Download Commercial Real Estate Investing for Dummies (ISBN - 0470174919) PDF

TitleCommercial Real Estate Investing for Dummies (ISBN - 0470174919)
TagsFor Dummies
File Size3.6 MB
Total Pages386
Table of Contents
                            Commercial Real Estate Investing FOR Dummies
	Table of Contents
		About This Book
		Conventions Used in This Book
		What You’re Not to Read
		Foolish Assumptions
		How This Book Is Organized
		Icons Used in This Book
		Where to Go from Here
	Part I Getting to Know Commercial Real Estate Investing
		Chapter 1 Just Imagine . . . Commercial Real Estate and You!
			What Is Commercial Real Estate?
			What to Think About As You Get Started
			Understanding the Risks of Commercial Real Estate
		Chapter 2 A Crash Course in Commercial Real Estate Investing
			How Is Commercial Real Estate Different from Residential Real Estate?
			Why Invest in Commercial Real Estate?
			What Types of Investments Are Available?
			What You Need to Get Started
			Myths and Questions about Investing in Commercial Real Estate
			Timing the Commercial Real Estate Market
		Chapter 3 Evaluating Commercial Real Estate
			Talking the Talk: Terms You Need to Know
			Figuring Out What a Property Is Worth
			Running the Numbers on Some Properties
			The Professional Approach to Valuing Properties
			Understanding What Creates Value
			Differentiating a Good Deal from a Bad Deal
	Part II Getting Started Making Deals
		Chapter 4 On Your Mark, Get Set, Go Find Deals
			Discovering the Secret to Finding Great Deals
			Getting Leads on Commercial Property Investments
			Looking Locally and Nationwide
			Locking Down Deals: Don’t Leave Home without These Tools
			Allowing the Great Deals to Find You
		Chapter 5 Strategies for Making Offers and Negotiating
			Increasing Your Chances of Getting Your Offer Accepted
			Sealing Deals: The Instant Offer System
			How to Meet the Seller When Submitting Your Offer
			Writing Up the Offer
			Presenting Your Offer in the Best Light
			The Five-Step Deal Filter
			The Seller Has Accepted My Offer! Now What?
		Chapter 6 Due Diligence: Doing Your Homework
			What Is Due Diligence?
			The First Things You Need to Do
			Creating Checklists for Effective Due Diligence
			Managing the Whole Process
			You Found Problems, What Now?
		Chapter 7 Closing Your Deal
			The Anatomy of a Close
			Closing 101: The Basics of Closing a Deal
			The Big Picture Show: Questions to Ask Yourself Before You Pull the Trigger
			Sweating the Details before Signing on the Dotted Line
			Closing Day: What to Expect
			Taking Legal Ownership
			You’re the Boss Now: What Next?
	Part III Funding Your Deals: Financing and Lending
		Chapter 8 Conventional Financing Options
			The Commercial Lending Process in a Nutshell
			Differences between Commercial and Residential Lending
			How Lenders Evaluate Properties
			Getting Your Lender to Say “You’re Approved!”
			Choosing the Best Loan for You
			Assuming the Seller’s Preexisting Mortgage
		Chapter 9 Getting Creative with Financing
			Creative Financing Techniques
			The Master Lease Technique
			Getting Someone to Carry Secondary Financing
			Getting the Owner to Carry Seconds and Other Secondary Financing
			Operating the Wraparound Mortgage Like a Surgeon
			Using an Option to Buy
			Leveraging the Equity in Your Portfolio
		Chapter 10 Raising Capital and Forming Partnerships
			Identifying the Keys to Raising Private Funds
			Building Your Rolodex of Potential Investors
			Deciding Whether to Go It Alone or Use a Partner or Two
			Creating the Right Teams and Partnerships
	Part IV Day-to-Day Ownership and Operations
		Chapter 11 Property Management: Who’s Minding Your Ship?
			I’m the Boss: Managing Your Commercial Property Yourself
			Letting Go: Using Professional Property Management Companies
			Knowing How to Be an Effective Absentee Owner
		Chapter 12 Protecting Your Assets
			Taking Asset Protection Seriously
			Building a Legal Fortress for Personal Assets
			Common-Sense Protection Tips
		Chapter 13 Why Properties Fail
			What Is a Property Failure?
			How You, the Investor, Can Cause Failure
			How Management Can Cause a Property to Fail
			How the Market Can Cause Failure
			Folding Up and Walking Away
			Tried and True Tips on Surviving and Thriving
	Part V Kicking Your Investing into High Gear
		Chapter 14 Making a Success Out of Commercial Fixer-Uppers
			Just What Is a Commercial Fixer-Upper?
			Uncovering Diamonds in the Rough
			Figuring Out What a Fixer-Upper Is Worth
			Mapping Out a Fixer-Upper Game Plan
			Avoiding Headaches and Pitfalls ( Or at Least Minimizing the Pain)
			Timing Your Fixer-Upper for a Quick Sale
		Chapter 15 Land Development: The Heart of Commercial Real Estate
			The Pros and Cons of Investing in Land
			Understanding What Makes Land Worth More
			Knowing Whether You’re in the Right Market
			Identifying the Three Ps for Successful Projects
			Investing in Land with a Team
			Finding the Best Places to Invest in Land
			With Land, Time Really Does Equal Money
			Changing the Property’s Zoning and Getting Approved to Develop
			Getting the Green Light on Your Deal
		Chapter 16 Expert Tax Advantages and Strategies
			An Overview of Money-Making Tax Strategies
			Being an Investor or a Dealer: The Difference Is Huge
			Naming Yourself a Real Estate Professional: It Pays
			Choosing Your Entity: An Important Tax Preparation Before You Buy
			Digging into Depreciation
			The 1031 Exchange: Avoiding Taxes by Trading In for Another Property
			Taking Advantage of Some Commonly Overlooked Deductions
		Chapter 17 Leaping into a Commercial Real Estate Career
			Becoming a Commercial Sales Agent
			Making a Go of It as a Property Manager
			Cashing In on a Commercial Mortgage Business Career
			Arriving As a Commercial Appraiser
	Part VI The Part of Tens
		Chapter 18 Ten Ways to Increase Your Property Value
			Raise the Rents
			Budget Your Way to Wealth
			Give the Property a Makeover
			Change the Property’s Use
			Add Goodies to the Property
			Stand Up to the Tax Man
			Pass Utility Expenses to Tenants
			Renegotiate the Leases
			Bring in a New Management Team
			Split Up Your Land
		Chapter 19 Ten or So Easy Ways to Network
			Get Your CCIM Designation
			Put Power in Your Search Engines
			Go Directly to the Investment Firms
			Read the Trades
			For Apartment Owners: Join the NAA
			For Office Building Owners: Get Involved with BOMA
			For Shopping Center Owners: Enlist with the ICSC
			For Property Management Professionals: Become Affiliated with the IREM
			Stay Current and Connected
Document Text Contents
Page 1

