Appelman Capital

Commercial Real Estate Financing Options You Should Know If you feel ready to enter the niche market of commercial real estate investing, now is the perfect time to develop an understanding of commercial real estate financing basics to determine if this unique industry is a good fit for you. Use the information below as your commercial real estate financing basics guide, and before you know it, you’ll have a better understanding of how commercial property loans differ from residential loans, the different types of loans and lenders that are available, and a broad overview of how commercial real estate financing works. What Are Commercial Property Loans? Commercial property loans are mortgages specifically delegated to purchasers of commercial properties. Properties are considered commercial if they produce income and are used for business purposes only. A common example of a commercial property is a retail or an office space through which a business is operated. To acquire such a property, an investor can select from several commercial real estate financing options, but should be prepared to guarantee the mortgage via a lien, or more simply, collateral. If the investor fails to meet the commercial property loan’s repayment terms, the creditor reserves the right to seize the property. Experts at HostPapa suggest that “developers, trusts, funds, and corporations are the most common recipients of commercial real estate loans. The loan terms span from 5 to 20 years, with an amortization period that is longer than the loan duration”. It is also important to note that commercial property loans are made out to business entities and not individuals. In other words, financing commercial real estate usually requires the formation of a business entity, such as an s-corporation or a limited liability company. Anthony Martin, the founder of Choice Mutual, says that “the main difference between residential and commercial loans is what they’re for. For example, commercial loans are for business properties, multiple investment properties (surpassing 5 -10–depending on the lenders you had before), and other specialty properties. In contrast, residential properties are meant for personal properties”. Commercial vs. Residential Loans While residential loans are typically assigned to individual borrowers, commercial loans are typically granted to business entities. Residential loans require high loan-to-value ratios of up to 100%, while commercial loan-to-value rations range within 65% – 80%. In addition, commercial loans range from 5 to 20 years, while the most popular residential loan is a 30 year fixed mortgage. Commercial Real Estate Financing Options Understanding commercial real estate financing basics requires a working knowledge of existing commercial property financing options, and being able to identify which option might work best for you. Commercial property loans will not only help finance the property, but can also help fund any construction projects as needed. Also, investors can leverage commercial property financing to help keep properties fully operational and maintained so that they may be fully leased. The following are several commercial real estate financing options that are offered by various financial entities, including banks, private lenders, insurance companies, pension funds, and the U.S. Small Business Administration: SBA 7A Loan: The U.S. Small Business Administration (SBA) offers some of the least expensive loans for investing in commercial real estate and guarantees repayment of a portion of the loan. SBA-backed loans help the borrower by increasing credibility and reducing risk for the lender. 7A loans work best for smaller projects and are the quickest and easiest of the SBA loan programs. Although 7A loans have slightly higher interest rates than SBA 504 loans, they are the SBA’s most popular loan option. SBA 504 Loan: As mentioned above, loans backed by the Small Business Administration are favored by lenders. The 504 loan program works best for larger investment projects, such as those valued over $1 million. The investor must put down 10 percent of the loan amount as the down payment, while 40 percent of the loan is sourced from an SBA Certified Development Company. The remaining 50 percent is borrowed from the lender. Conventional Bank Loan: A majority of commercial real estate loans are made by banks, who prefer to lend to entities with strong credit histories. Individuals with a credit score of at least 660 and are working with mid-to-large-sized projects will find conventional bank loans as a viable commercial real estate financing option. Bank loans offer competitive interest rates and do not require the property to be occupied by the owner. However, most bank loans require a 20 percent down payment and oftentimes will charge a penalty if the loan is paid off early. Hard Money Loan: For investors looking for a quick solution to commercial real estate financing may look to a hard money loan. Hard money lenders usually offer short-term loans at high-interest rates, and evaluate the loan based on the perceived value of the property and not on the borrower’s credit history. Investors will often utilize hard money loans to quickly finance deals in the interim while negotiating a longer-term bank loan. Because of this, hard money loans are also referred to as “bridge loans.” Online Marketplace Loan: Sometimes referred to as “soft money loans,” online marketplaces now help to match borrowers with private investors who help finance commercial properties for a return. This type of loan is referred to as a soft money loan because interest rates are still higher than conventional bank loans but are lower than loans from hard money lenders. Online marketplaces usually match borrowers with shorter-term loans ranging from six months to a few years. Joint Venture Loan: In cases in which an investor cannot obtain commercial real estate financing, or in cases where it is unappealing to bear risk solely, pursuing a joint venture may be the best option. Two or more properties can apply for financing via a joint venture loan, and involved parties will equally share the risks and returns in the commercial property. The joint venture loan ties the parties together solely around the specific property and does not require the entities to enter … Read more

