, to survive, and to ultimately thrive. Together, friends & colleagues, let’s get through this. Let’s fight. Let’s create. Let’s foster ingenuity. Let’s do everything we can as a business community that’s at our disposal. Support local. Reach out to a friend. Stay strong. And, please, know that if we can help in any way, we want to do just that. We’re here, we’ll listen, and we’ll work with you and your business. Let’s do this, together. Let’s go!

The Use Of Other People’s Money


Each investor has a “comfort zone” about loans. The leverage seeker wants the largest loan that is practical. Others may have experience or training that calls for no loans at all. They must have the property free and clear.
Most of us have a loan comfort zone somewhere between these extremes. Nearly everyone accepts the idea of some sort of mortgage. The use of OPM (other people’s money) makes sense. The comfort in loans may affect the type of investment. Many of these “free and clear” owners prefer land as the investment. They want no improvements on it, just the bare land. Here’s some of the benefits of investing in unimproved land. These can make a lot of sense:

  1. There are no tenant problems. There may be a
    simple lease for farming or grazing, but only limited
    contacts between lessor and lessee. Often, the investment
    land lies unused.
  2. A well-chosen land investment can result in huge
    profits. We have all heard stories of owners who have
    purchased land for just a few dollars an acre, then
    later sold for millions! (The key is “well-chosen.”)
  3. Land is a secure investment. Even in the worst
    economic situations, the land is still there. Value can
    fluctuate, but the investment will not disappear.
  4. Land represents wealth. It can be a quick source
    of cash for an owner to use for another investment.
    Land looks good on a financial statement. It adds
    permanence and stability to an applicant for loans or
    for a line of credit.

What Every Real Estate Investor Should Know

 
Commercial Real Estate Formulas Every Investor Should Know   Commercial real estate involves formulas that differ from residential investments. Are you familiar with these key calculations?

Here’s a summary of some key formulas to remember when you’re investing in commercial real estate (and don’t forget to consult with real estate and financial experts for more advice).

Net Operating Income (NOI): This formula is used to determine the amount of income your property generates. It focuses on the real estate itself, not the financial situation of the prospective investor. To calculate the net operating income, subtract the operating expenses from the real estate revenue the property produces. Revenue includes all money generated from the property, not just leases. This could include parking and other facility fees.

Capitalization Rate: This is also known as the “cap rate.” Investors often use it to quickly determine how properties they own are performing financially or to assess the return on investment of properties they’d like to buy. It is calculated by dividing the net operating income by the property asset value. Cap rates are expressed as percentages.

  Cash-on-Cash: This is a rate of return often used to calculate the cash income earned in relation to the cash invested in the property. This is calculated by dividing the net income from a property for one year by the total cash invested into the property, expressed as a percentage. It takes into account debt financing but only considers income from one year.

Feel free to contact me for assistance with any potential investments. I’m happy to help you find a property that would be a solid investment for you.

Investment Property Inspections

Investment Property Inspections

When a buyer makes an offer on an investment property, it is usually only after a thorough inspection of all of the data that is available on the financial records of the building. Certainly, a good physical inspection is also made.

Some investors pay more attention to the data than the structure. The physical inspection of the property could be as important or more important than the rents and expenses. By thoroughly inspecting potential investment property, a buyer may be able to:

•  Work out a better price.

•  Get ready for any upgrading or maintenance expenses.

•  Avoid catastrophic repair bills for detectable problems.

•  When actually purchased, get a higher return on the investment.

Where to Start

First, the investor needs to know what experts to call. He needs to know what needs to be inspected and how to do it. The property must be verified as physically sound and is a worthwhile investment.

There are some broad categories of problems that investment properties are subject to, and the type of expert that is needed for the inspection.

•  Soil Conditions. When a property is located on certain types of land, a professional soil engineer or geologist should be called. Property could be low lying or reclaimed land; a former landfill or dump area; on hilly or mountainous terrain; located at lakeside or seaside; has structures or piers, pilings, stilts, or other unusual foundation conditions.