by Peter Conti and Peter Harris

Real Estate Investing



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expect to pay points, fees, and generally a higher interest rate than you would
when you get the financing someplace else.

Owner carry seconds
Okay, we admit it. Getting sellers to carry back financing is one of our all-time
favorite financing sources. That’s why we keep talking it up so much for you.
We’ve even put together deals where sellers have provided secondary financ-
ing and the property was 100 percent financed.

Private lenders
If you can’t get the seller to carry back secondary financing, your next best
source may be private lenders. Private lenders are comfortable with real
estate and are looking for safe returns on their investments. Obviously
they’re in second position, which isn’t as safe as having a first mortgage, so
you can expect to pay private lenders a higher interest rate than you would
on first mortgage money.

The advantage of working with private lenders is that they will come in and
quickly finance a deal for you. This allows you to close quickly, and “steal” a
property that other investors may not be able to get their funding in place to
buy right away.

The key here is to make sure that you’re working with people that know you
and trust you. Don’t waste your time trying to work with strangers who
don’t know what you’re about, don’t understand that you have integrity,
and don’t know you as a person.

Understanding common pitfalls
of secondary financing
One of the biggest pitfalls of secondary financing that you find is that if you
have the property highly financed, you may end up having negative cash flow.
This might be okay for a short period of time, such as when you do a turn-
around, but in the long term, you need to have an upside. There’s nothing like
a property taking longer to turn than expected, or having an unexpected shift
in the marketplace, that puts you in a position where you’re becoming a moti-
vated seller because you have to cover negative cash flow.

Depending on where you get your secondary financing, you may end up
paying higher interest rates than you will on your first mortgage. If you get
the seller to carry back the financing, oftentimes you can structure terms
where you get great interest rates.

169Chapter 9: Getting Creative with Financing

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For one shopping center that we bought several months ago, we were able to
get the seller to carry back over $900,000 of secondary financing with an
interest rate that was just over 3 percent. Oftentimes the interest rate on the
secondary financing can be what makes or breaks a deal.

Getting the owner to help you out by
financing all or part of the purchase
When you’re trying to get an owner to help you out with creative financing,
remember this: Many owners of commercial real estate, especially those who
are getting older, often want monthly cash flow rather than just a big chunk of
money from the sale. We have found that if you can connect with the owner,
and get him to relate to you as if you’re a younger version of himself, he will
often get an emotional thrill out of giving you an opportunity to purchase his
property. It harkens him back to the days when he was seeking and receiving
his own financing breaks.

If you agree to cash out the seller when you resell the property, and you give
him some kind of a timeline, you’ll give the seller an optimistic projection.
Doing so will also indicate that you’re going to want to make your money as

You can also agree to cash out the seller after a certain number of years
(whether you’re selling or not). You can do that by using an all-inclusive trust
deed (AITD) with a balloon note. This AITD says that you’re going to cash out
the existing loan balances within five or seven years.

When you’re trying to convince a seller to take the bait on cashing out after a
certain number of years, say something like this:

Because I’m a conservative investor Mr. Seller, and I’m not a real risk-taker,
I want to make sure that I have enough time to get the property value up
and do the improvements and things that I talked about doing. Here’s the

170 Part III: Funding Your Deals: Financing and Lending

Sellers want price, you want your terms
We’re amazed at the number of property
owners who are stuck on price when they’re
selling their properties. We think it boils down
to this: At some point, every property owner
starts to think “Wow! This property that I bought
for $2 million 15 years ago now has a value
that’s close to $4 million.” The truth of the matter

is that the property may be worth only about
$3.6 or $3.7 million.

The secret is to put together offers that give the
seller his price but that have great terms — like
no interest for the first two years. Look for a way
to make cash flow, not get stuck on price.

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