Commercial Real Estate Books You Need To Read https://youtu.be/_C064rmANlI Have you ever asked yourself, “should I get started investing in commercial real estate?” CRE investing is not just a great way to take your residential real estate career to the next level but also a way to set yourself up for future financial freedom. However, making a move will mean taking your self-education efforts to the next level. Luckily, today’s best commercial real estate books are ready to help you do just that. While commercial real estate investing’s technicalities differ greatly from residential, the basic buying and selling concepts are similar. Whether you’re already involved in the real estate industry or completely new to the field, learning more about the benefits of commercial investing will only help you succeed. Expanding and building upon your education is the key to success for any real estate entrepreneur. I started my career knowing nothing about real estate whatsoever. Still, I took it upon myself to listen to podcasts, read books, attend seminars, and network relentlessly so that I could stay up to date with the latest trends and technologies, and I recommend you do the same. So if you’re willing to take the challenge, these commercial real estate investing books are a great place to start. Why Every Investor Should Read Commercial Real Estate Books Every investor needs to consider reading commercial real books—if for no other reason than to gain more insight into an already fascinating industry. At the very least, learning about a subsequent niche in the real estate investing world will give you an idea of the direction you do or do not want to take your business; at most, it’ll open up your eyes to a completely new way of doing things. 10 Best Commercial Real Estate Books Whether you spend an hour or two reading first-thing in the morning or have 30 minutes to kill on the treadmill, these commercial real estate investing books should be at the top of your list: ”The Commercial Real Estate Investor’s Handbook: A Step-by-Step Roadmap To Financial Wealth” – Steve Berges ”How To Succeed In Commercial Real Estate” – John L. Bowman ”How To Win Friends And Influence People” – Dale Carnegie “Crushing It In Apartments And Commercial Real Estate: How A Small Investor Can Make It Big” – Brian Murray “Mastering The Art Of Commercial Real Estate Investing” – Doug Marshall “Long-Distance Real Estate Investing” – David Greene “The Real Estate Game: The Intelligent Guide to Decision Making and Investment” – William J. Poorvu and Jeffrey L. Cruikshank “Negotiating Commercial Real Estate Leasing” – Martin I. Zankel “A Master Guide to Income Property Brokerage: Boost Your Income By Selling Commercial and Income Properties” – John M. Peckham III “”The Millionaire Real Estate Agent” – Gary Keller 1. “The Commercial Real Estate Investor’s Handbook: A Step-by-Step Roadmap To Financial Wealth” Learn how to make money investing in several types of commercial buildings: warehouses, apartments, mobile home parks, shopping centers, hotels, and more. Discover everything you need to know about commercial property investing: how to identify opportunities, determine property value, acquire, finance, and manage commercial real estate. This book translates to every level of experience, from beginner to expert. Do you need step-by-step instructions taught by a pro? If so, The Commercial Real Estate Investor’s Handbook should be your next read. Presented in an easy-to-follow layout, Fisher makes his content relevant for both newbie and seasoned investors alike. The book jumps right into talking about different types of commercial real estate (i.e., apartments, office buildings, retail stores, shopping centers, strip malls, industrials sites, etc.) and explains different career and financing options within the sector. Fisher is concise and straight to the point. He defines exactly what you need to know and makes sure to highlight key concepts along the way. One of the most helpful aspects of this book (located right in the third chapter) is Fisher’s map for setting SMART real estate goals. If you are unfamiliar with the theory for this method of goal setting, know that SMART is an acronym for Specific, Measurable, Action-oriented, Realistic, and Timely. Fisher explains that investors who set goals using the aforementioned criteria will be far more likely to achieve those goals. After completing this publication, you will have a better understanding of budgeting, be more financially literate, and, best of all, be capable of handling whatever commercial real estate issue arises during your first deal. If you’re deciding whether commercial real estate investing is right for you and your business, Fisher’s anecdotes will lead you towards the best choice. 