•  Drainage. If the property is located within a flood plain area, it should be carefully examined by a civil engineer. The buyer can check basements and interior walls for signs of water damage.

•  HVAC. Contact the representatives of the companies that manufactured or installed the heating, ventilating, and air-conditioning systems. Elevators and electric systems should be inspected by professionals in those fields.

•  Roofing. A roofing consultant or structural engineer should be called to determine age, condition, ability to withstand loads, etc.

•  Pests. Pest control companies are able to check for termites and other damage-causing pests.

Check the local building department and see what permits were issued and when. Some records may also show when fire inspections or health and safety inspections were made. Any violations will be on record.

The plans and specifications of the building may also be on file. These may contain the names of the original architect, engineer, contractor and developer. The investor may wish to contact one or more of these if any questions need an answer. o

Warehouses —A Great Investment


When Syndicates, partnerships, investment companies and their individual participants look at investments in commercial properties, many tend to look at properties that have that bewitching charm of glamour in brochures. A beautiful office building or an enclosed shopping center seem to have a more acceptable “status” as an investment property. These buildings can be nice to drive by and point out as “our” investment.

Originally, any property designated as a “warehouse” would always be located in areas zoned for industrial use. There is not nearly as much allure in a squat bulky warehouse building. The physical attractiveness is not there in color flyers and photographs. However, as money makers, these bulky buildings can be a very profitable real estate investment.

A recent check in one area showed a vacancy rate in distribution warehouses of 4% to 6%, while office buildings had a 10.7% vacancy level. The vacancy rate for warehouses remains low in good times and bad. If there is a slump in demand for real estate, commercial real estate should not be affected. The demand for space in warehouses should remain the same.

When choosing a site for a new facility installation, think first of the renters who will be your customers. Does the warehouse have easy access from a major highway or Interstate? Will the driveways and parking areas accommodate large trucks? Is the facility very close to any houses or residential areas that will complain about the noisy trucks?

Expenses and Income

The normal costs of operating any rental property are the utilities, insurance, property taxes, management and maintenance.

Access and parking are important. There should be direct access to each unit by a vehicle with multiple trailers. There should be room for these vehicles to turn around or be passed by another car or truck. Loading docks are provided at most commercial-oriented warehouses.

Security: The latest state-of-the-art equipment makes the convenience of round-the-clock access available with no loss of security. There can be computer-controlled entry gates and individual alarms in each unit with security cameras installed in various places around the facility. If the building is a conversion of an existing property, windows should be sealed. All entrances and exit doors should be barred and locked. Building a new facility is easier, with fences, electronic gates and alarms built in originally.

Real Estate Investment Guide

Which way is the right way in real estate investments in 2020? What is the future in these investments? An answer to these questions can be an interview with an interested professional real estate broker who can act as a real estate investment counselor. Each prospective investor can be interviewed in depth to find out specific needs in an income property. At the same time their needs are being evaluated, the broker will also communicate what benefits are available in various properties and how to identify them.

Some considerations should be given to the risk of loss for each age bracket of investor. Should an older investor purchase a property with the smallest down payment and highest leverage position? This will limit cash flow and may cause the property to have a “negative” cash flow. Is this what they want–or do they want cash flow from the property?

How about the younger investors? Are their objectives for long-range estate building or for current cash flow? Would they be more willing to take chances with a marginal investment that might bring big returns later?

Each investor must decide these answers for himself or herself. But, only after enough information has been furnished so that an intelligent decision can be made.

When a new investor has a better idea of the type of property that will do the right job for him/her, or them, then and only then should they be exposed to the market place and shown specific properties. Now the investor or investors can evaluate the various benefits and risks for the information shown on each property and apply the information to their own situation.

