Commercial Real Estate Investing From A-Z

By Steffany BoldriniBusiness Education Investing How To

Commercial Real Estate Investing From A-Z episodes

March 19, 2020 How Will the Coronavirus Impact the Real Estate Market?
The black swan has arrived in our economy, the Coronavirus has taken an unprecedented, unanticipated curve in our economy. What will the impacts be in the commercial real estate market? We talked with experienced real estate investors that have been through a few economic downturns to get their perspective on what we should do during this time. We spoke with George Ross, he has done more real estate deals in New York City than virtually anyone else alive today. We also noted thoughts from other notable investors like Neal Bawa and Kathy Fettke.

You can read this entire episode here: https://montecarlorei.com/how-will-the-coronavirus-impact-the-real-estate-market/

What are specific steps that we can take to prepare ourselves? If we currently own commercial properties, should we start talking to banks, or any other ideas?
No, wait. Banks will talk to you, because they don’t know what to do either. Imagine, for example, that a bank has so many millions of dollars in mortgages in houses and all the people stopped paying. Now, what does the bank do? Well, they’re not going to be solvent. This is money that they anticipated coming in. And they don’t have it. So what do you do? The banks don’t know what to do. That’s where they come to the government and say, hey, here’s my problem. I don’t know what the end result is, but I do feel that, and I feel very strongly about it, that ultimately the government will come in and step in and help the banks if they have a need. They’ll pump a tremendous amount of money in. And we’re talking about trillions if necessary. We only know it’s necessary once the effect has become critical. It’s not a big problem if somebody misses a payment for a month on a mortgage. What happens if they miss it for a year? Now you’re talking about an entirely different situation. What happens if they never have the money to repay it?

Do you also think we should wait if we think now is the right time to buy real estate?
Where are you going to get the money? If you went out to buy a piece of property, you’ll want to get a bank loan. They’re going to be very hesitant because they’re not going to want to make loans. They should, they have plenty of money. But they don’t want to make loans. I don’t know the answer to it. But if you had some money sitting there, or you can raise the money yourself from savings, or from refinancing debt that you have, and you have excess money – that’s your down payment. So don’t put up a lot of cash. Just put a down payment, take an option to buy. I wouldn’t go haywire. But if a deal comes up that you think is really good, you’ll get unbelievable negotiating position because they’ll panic.

And those who panic just overreact. I can see overreaction in certain instances, but I can’t see overreaction when it comes to real estate. It has a long history with ups and downs. If the seller is very nervous and wants to do the deal, you’ll get some fantastic deals. You’ll be able to buy property with no cash. But you will have some kind of agreement to pay with something down. People will want to get out of it because it’s not money making. the money that I was anticipating, therefore, they don’t like that and they say let that be somebody else’s headache. Somebody buys and says, okay, I’ll take the headache. But they’re not going to pay cash dollars upfront because they have the headache. Somehow they’re going to have to solve that problem. But would it be a good time? Absolutely.

To join Victor Menasce’s mastermind go to: http://www.victorjm.com/mastermind-series/
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19 min
March 12, 2020 How to Overcome Paralysis by Analysis in Your Real Estate Investments
What makes investing in commercial real estate attractive in the United States, how to get over paralysis by analysis and how to find a great business partner? We are interviewing Reed Goossens, author of Investing in the US, the Ultimate Guide to US Real Estate.

You can read this entire interview here: https://montecarlorei.com/how-to-overcome-paralysis-by-analysis-in-your-real-estate-investments/