2. “How To Succeed In Commercial Real Estate” This book is a practical resource for anyone looking to break into the commercial industry. “How To Succeed In Commercial Real Estate” is also designed to help veteran investors strengthen their approach. Learn about the four main areas of commercial real estate: retail, office, industrial, and multifamily Avoid falling into another “get rich quick” scam by reading John Bowman’s How To Succeed In Commercial Real Estate. The book provides a straightforward overview of what it takes to pursue a lucrative career in buying and selling commercial real estate, but Bowman wants people to know that this line of work is not for the faint of heart. While beginner investors are welcome to indulge in this read, the content does get technical. After skimming over the basics, Bowman delves deeper into more intricate strategies for financing, sales, negotiations, and contracts. In doing so, he leaves no questions left unanswered. The heftiest chunks of the book cover both technical and practical knowledge (think laws, regulations, construction, technology, appraisals, environmental issues, leasing vs. selling, etc.), along with a step-by-step guide to running a winning marketing campaign (think cold call strategies, creating a buyers list, building relationships, generating leads, etc.). In my opinion, however, the most valuable portion of the book lies within the chapters that detail the importance of ethics and integrity. Bowman does a superb job defining professionalism … Read more

The Different Types of Investment Properties https://youtu.be/tciSQqE_yPo Whether you’re a renter or an investor, hunting for an apartment can be tough. There are many variables to consider, including location, size, budget, amenities, and availability. You might also take factors such as layout, noise, and location within the building into account. It would behoove you to have clarity on what apartment types would best fit your budget and needs. This will give you focus and narrow down your search. In this guide, we’ll review 11 different types of apartments you can choose from. 11 Different Types of Apartments An apartment is a single residential unit contained within a building or complex comprised of other similar units. As a renter, you’ll want to choose the type of apartment that fits within your housing budget while also satisfying your lifestyle needs. In the following sections, we’ll define the types of apartments shown below: Studio Loft Duplex Triplex Co-op Garden Apartment Convertible Walk-Up Low-Rise Mid-Rise High-Rise Studio A studio apartment is easily identifiable because it features a single room with an open floor plan. This single room provides the space for your bedroom, living room, and kitchen. You might be relieved to find out that it’s customary for the bathroom to have a separate room for privacy. Typically the most affordable apartment, a studio apartment is limited to roughly 500 to 600 square feet. Studios are more prevalent in markets with dense populations and high costs of living. If you have a tight budget but dislike the idea of an open floor plan, consider an alcove studio. This variation offers a little extra separation for the bedroom using an L-shaped partition. Loft Loft apartments are similar to studios in the sense that they have one large, open room. However, they have a distinct look and feel created by high windows and ceilings, and exposed brick and support beams. Lofts are typically commercial and warehouse spaces that have been renovated for residential living. Therefore, they’re a great match for renters who love an industrial vibe. Duplex If you prefer the look and feel of living in a single-family home, the next two apartment types are likely your best bet. A duplex is a rental unit that belongs to a single property made up of two units. Each unit has its own entrance while sharing either a wall or a floor with the other unit. In other words, the two units are either side-by-side, or one is sitting above the other. In some cases, a duplex may have formally been a single-family home that was later divided and converted into a two-unit property. It’s not uncommon for the property owner to live in one of the two units and rent out the other for rental income. Triplex A triplex is simply a duplex with an additional unit. In other words, it’s a single property comprising three units instead of two units. Each apartment will have its own entrance and feature similar living spaces. Co-op A housing cooperative, or co-op for short, is an apartment building owned collectively by its tenants. In this sense, a co-op is identified by its financial structure rather than its physical structure. When you apply to live in a co-op, you agree to become a part-owner of the building or complex. Instead of paying rent, you are paying co-op dues. Part of the financial responsibility includes mortgage payments, upkeep, and maintenance costs. A board of directors governs the application process and designates building rules that must be followed. Garden Apartment Are you someone who prefers a living space surrounded by natural scenery? If you answered “yes,” then you should try using the keyword ‘garden apartment’ while combing through apartment listings. Garden apartments are set around gardens and other green spaces filled with plants, trees, flowers, ponds, and other natural elements. A garden apartment community is typically smaller, featuring just one to three floors and no elevators. Due to the spaciousness of the property, a garden apartment is typically found in suburban and rural neighborhoods. Convertible Consider a convertible apartment if you are worried that a studio apartment would be too small or not offer enough privacy. These apartments are the next step up above a studio but are generally smaller and more affordable than a one-bedroom apartment. These apartments feature a separate area partitioned by a partial wall. They’re called “convertible” because you can use that space however you see fit. You could designate it as your bedroom, office space, or even home gym or second bedroom for a young child. Walk-Up If you have a favorite television show or movie set in New York City, you’re likely already familiar with this iconic apartment. Walk-ups are buildings found in urban neighborhoods and