What is right for you? A new rental unit? A strip center? A one hundred-unit apartment property? Perhaps you should have five or six apartments or commercial properties in scattered locations. Real estate counseling can show you that you can choose which is right for you and know the reasons why it is right! 

Some Benefits of a Tax Free Exchange

The main benefit of a tax-free exchange is just that–freedom from a tax. The gain that could be realized by one or both of the principals in the exchange transaction does not need to be recognized at the time of the closing. The gains tax is deferred until the property owner makes a taxable disposition of the new property at some later time.

It takes more patience and hard work to set up an exchange than it does to arrange a straight purchase and sale of real estate. Some property owners and their agents simply do not understand the benefits of an exchange or are worried about the strict requirements imposed by the Internal Revenue Code.

Owners need to know that the 1031 Exchange is just another tool like a purchase, sale, option or lease.

The real estate exchange has become a normal business tool used by investors, corporations and business owners throughout the country. If you have not used this tool, you may have already paid too much in taxes.

The benefit from the tax postponement is apparent. The owner can reinvest the full equity in other property, including gains, without any decrease in value due to tax payments. In effect, the government extends an interest-free loan to the investor, who then is able to obtain leverage over and above that obtained from regular mortgage financing.

An example is a trade up to a larger income property.

An investor owns a 10-unit apartment building that is too small for an on-site manager. The income is desirable and a sale would be costly because of a large gain. The equity could be exchanged up into a larger apartment property that would adapt to professional management. The larger property would have increased income to cover the bigger loans and management fees. After the transaction the owner can have the same or higher income, hire a professional property management company and be relieved of management problems.

“Like-Kind” Property

To qualify as a 1031 exchange, the property being sold and the property being acquired must be “like-kind.”

The Like-Kind Property Definition is a very broad term which means that both the original and replacement properties must be of “the same nature or character, even if they differ in grade or quality.” In other words, you can’t exchange farming equipment for an apartment building, because they’re not the same asset. In terms of real estate, you can exchange almost any type of property, as long as it’s not personal property, it must be an investment property.

Some examples of types of exchanges that would be allowed

•  Exchanging a duplex for an apartment building.

•  Exchanging a single family rental property for a commercial office building.

•  Exchanging a rental property or vacation rental for a warehouse.

•    Exchanging a single-family rental property in Nevada, you could exchange it for a commercial rental property in Texas.

There are strict rules that must be followed to make a real estate exchange, and the original replacement property must be within the U.S. to qualify under section 1031.

Let’s get together to evaluate your present portfolio of properties and review your plans for future acquisitions. A real estate exchange might be something that you may want to consider in the future.  o

Managing A Portfolio Of Houses

When you think of a large real estate management company, you may think
of them managing high-rise office buildings, huge apartment complexes
and condominium homeowner associations. They do of course. But you may not think of owners of single-family homes as big management clients. But over the past years, those real estate investors who specialized exclusively in homes have increased greatly. Many people think this is the safest investment of all.
If you might think of this as a small investment, think of some investors
who own 100 or more homes in the $300,000 value range! Even if values
decreased some, owners like these are still multi-millionaires.
Many of these investors have had the enormous increase in value of these
homes that took place in the last decades. The houses are managed like any other real estate investment; they are like apartments that are in scattered locations, and are managed the same way but without an on-site manager.
Now might be the time to look into an investment in houses! Buy an extra
one for a rental – buy several scattered rental houses and you have the equivalent of scattered apartment units, or as one owner calls them, “horizontal apartments”.