Let’s talk about paralysis by analysis. What would you recommend people doing? How much do you recommend people learning in order for them to buy their first property?
Analysis paralysis is needed. And I think I’d rather be at the analysis paralysis stage than not doing anything other than jumping in too soon. You always have to start with education, education, education, education. And even today with 1,800 units in multi-family, I’m still learning, and continue to learn. It’s really important, if you are getting into this game, to understand how to underwrite deals, because that is the most important thing. If you don’t know what a deal looks like, you won’t know how to act. You don’t know how to go get it under contract. Understanding the numbers behind a particular commercial is really, really important. Understanding how the income is generated, how revenue is generated from a property, whether it be from a multifamily, or a hotel, a warehouse, self-storage, whatever it might be, you need to understand how the top line is created and how do you increase that top line. The second thing you need to understand is what expenses do each individual assets in the commercial “sector”.
Multifamily has different expenses than a hotel, and the hotel has different expenses than a self-storage facility. So you need to understand line by line what those expenses are. You need to understand how to read a P&L statement. Once you know how to read a profit loss statement, you want to understand how to generate revenue and reduce expenses, or maintain expenses at a reasonable rate. That’s how you learn how to increase the net operating income and thus the cash flow and thus the overall value of the asset. If you don’t know how to do that, then you need to start there.
If you do know how to do that and you’re trying to get out of your own way for analysis paralysis, you have to surround yourself with people who are doing it, because analysis paralysis just means that you are too scared. You haven’t seen or experienced enough things or people around you to order to be confident to go do it. So the analogy I like is, if you’ve ever been jumping off a diving platform at a pool and it might an intimidating diving platform, it’s fun, it’s scary, but, your friend does it first and then you’re like, oh, he did it, I can do it. It’s the same thing with analysis paralysis. If you’re not surrounding herself with people who are actually doing commercial real estate deals, then you’re not going to have the confidence to go and do it yourself. But what it does mean is if you are surrounding yourself with people who are doing commercial real estate deals, maybe you can learn from them. Maybe they can be a mentor of yours to give you credibility, to give you the confidence to go out and be an operator. The analysis paralysis can be overcome by understanding numbers, understanding how to find deals and surrounding yourself with the right people in order to be successful, in order to use their credibility or to ride on their coattails towards helping you become a successful operator. If that’s what you want to be.

Reed Goossens
reedgoossens.com
[email protected]
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21 min
March 06, 2020 Things to Do When You’re in Contract to Purchase a Commercial Property
What happens as soon as you get in contract to purchase a property? What are some of the things that you need to keep in mind? What do you need to do and how do you need to organize yourself?

You can read this entire episode here: https://montecarlorei.com/things-to-do-when-youre-in-contract-to-purchase-a-commercial-property/

The first step is to have something really simple, like a word document where you will have all of the information on the property in this document. My document has:
- The contact info for the real estate agents.
- The timeline for the deal.
- The link to the property listing.
- How many days I have until closing.
- A link to all of the documents for the due diligence.
- All of the information from the lenders that I have so far and that I have contacted.
- A list of potential property managers for this property.
- My to do list for the next week.
- Things that the real estate agent owes me in terms of documents.
- A list of things that are outstanding that I need to take care of in terms of hiring people, or asking for recommendations for lawyers.
- A list of "surprises" that you find out during the due diligence process.

Week 1
- Reach out to a couple of lenders and finalize a loan application.
- Look for a few more lenders that are local to the area, as well as about three national banks.
- Break down the finances for the lender, and this is going to be breaking down what you're going to do to the property to increase value. For example, we can increase rents on the property by about five to 10 percent (this is self-storage). We can also decrease vacancy. This is going to have to be completely broken down into an excel sheet, by unit.
- Pick a shortlist of inspectors for this property that are local and that can deliver the inspection within a few days of having it done.
- Review a copy of the existing management contract.
- Find a lawyer that is local and familiar with that states laws.
- Find a copy of the state's lease which is a standard lease for that state.
- Get all the documentation for that income and expenses for the last two years for this property. And this will also be for the lender.
- Look for potential new property managers, if that is our plan.

Week 2
- Have the lawyer review the management contract and make any adjustments for the actual lease contract for the units.
- Finalize the profit and loss statement and our projected vacancy for that first year.
- Finalize how we're going to structure the payment for a potential contractor that will work on renting the vacant units.
- Finalize the loan packages for the banks.
- Call the remainder lenders that are on our list that we found on the first week.
- Look for an insurance company, and we might just continue using the same insurance company that is insuring the property to make things easier. So we need to get their contact information.
Week 3
- Make sure that we get the final inspection reports from the inspectors.
- Start narrowing down the list of lenders that will move forward with this property.
Week 4
This week is currently open for the items that will come up during weeks 1, 2 and 3. We're going to be dealing with whatever we uncover, or still need at that time.

Week 5
- Finalize things with the lender and we will be looking at the miscellaneous things that we need to get done after we close on the property.
- Find phone centers that are familiar with taking calls for self-storage properties.