are only accessible by stairs. (Read: there are no elevators.) If you prefer to avoid the hassle associated with climbing stairs, you’ll likely want to take a pass on walk-up apartments and leave them to the silver screen. Low-Rise These next three apartment categories make it seem as though you’re trying on a pair of jeans. A low-rise apartment is an apartment building that features a small number of floors, typically within the range of one to four. Mid-Rise An apartment building usually falls into the mid-rise category if it has between 5 and 12 floors. Although a low-rise building may or may not have an elevator, a mid-rise building will usually have one. Mid-rise apartments are popular amongst investors and developers. They provide a more economical scale relative to low-rise apartments and are not as cost-prohibitive as high-rise buildings. High-Rise The tallest type of apartment buildings are high-rise complexes. They feature 12 or more floors and may require the use of multiple elevators. You’re most likely to find a high-rise in large cities. Any high-rise building with more than 40 floors is technically a skyscraper, which you might find at the city-center of a metropolitan city. Summary As a renter, you have many different types of apartments to … Read more

Real Estate Marketing Tips And Techniques: Know Your Numbers Real Estate Marketing Tips – The Power of Marketing Systems When evaluating the bare essentials of the real estate investing business, one cannot ever overlook marketing. Marketing is the root of all your business. Ninety-five percent of leads come from your marketing efforts- everything except those kick back referrals that a business cannot rely on. In your initial marketing stages, the most important thing you can do is the proper research. It may sound tedious, but extensive research in addition to meticulous tracking will send your marketing into the next level, and not to mention bring you all the leads you can handle and more. Real Estate Marketing Technique #1 – Choose Your Marketing Strategy First, do some preliminary research to determine what marketing techniques you want to use – i.e. Direct mail, outdoor signage, print media, traditional broadcast marketing, etc. Next, target a certain demographic in your area that these marketing techniques will be directed at. Begin running your ads, sending out your letters, or putting up your signs then wait for the phone to ring. When leads come in, ask how they got your company’s name and keep track of all the different answers. They should be in accordance with the different techniques you decided to implement. The records that you have tracked will be the numbers that will never lie to you. After you have gone through at least one marketing cycle, it is crucial to go back and evaluate every aspect of your marketing numbers. There are four numbers you should use to evaluate your marketing efforts. To help you better understand what these numbers mean, I will use a real example of one of my marketing plans. These are my numbers for my door hanging campaign. I print up door hangers- which look like the ‘Do Not Disturb’ signs on your door at hotels- explaining what my company does and how I can help them. Then I hire people to walk the neighborhoods I have identified as my target demographic and leave them on the front door. Real Estate Marketing Technique #2 – Determine Your Total Campaign Cost This is the cost of everything from the design to the moment the door hangers are on the door. Design Cost + Printing Cost + Labor Cost = Total Campaign Cost $100 + $650 + $1,250 = $2,000 Real Estate Marketing Technique #3 – Figure Out Your Cost per Lead After I completed my door hanger campaign, I went back and counted up all the calls that came in because people saw or read my door hangers. This is the total number of leads brought in by door hangers. I then divide my Total Campaign Cost by my total number of leads to calculate my Cost per Lead. Total Campaign Cost / Total # of Leads = Cost per Lead $2,000 / 20 leads = $100 Real Estate Marketing Technique #4 – Determine Your Cost per Deal Next, I dig deeper into the numbers to determine how many properties I actually bought because of an initial call from a door hanger. Then I divide my Total Campaign Cost by the number of properties I bought to establish my Cost per Deal. Total Campaign Cost / # of Properties Bought = Cost per Deal $2,000 / 1 Property = $2,000 Real Estate Marketing Technique #5 – Figure Out Your Conversion Ratio The last number of importance indicates how many quality leads I am getting from my door hanging marketing efforts. It tells me what percentage of the leads I bring in from door hanging that I am converting into money for my company. It is derived by dividing how many properties you bought by how many leads came in. 1 Property / 20 leads = 5% Conversion Ratio Keep in mind that your numbers will increase and decrease with the magnitude of your marketing tactics. For example, your numbers will be much higher if you run a three month television marketing campaign than they would be for a three month bandit sign campaign. However, if all is done right the proportion of leads will reflect the change in budget. That is why, as a very general guideline, I like to say if we are at $100 or less per lead then we are doing an excellent job. Anything from a .05% – 1% conversion rate is good enough as long as you’re getting enough leads. On the other hand, if you only get 3 leads then your chances of converting at 1% are minimal and it may be time to try a different marketing technique. Like in anything, the more you put into your marketing efforts the more you will get out of it. Work hard and pay attention to detail. Keep a close eye on your numbers and you won’t get in over your head on your marketing overhead.