An Investment For Anyone
The potential for higher returns is better in real estate than in some
alternatives, such as the stock market. Many investors are “stock
shy” after the stock market ups and downs of the last few years.
Investing in single-family homes can be particularly attractive, since
they will have little chance of taking any huge drop in value at one
time. Over the next few years, the values should have a steady
increase. Compared to the stock market, the amount of capital required
can be remarkably small. The leverage is better, with down
payments still as low as 10% of the value. You may be able to make an
investment in a significant property with just a down payment in the
$25,000 to $30,000 range (or even less). Someone else, either a lender
or maybe the seller of the property will put up the rest of the investment
capital. Real estate is always the perfect place for the use of borrowed money. Good loans are available if the borrower has good credit.
It might be smart to obtain a line of credit to cover any unexpected expenses that may occur. Since the idea is to have a “leveraged” investment, why not borrow as much of the needed cash as possible?
The Return On The Investment
If the increase in value in homes continues like it has been (and it will), the potential for capital gains on a leveraged OPM (other peoples money) investment can be significant. Remember, an increase in value affects the whole value of the property, not just your equity.
The Best Locations
Remember the old saying about the most important thing in value when searching for any kind of real estate. It is still location, always location. This will remain the same in homes as in any other real estate investment. What should you look for?
An owner-occupied community. You will probably be able to get higher rents in an area where the other houses are owner-occupied. Owner-occupied houses will usually be better maintained and the neighborhood will be more stable. We can check the neighborhood by looking at the property-tax register. Since the name and address of the owner is provided, simply see if the address of the owner is the same as the property address.
Since the objective in this investment is increase in value, we are looking for the possibility of the resale. We will always have greater appreciation in a neighborhood where people maintain their property with pride.
Be aware of the location of schools, churches, shopping – just as you would if you were purchasing the property for your own residence. Your ultimate buyer of the property will be doing the same. Make sure of the zoning of the neighborhood and any adjoining areas. This will insure that you will not have any sudden surprises after you make your purchase.

High Leverage – A Benefit With Options

Leverage is the use of borrowed money to control something of value. Real estate investments for many years have afforded the investor some extreme leverage situations. Let’s examine leverage. If double-digit inflation returns, controlling the maximum amount of real estate may be extremely desirable.
High leverage is an excellent benefit. Remember though, that with an option there is a problem. Options have an expiration date. If you haven’t gotten the desired increase in value by the time the option expires, you must make the choice – buy the property and wait longer, or let the option expire.
An option is simply a contract that gives the purchaser a right to buy a certain property at a certain price for a certain period of time. Sometimes a seller will sell an option to purchase his property because the amount of money paid will solve an immediate problem, and it really does make him feel that the property is sold, or will be sold.

Always ask yourself a few questions before buying an option:
• Will you have enough money to exercise the option at the expiration date if no loans are available?
• Do you think the property will increase substantially in value during the option period?
• Will the profit be large enough to chance the loss of a small investment in the option on the property?
Suppose you buy an option to purchase a property during a period of the next three years. You have set the option price at today’s market value and put up only about 10% of the ultimate purchase price. You wait three years and find that you guessed right! The property has increased in value by $100,000. You can now make some choices on the next move:
Exercise the option. You can buy the property. Maybe you can borrow the amount of the purchase price on the land and buy for no money down. To sell at a long term gain, you must now hold it for six months, or longer.
Sell the option. You might sell the option for the $100,000 cash to someone who wants the land. This would be an immediate long term gain since the option has been owned for more than the minimum time period.
Settle the option. The profit is yours because the present value is higher. What if the original owner who sold the option to you now sees more future value in the property and would like to continue owning it. The original owner might buy the option from you or settle it with you in some other way. Perhaps a joint ownership could be arranged, with both of you taking a further holding position for more profits in the future.
The Risk
Remember, the market tends to reward those who take risks. When you minimize risk too much, play it too safe, you may give up the chance for larger profits.
See Us For Investments
Serious real estate investors may want to own real estate for cash flow, tax shelter and reasonable growth. Maybe you would also like to invest something for a long term growth, such as land speculation. Come in and see us. Perhaps we can help you with choices and do some of the research for you.