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17 min
February 27, 2020 3 Tips for Hiring a Commercial Real Estate Photographer
When you're ready to sell your commercial property, it is a wise idea to hire a professional photographer. What should you look for when hiring a professional commercial real estate photographer? What are some technologies that could be useful in marketing your properties visually? We are interviewing Brian Balduf, CEO and co-founder of VHT Studios, a visual marketing company with over 1,000 photographers and videographers, focused in real estate.

You can read this episode here: https://montecarlorei.com/top-tips-for-hiring-a-commercial-real-estate-photographer/

What are some tips for screening a good photographer and videographer that has focused in commercial real estate?
I would say the most important thing in screening or choosing a partner or provider for photography or video is look at their experience. Anybody could push a button on a camera and take a picture. But that's not the point here. The point is you want to impact, make an impression, create a perception and sell or rent the property. So you're really looking for a return on your investment. The best way to do that is to see what they've done before that's similar. Not just their work, not just photographs of weddings, or puppies, or things like that. Show me what you've done with properties that are similar to mine. Whether it's a hotel, a retail location, or a manufacturing location. I want to see it. You also want to work with that photographer on what are you trying to convey? What are you trying to present to potential buyers and renters? What's the story of this property? What are the highlights or features of this property that should be focused on and make sure that they understand that. That they're not just coming through and taking pictures to take pictures. You want to show it in its best light, make great first impressions and appeal to certain audiences.

Third, I would say, is understanding your licenses and rights to use those photographs. The way it works in the United States is the producer or creator of the visual assets or the intellectual property owns it and owns all the rights. Unless they give rights to you, and you always want that in writing so it's very clear. Here's what I can and can't do with these photographs. It's a very big topic in the industry today because I think a lot of people assume that once they have the photographs I can do anything I want, but that's not necessarily true. The license could be restricted to just print, just brochures in magazines, or it could be restricted to just the Internet. If it's not in writing, you really don't have it. You need to ask for it and have that agreement. So I think those are three important things in screening a photographer: the quality of their work experience, their ability to understand your story and your audience, and getting those licenses in writing.

How do photographers charge for commercial properties? Is it per square foot? Per room? How does that work?
That’s a good question. Generally, it’s per photograph. So you’ll have a rate for the artist, photographer, a pilot to come out to the property. Think of that as a session fee. So you pay them to come out and shoot everything that’s applicable. Everything that makes sense. And then on the back end, you proof those photographs and get to choose the ones that you want to license. And it’s just a per photograph license fee. So it’s a combination of those two. The range could go anywhere from a couple hundred to a couple of thousand dollars depending on the size of the property. How many photographs are being taken and the mix of services.

Brian Balduf
https://vht.com/
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17 min
February 20, 2020 300 Ways to Buy, Sell or Exchange Real Estate
In his first podcast interview ever, Robert Steele, author of 300 Ways to Buy, Sell or Exchange Real Estate, shares some of his top tips for buying, selling and exchanging commercial real estate.

You can read this entire interview here: https://montecarlorei.com/300-ways-to-buy-sell-or-exchange-real-estate/

Let's go over the first two strategies of your book, which you mention are the most important ones to get
The first one is called "Unpriced". The pricing is only in the eyes of the beholder. I encourage people to list their property unpriced - any price agreeable to the seller. They can give a range, $1,000,000 - $1,250,000 or $750,000 - $1,500,000. It's a range, perhaps, but the basic thing is unpriced. The person owning the real estate is trying to accomplish something. Now, if it's cashflow, you want a return of some sort, how much do you want? What is the target that you need to accomplish? Now, when they get into numbers, they get into cap rate sheets and things like that. In a pure exchanging, the cap rates go away. And it's what the person is trying to accomplish.

I'll take you to number two in the book, which is called Creation of Wealth. You have a home, you have equity, and you'd like to buy another house, let's say, to rent it. So you have choices that you either have the cash in the bank or you could refinance your house or you could borrow a second on your house. The second would give you cash and you could go buy another house with it, or a duplex. By the same token, you could create a second on the house. That's the creation of wealth. Very simply, you could put a note in a trust deed, or computer and type out a note for fifty thousand dollars secured by a trust deed on your house in which you would trade that trust deed to somebody else that had another house that would take your trust deed so you could use a trust deed that you created without using any cash. Simply it's a piece of paper secured by the equity in your home. It's recorded against your title. It's a piece of paper and the piece of paper says I'll make certain payments on it at a certain interest rate. What you're doing is you're using part of your equity in order to buy another property, which you're not going through a bank, you're creating it yourself.