Tips To Gain A Competitive Advantage Over The Competition Competition is everywhere. Knowing and understanding your competition is crucial. Knowing the benefits they are offering that you are not, what their reputation is compared to yours, and how they are structuring their deals are all things you need to know. By knowing what your competition is doing, it can help you establish an advantage. One of the best things you can do to gain a competitive edge immediately is research your competition. The old saying “keep your friends close and your enemies closer” always rings true in this competitive world of real estate investing. I am constantly on the lookout as to what other investors in my area are doing. If you are new to analyzing your competitors, let me tell you it is pretty easy to do. There are a lot of ways to research your competition. Some of these are: Search the Internet for their search engine rankings Look for billboards or bandit signs in your area Pick up direct mail from foreclosure properties you purchase Go to your local REIA and network Tip #1: Study Your Competition You need to study your competition in order to understand how you can differentiate your marketing and be more appealing to sellers. You are offering a service that people need. And you need to do it in a way that is more attractive to your customers than your competition. Find out what benefits your competitors are offering and then offer better ones. If your competitors aren’t helping people find apartments to move into, you need to make this one of your specialties. If your competition is doing lease backs, then you need to find a better alternative. It is important to find these positive benefits unique to your business that can be easily stated and remembered. That way, when people hear about the benefits or read about them, they always know it is your company. One of the best ways to find out about what your competition is doing is to ask the sellers that call you and that you meet with. There is no better way to study your competition than going right to the source. Whenever I have a meeting with a seller I always want to know who I am competing with and what they are offering. Many times I have been sitting at the kitchen table with a seller and asked to see what other letters they have received. You will be surprised because most sellers will willingly give you everything that has been mailed to them. I will then take these letters back to my office and read them and compare and contrast what their marketing pieces to what I am sending out. Most of the time I realize how weak most of my competitors are, but there are a few times I have actually gotten a few good ideas from these letters or conversations with these sellers. Tip #2: Know How Your Competitors Structure Deals Additionally, you always want to know how your competitors are structuring their deals. I have often used this information against them by strengthening my offer. For example, if another investor makes a higher offer “subject to” the existing mortgage, I will let the seller know the risks of subject to deals. If the seller is making a cash offer then I will generally make a higher offer “subject to.” There is nothing wrong with doing this as long as you don’t bad mouth your competition. Bad mouthing your competition is short sighted thinking, as it may get back to them and can only cause trouble. You should also try and monitor where your competition is spending their marketing money. Investigate and estimate how much money they are spending especially if they are using other forms of marketing you have not yet tried. It is fairly easy to keep tabs on your competitors and you can always use that information to your advantage. It is important to remember that your customers have options when it comes to buying and selling. Their options are not just your competitors. For instance, a seller in foreclosure has numerous options they can explore. They can: List with a broker Declare bankruptcy Surrender their property to the lender Work out a forbearance agreement Try to sell it by themselves Those are only a few of their options. Your goal is to show them and convince them that by working with you it is in their best interest. Your marketing should be convincing enough to get them to at least call you before they explore other options. From there it is up to you to convince them that the other options are not in their best interest. Tip #3: Your Marketing Should Never Stop Realize that your marketing does not stop at the initial contact. It appears in the way you dress when you show up for the appointment, in the marketing materials you bring to the house, and in the way you present yourself during the meeting. It then carries on to your follow-up marketing if you were not able to put the transaction together in the first meeting. Likewise, after the transaction is complete, your referral network grows and your future marketing is positively affected. The best way to start preparing your marketing is to make a list of all the options a seller has and then bullet point out some advantages of dealing with you instead of going another route. This way, sellers are compelled to call you because you have shown them you can fix their problem. These will most likely be the biggest benefits you will use in your marketing pieces. These will also be the points you use when handling their objections over the phone or in person. Tip #4: Build Your Foundation If you avoid some of the pitfalls discussed above and apply the principles mentioned, you should be on your way to building a very strong base … Read more