Determine Market Value With Appraisal

The purpose of any real estate appraisal is to determine the market value of the property being appraised. The handbook of the. Appraisal Institute defines market value as; “The most probable price which a property should bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (a) buyer and seller are typically motivated: (b) both parties are well informed or well advised, and each acting in what he considers his own best interest; (c) a reasonable time is allowed for exposure in the open market; (d) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (e) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.” If we put this another way, the
value of a particular property is made up of the future benefits that the owner of the property can expect to receive from rental or other income. In determining the future benefits that an owner can receive from a property, the current use of the property is considered, and all other uses
that it may be capable of in the foreseeable future. As an example, a property that is being used as farmland could be usable for a residential subdivision in a few years, but later might be usable as commercial or industrial sites. Decision Making Knowing the value of property is a vital part of the decision making process of all buyers, sellers and users of real estate. Therefore, valuation is an integral part of all real estate activity. It is needed for your personal planning. Also, zoning, community planning, taxation require a knowledge and use of appraisal. If the property is held, or will be held for investment purposes(and most are, even small residential properties) an additional question might be, “What will it be worth in the future?”
There can never be perfectly sure answers, but the closest that anyone can come to it is by the appraisal from a professional appraiser. This trained specialist can give a good accurate estimate of a property’s value. When an Appraisal is Needed When we refer to “Market Value” we have to remember that it is not necessarily the same as market price. Market price represents the actual dollar amount put on a property by a buyer and a seller at the time of a negotiated transaction. This might be higher or lower than the value an individual appraiser might place on the property. This difference might be due to differences of opinion, or it may be that the property, to this particular buyer or seller, has a greater or lesser value because of some special consideration, such as financing that the buyer can obtain or the need of a seller to raise cash quickly.
While the owner or a prospective buyer can order an appraisal at any time, there are times when it is almost always required. Here are some of the recommended times to get an appraisal;
1. Purchase and sale To determine whether a proposed purchase or sale is at a fair price or competitive price. The value fixed by the appraiser may strongly affect the final price, but the financing and tax aspects of the overall transaction may be such that a buyer might offer more or a seller could be willing to take less for the property.
2. Exchange Appraisals of each of the properties in a planned exchange should be made if the exchange will have prices on the properties (rather than just equity for equity). A good estimate of value on each will assist everyone involved to establish equities in the priced exchange.
3. Finance Always when a new loan is required for a new buyer. Often, the lender will appraise the property conservatively and slightly lower than the new buyer. This can be understandable when the buyer may be prepared to put up as little as 10% of the value, and the lender is being asked to put up all or most of the balance of the purchase price.
4. Lease Before entering into a long-term lease, both the lessor and lessee each may need a very accurate idea of the value. This might be a basis for negotiation by either person, to determine if the proposed lease is for a fair rental amount.
5. Remodel What if a renovation or modernization of an older building is being planned? The appraisal may be requested to be made on the basis of the property as it is now and as it will be when the renovation is completed. The purpose of the appraisal would be to determine if the additional income would be sufficient to amortize the capital investment and also return a profit to the owner.
6. For insurance purposes It may be important to establish replacement costs, less the physical depreciation, to determine how much fire and casualty insurance should be purchased to adequately cover the property. An appraisal, updated on a regular basis, may also be needed to establish proof of loss or to establish the basis for settlement in cases of partial or total loss under insurance contracts.
7. For condemnation purposes To estimate damages that are adequate, but not in excess of fair compensation, when negotiating a condemnation award, or seeking the determination of fair compensation for a condemned property in court.
8. For property tax purposes To make a proper assessment for local real estate taxes, or to review and contest an assessment to reduce real estate taxes.
9. Income tax liability It may be necessary to appraise a property to determine the liability for income taxes in a taxable exchange, or in a liquidation of a corporation owning real estate.
10. For estate tax purposes To determine inheritance and estate tax liability when real estate was owned by a decedent at the time of his or her death.
11. For gift tax purposes To determine the tax liability when real estate is the taxable gift.
12. Syndication As a basis for offering investors an interest in real estate through syndication or participation in a corporation or real estate investment trust.