In this economy, what are some of the strategies that you recommend us keeping in mind?
I'd keep in mind the crypto currency, you could have a tremendous amount of wealth tied up in that cryptocurrency. If you go out of that crypto currency, you're going to be taxed. But if you deal with people in the exchange field that are knowledgeable in exchange rules, they can help you because they can take a million dollars worth of your cryptocurrency and then you don't go out of title. You keep it because that's the goose laying the golden eggs. You want to keep that. You can use that as security to buy some real estate. A knowledgeable broker could say, we'll take a million dollars worth of your cryptocurrency, use it as security and wrap it in what's called a blanket mortgage over the crypto currency and the real estate. So you're able to use it as though it's a million dollar down payment without going out of title. Now, the person on the other side has the security of that million dollars. You have to perform on your payments and your obligations, or you would lose it. The currency could be used as the source of security for your down payment into to three or four million dollars worth of real estate without going out of title.

Robert Steele
(760) 522-5362
[email protected]
https://www.amazon.com/Steele-Ways-Sell-Exchange-Estate/dp/098951904X

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24 min
February 13, 2020 4 Steps for Community Engagement for Your Real Estate Project
What are some key things you must do when doing community engagement for your real estate project? Ilana Lipsett details 4 steps that are a must for every development, in any community.

You can read this episode here: https://montecarlorei.com/4-steps-for-community-engagement-for-your-development/

When you get a community engagement project, what is the first thing that you do?
I have a four step process that I like to lay out when I’m starting a project. The first is, get curious, show up and listen. And before the showing up and listening, it’s important to observe, ask questions and listen. People are the experts of their own experience, and that’s your job as a community engagement practitioner to deeply and empathetically understand what their experience is. So in order to show up, you have to ask who is already here, who has been here before, who’s showing up at your meetings at city hall, who’s responding to requests to meet and who’s not. And so a big part of that is showing up everywhere. Get to know local businesses, shop there, spend time there. You’ll start to meet regulars and hear stories, go to neighborhood meetings, go to town halls, go to gatherings. Before you start knocking on doors, it’s important to build those relationships by showing up in public and meeting people. And through that, you can evaluate if you need to be invited and go with a local leader who can introduce you to their neighbors or who can introduce you at a community meeting. Having buy in from the local leadership is really important.

Having an established relationship before you do that. And so by showing that you want to be part of the community, by going to local events to block parties, to coffee shops, to bars, to whatever it is, it shows people that you are there and that you’re committed. And a key part of that is to not offer solutions yet. You’re still in this curiosity phase and getting a sense of who is here. What’s the history of the area? What has already happened? What already exists here that builds or holds community, whether those are events or meetings or parks. I feel like this may seem like an obvious thing to say, but you’d be surprised at how many post-mortems I’ve heard where developers say, oh, the biggest lesson learned was that we needed to talk to people and include them in the process.

If the community has so much input and part of it is against what the developer was looking for, what happens?
Part of it comes down to being honest and transparent about what you are and what you’re not, and what you can do and what you won’t do. When you do community engagement, one of the challenging components of it is that you aren’t necessarily going to get input that will be conducive to what you’re trying to do or you won’t necessarily get input that’s helpful or you’ll get input that is challenging your core beliefs or your vision or your mission. Part of it is not necessarily incorporating all of those pieces of the input that you’re getting, but it’s understanding how to best respond to them and how to best respond to the community. Transparency and communication is one of the most important things in addressing that. Having your community engagement process in place allows you to build relationships with your neighbors, with the community, with community leaders, so that when they do ask the hard questions or if somebody does come in with an objection, you’re able to respond to them in a way in which you are showing them respect, that you’ve listened to them and they’re showing you respect that they’ll understand and accept your answer.

Ilana Lipsett
[email protected]
www.iftf.org
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23 min
February 06, 2020 How to Find & Analyze a Real Estate Market
Learn how to find, analyze and learn more about micro markets for your real estate investments. Victor Menasce has been investing in real estate for the last nine years in both Canada and the United States, and has done all kinds of commercial projects.