Net Operating Income (NOI): Definition And Formula There are a handful of “tools” any real estate investor needs in their “tool belt”: solid knowledge of their preferred real estate market, the ability to estimate remodel costs, and a firm grasp on basic financial concepts. One of the most important calculations for real estate investors is knowing how to correctly calculate Net Operating Income (NOI). This powerful calculation enables real estate investors to make financial decisions at-a-glance. What Is Net Operating Income (NOI)? Net Operating Income, or NOI for short, is a formula those in real estate use to quickly calculate profitability of a particular investment. NOI determines the revenue and profitability of invested real estate property after subtracting necessary operating expenses. The formula works by succinctly considering all income a property makes minus all of the general expenses. For example, a property may earn money from tenant rents and a coin laundry machine. Operating expenses aren’t just maintenance fees, but also things like insurance and professional help. The power of NOI is that it takes into consideration all of the necessary income and expenditures per property into one calculation. The Net Operating Income Formula The formula for NOI is as follows: Net Operating Income = (Gross Operating Income + Other Income) – Operating Expenses Below, we’ll walk through all the numbers to include in your formula and how to calculate NOI. How To Calculate Net Operating Income It can get confusing distinguishing between “gross profit” and “net profit,” especially as we break down the formulas below. Here are two things to remember: “Gross” is what you make. “Net” is what you take home. Gross Operating Income To accurately calculate NOI, first you need to calculate your Gross Operating Income (GOI). Gross Operating Income = Potential Rental Income – Vacancy Rates It’s easy to fall into the trap of assuming that your gross income is simply what the property is worth. This is false. Gross operating income also mathematically accounts for possibilities and fluctuations in a property’s income. It sounds tricky but it actually isn’t. Here’s how to get to your true gross operating income. Potential Rental Income Potential rental income (PRI) is how much you’d make if the property was 100% leased, 100% of the time. This is the number that’s easy to stumble on because investors often think in terms of “best case scenario.” Vacancy And Credit Losses It would be great if a property was 100% leased, but this isn’t likely each year. This is why GOI factors in vacancy and credit losses against potential rental income. When evaluating a potential investment, use comparable property vacancy rates or ask the current owner for historical accounting in order to get a better idea of the vacancy percentage you should use to come up with your calculations. Other Income Remember, NOI takes into account all income, which is GOI plus any additional income a property makes. A property can make money outside of tenant rents in a variety of ways. For instance, maybe the property boasts vending machines, an additional parking lot, the aforementioned coin laundry. A property may make additional income, but not always. Operating Expenses OK, now that we have an accounting of gross income, we need to add up operating expenses: what it actually costs to own the property. Operating expenses to include in your calculations are: Property taxes Insurance Maintenance/Repair Costs Miscellaneous Fees: property management fees, accounting and attorney fees, marketing costs. What Isn’t Included In Net Operating Income? NOI does not include numbers that can be written off against future earnings and taxes. It also does not include large one-time costs such as major repairs. Seem confusing? Certain numbers are excluded from NOI calculations because they do not support the purpose of net operating income (NOI). The purpose of NOI is to give investors a look into the true cash flow of a rental property: how profitable it is (or isn’t), how much it costs to maintain the property, and the overall health of the investment. Because we’re looking at true cash flow with NOI, here is what to exclude from your NOI calculation. Debt Service You may notice one big expense is missing from the list above: mortgage payments. This is because debts are not included in a NOI calculation since the amount of debt can vary from investor to investor. One investor may be able to put 50% down, while another can only put 20%. This number would substantially influence NOI if included, but because we want to see the overall health of the property (and not the financials of a specific investor) we exclude this from our calculations. Excluding debt allows us to compare properties on the same merit: income vs. outflow. Debt Service Coverage Ratio (DSCR) is the measure of a property’s cash flow against what it needs to cover any loans. DSCR does take into account NOI, and you can get a quick accounting of DSCR by using the following formula. NOI/Total P+I each year = DSCR Income Taxes NOI is a pre-tax calculation, which means all taxes are excluded from the formula. Tax expenses also vary widely by investor, and since NOI is specific to the property, not the person, do not include it. Depreciation Depreciation isn’t an actual expense because you never “pay” for depreciation out of pocket like with a cash or check. Depreciation, rather, is an accounting concept. Depreciation only becomes “real money” when writing it off on your taxes or during the sale of a potential property. Since NOI only looks at real, annual expenses that come out of cash earned each year, depreciation is also not included in the calculation. Tenant Improvements (TI) Because tenant improvements are specific to the tenant, and not the property as a whole, this cost also gets excluded from any NOI accounting. Capital Expenditures Operating an investment property can be expensive, and yes, there will be years where more capital is required for maintenance. However, because this expense … Read more

When Hiring A Commercial Real Estate Attorney What should I Look For? It has come to our attention that many people are not entirely aware of what commercial real estate attorneys are and what their job truly is. That’s one of the common reasons why people don’t know what to look for when they need to hire one of these attorneys. Commercial real estate attorneys are lawyers who can not only help you represent your case in court and get the best possible outcome in a real estate case, but also mitigate your risks when investing in real estate. What’s more, you don’t need to be a victim of some shady practice or downright fraud when investing in real estate, as these attorneys can be helpful in many ways by mitigating your risks, when it comes to commercial real estate, from reviewing/negotiating the language on leases, to even helping to review and negotiate the terms of a commercial real estate loan. If you’re interested in getting the best possible outcome when investing in commercial real estate, it would be best to continue reading this text. Experience is always crucial. When it comes to commercial real estate attorneys and people in the field of law in general, the main thing you need to look for is experience. It’s in the nature of the profession itself that experience trumps everything else. It doesn’t matter how well-schooled or how skillful a lawyer is, if they don’t have the experience, they won’t do you much good. It’s thus essential for you to look for a combination of all of these — as long as their experience is plentiful — both professional experience as well as experience in handling cases. The second part is especially crucial if you have a claim, as it’s vital for your attorney to have experience in handling cases like yours. Their Plan Matters. We are sure that you will agree that it matters how these attorneys approach a specific case or something else that you need. You want to know how they operate as that can have a significant effect on the outcome and especially the costs. Naturally, you don’t need to ask them about every single detail – it’s more than enough to have their plan in the form of a brief outline of the steps they plan to take. Enquiring about this is also helpful as it shows you how attentive they are to details and how hard they will fight for your case. What is their cost? When you need to hire professionals, money matters. It is always the case and applies to any service, but it’s more important in the field of law, as attorneys can be costly. What’s more, they have wildly different fees as some ask for a lot while others are very cheap, yet both are equally good. That’s why it’s vital for you to compare the prices of various commercial real estate attorneys and organizations before you opt for a specific one and before signing a contract. One crucial thing to remember here is to ask the attorney about upfront costs and an expected time frame to review the matters. Try to find one that specializes specifically in what you are looking for. After all, you don’t want to pay someone to research and learn as they go, even if their hourly rate is lower. Look at what suits your needs best before deciding to hire them. Our last piece of advice is to give clear instructions to your attorney that they are there to review the legal matters only, not try and negotiate better economic terms. I see this all too often, where an attorney tries to renegotiate better terms and it ends up just costing the client more fees (in hours spent) with very little return, or in some cases, even blowing up the deal!