You can read this entire episode here: https://montecarlorei.com/how-to-find-and-analyze-a-market-for-your-real-estate-investments/

What are some market conditions that people should be looking for in real estate?
I’m not actually a real estate person per se. I really think of myself more as a business person. When you talk to real estate people, they tend to get wrapped around the axle talking about things like comparable sales and things like that. And that’s useful, but it’s not the whole picture. I’m a much bigger believer in the fundamentals of the very simple law of supply and demand. If you’ve an excess of supply and a shortage of demand, you can predict what’s going to happen. Prices are going to fall if you have a shortage of supply and an excess of demand. And those conditions are going to persist. You have a really robust market from the point of view of an investor or developer, because there’s going to always be upward pressure on prices, upward pressure on rent, upward pressure on valuations. And that’s what I look for. I want to find markets, and when I say markets, I really mean micro markets. Micro markets where those conditions persist, they exist. They’re not artificial. They’re going to be there for a long time for some good reason.

How do you come across these locations, typically? Is it someone that just mentions it to you, or you come across an article?
It’s almost always through a conversation where someone will say something and we’ll say, that’s intriguing, and then look into it a little bit deeper and see if there’s really something there. Not only to see if those market conditions are there, but who else is in the market? Is it a market where it’s a closed market and there’s only two or three players? Or is it one that is open to other folks coming into the market and adding some capacity. We talk to a lot of investors every day, and I think most listeners of your show would agree that today, there’s more money chasing deals than there are in fact opportunities, at least at a decent price. And because there’s so much money chasing deals, prices are getting bid up into the stratosphere. Prices are getting bid up to levels that frankly don’t make sense. And my calculator works the same this year as it did two years ago, as it did four years ago. And it’s funny how for some investors the math changes, and it shouldn’t.

When you are assessing a particular property, how do you approach it from it being a fit for the monetary goals of the project?
Our focus is on things that are recession resistant, recession proof. I don’t want to be subject to the vagaries of a market cycle. For that reason, I won’t go into retail, for example, if I have a vacancy in a retail strip mall, that location could be vacant for a year or two if I’m waiting for that perfect tenant who’s looking for exactly that square footage. And then of course, you’ve got to do tenant improvements, you’ve got to do a build out. So you really are looking for that needle in a haystack type of perfect fit. One way is to find them. The second way is to manufacture them out of thin air, to create them.

Victor Menasce
victorjm.com
Magnetic Capital – How To Raise All The Money You Need For ANY Worthy Venture
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18 min
January 30, 2020 How to Go From Residential to Commercial Properties
In this episode we learn how to move from residential investing to commercial / mixed use investing. Hanna Azar has been an investor since 2012 and currently manages a family portfolio of approximately 91 units, of which he co-owns 50.

You can read this episode here: https://montecarlorei.com/how-to-go-from-residential-investing-to-commercial-properties/

What was your first deal like, and how did you transition to value add properties?
Luckily for me I was in college in 2008 during the recession, and decided to buy a single family home in Palo Alto. I was a senior in college, I was 20, 21 years old, and that was my first investment in real estate. I bought it mainly for cashflow purposes when I underwrote the deal and I thought of appreciation as a bonus. But I quickly realized that appreciation in real estate is really what drives most of the value and most of the investment. And that's where I started shifting gears. I read a book by Manny Khoshbin, who is also a value investor developer, called How to Build Your Hundred Million Dollar Real Estate Portfolio. It definitely changed my mindset of what real estate is, what you can do with it, and how you should focus your investments and time.

What drove you to move from residential properties into mixed use?
I basically got the idea from the book, a lot of it just looking at the market, looking at where people were moving in the city and knowing that the scalability will eventually be the best strategy in the long run.

Do you have any particular tips for people that are getting into real estate or that are beginners? What should they be doing and looking at?
I think everyone's path in real estate is definitely different. I would say, all else being equal, I would start small, get your hands dirty, assess risks as much as you can before jumping into a deal. Go to meetups, listen to podcasts like yours as well, and try digging deep as much as you can before pulling the trigger. I would read as many books as possible look into ways that you could add value and find a niche.

And I think that's sort of what we created in San Francisco with the properties that we've been buying, which most of them are in the Mission District. So we kind of felt like we have local knowledge. We know the buildings better, we know ways of adding value that works for our business model. I would say just try adding value, locate niches as much as possible, and try to force appreciation as much as you can, which is something I hope I illustrated. You should never wait to buy real estate, and just hope something will go up and buying it at risky prices.