Rental Applications: A Guide For Landlords & Tenants Passive income investors who hope to find the best possible tenants need to understand that rental applications represent an important piece of the screening process. Expensive vacancies, coupled with the time-intensive rental application process, can trick anyone into picking out a new tenant before the time is right. However, those who take the time to go over rental lease applications will be able to identify the best possible tenant, thus protecting their bottom line. With that in mind, there isn’t a single landlord or tenant who wouldn’t benefit from a greater understanding of rental applications and their impact on future leases. What Is A Rental Application? A rental application is exactly what it sounds like: a document used to screen and vet prospective tenants on behalf of landlords. In their simplest form, rental applications represent the first action taken between renters and landlords. At their pinnacle, however, rental applications are an efficient vehicle for gathering information to determine whether or not tenants are suitable renters for respective landlords. If for nothing else, a properly drafted rental agreement should divulge how trustworthy, responsible, and financially stable a renter will be for the foreseeable future. In vetting potential tenants, rental applications will take the following into consideration: Personal Information Household Information Residential History Employment History Current Income Background Information The convergence of this information creates a profile by which landlords may base any decision to lease their property on. Why Do You Need A Rental Application? Rental applications grant landlords the ability to gauge how much of a liability potential renters may represent. While they are certainly susceptible to flaws or inherent oversights, the context provided by a well-written rental application can go a long way in helping landlords mitigate risk. Simply put, a rental application can help landlords find the tenants which are most likely to pay their rent each month on time and those who will most likely rate their property with the respect it deserves. Suffice it to say, a rental agreement is a safety measure used by landlords; one that is intended to prevent unqualified renters from leasing the subject property. What Is The Average Rental Application Fee? To be perfectly clear, rental application fees are not intended to serve landlords as a source of revenue. Instead, rental application fees serve two primary purposes: they simultaneously identify serious applicants and cover the costs associated with screening them. It is worth noting, however, that while all rental application fees serve the same purpose, prices may vary from location to location. As a general rule of thumb, higher rents tend to lead to higher rental application fees. Rental application fee variances can range anywhere from single digits to upwards of $100, or more. Again, fees will vary from state to state, and location to location. Nonetheless, the average application fee currently rests somewhere in the neighborhood of $51, according to Apartment List. How Are Rental Application Fees Collected? Fees are one of the first steps in the rental application approval process, which begs the question: How are rental application fees collected? While there isn’t a universal answer, the process for collecting fees is relatively simple and dependent on how individual renters apply. That said, hopeful tenants who apply online may be required to pay their application fees upfront with a credit or debit card. Those who apply in person, on the other hand, may have more options: credit cards, debit cards, checks and money orders are all usually accepted for initiating the lease application process. What Is The Rental Application Process? By understanding the rental application approval process, passive income investors cannot only ensure that they find a good tenant, they can also explain the process to prospective tenants in such a way that cuts down on any delays or confusion. Breaking down the rental application process will looks something like this: Collect rental applications Charge application fees Request proofs of income Process credit checks Evaluate background checks Call applicant references Schedule the lease-signing meeting Collect Rental Applications The process begins with the collection of rental applications. Make sure that applicants have provided all of the requested information, such as their social security and driver license numbers, employment information and a list of references. Charge Application Fees Assessing a rental application fee is optional, but helps to put in place an incentive system such that only serious applicants submit an application. Many landlords will require a combination of refundable and non-refundable fees, to help cover the costs of running background and credit checks. Request Proof Of Income It is also a good idea to require applicants to submit proof of income along with the application, such as a W-2 or copies of a few most recent pay stubs. Landlords can call the employer to verify that the applicant is indeed employed, but legally they may not be able to provide more information. Verifying that the potential tenant has a steady source of income is a critical aspect step in tenant screening, as it helps to ensure that the tenant will pay rent wholly and on time. Process Credit Checks Running a credit check also provides more evidence to see whether a tenant will be financially dependable or not. If the applicant has little to no credit, it is up to you whether or not you will allow for a co-signer. Evaluate Background Checks Next, you will want to receive authorization to run a background check against applicants. Property owners will provide a section on the rental application form for individuals to explain any felonies that may come up on their record. Call Applicant References Most rental applications ask for a list of previous rental properties and past landlords, and it is in the investor’s best interest to pick up the phone and call these references. The proof of income, credit check, background check and references will all help provide a holistic view of the applicant’s personality, dependability and responsibility. From here, … Read more