I would say look for properties, try to force appreciation through some kind of value add mechanism which in commercial real estate is obviously increasing NOI and look for scalability as much as possible. There are a lot of inefficiencies in real estate, which is the reason why I like it so much. There's all kinds of information gaps. There are ways that you can locate a seller before it hits the market. The pricing on the real estate is not efficient as well like the stock market, a broker might price something high on because he is out of the area, or he might price it too low, and it might be during the holiday season like it is now and not too many buyers show up because they're traveling. If you dig deeper, you'll definitely be able to find the inefficiencies.

How to Build Your $100M Real Estate Portfolio: https://tinyurl.com/rgtyvmg
Confessions of a Real Estate Entrepreneur: https://tinyurl.com/ufp73vv

Hanna Azar
[email protected]
415-875-0177
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17 min
January 23, 2020 How to Find Great Leasing Agents
How to find the best retail leasing agents for your vacant space? What questions should you be asking them? Beth Azor has over thirty years of experience in leasing, managing, developing, redeveloping and teaching commercial real estate leasing agents all over the country.

You can read this interview here: https://montecarlorei.com/how-to-find-a-great-retail-leasing-agent/

What makes for a great retail leasing broker?
Someone that's not afraid to ask the tough questions. How much is it going to cost for you to open your business? For example, the daycare said $80/sf. And I said, OK, the building is ten thousand square feet. That's eight hundred thousand dollars. Then it's asking the second tough question, do you have the eight hundred thousand. As anyone in real estate, our time is our commodity. We need to maximize that to the best of our ability. So not being afraid to ask the tough questions. Also following up. Once in a blue moon, I'll help a friend who wants to open a location and I'll call a bunch of landlords or shopping center owners trying to find space. And it blows my mind how many people do not return phone calls. So: not being afraid to ask the tough questions, asking a lot of questions, because telling and selling and asking is, and then following up. I think those are the two most important qualities.

Is there a specific set of questions that are important for us to ask them?
Yes, asking them for a copy of their deal sheet for the last 12 months, or 18 months and then asking them which of those deals were new tenants versus renewal tenants? And then for all of those new tenants, how did you find them? Was it a call in off of the sign? Was it a cooperating broker? Was it a cold call? Was it a prospect, or was it a social media post? So really drilling down on how they found the prospect, because that is going to give you a clear path and understanding as to how they're going to lease your property. Are they just going to put up a sign and expect calls to come in? Or are they going to be extremely proactive in getting the business? Those are truly the most important questions. And then you have to feel good and have an instinctual feel that you can work with this person. And I would also ask that person for other clients that they work for that you can call and get a reference. Are they proactive? Do they call back? How are the negotiations? Do they negotiate on my behalf? Or are they always calling me and saying, well, we should give this guy an extra month's free or some tenant improvement money. Are they a true owners rep? Or do they want to be working on behalf of the tenant? Those would be the questions that I would ask a retail leasing broker that I might be considering hiring.

What should a landlord keep in mind in order to be their tenants favorite landlord?
Keeping the property clean, keeping it well lit, a very well lit and safe and secure shopping center is very important. I think my tenants like me, but if I don’t get the rent on the second of the month, they get a late fee. Now I’ve trained them. Being consistent is very important because you shouldn’t play favorites and give one tenant one thing and another tenant not the same thing. And certainly listening to your clients, for example mobile to go in the retail world is huge. You have to be reading up on that and thinking, how can I do something differently? How can I help my customers get more sales?

www.bethazor.com
https://www.linkedin.com/groups/8851653/
https://www.youtube.com/channel/UCswCXcTept82Ob6WmsCCtxw
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24 min
January 16, 2020 How to Analyze a Commercial Property
In this analysis, I will be using a real property that I came across. It is a self-storage portfolio in Missouri. They had four properties and an additional property was in a strip mall, so they were leasing it. This property was interesting because it was in one of our target markets.

You can read this entire episode here: https://montecarlorei.com/how-to-analyze-a-commercial-property/

We asked for the offering memorandum, sometimes the OM is readily available on the website that you find the property, sometimes you just need to sign a non-disclosure agreement before getting it. The first thing we do when analyzing a property is taking all of the financial analysis numbers and putting into a spreadsheet. That’s all of the existing income, and all of the expenses on the Excel spreadsheet. Everything is broken down as it shows in the OM.
Some of the expenses for this particular property are: online advertising expenses, bank charges, employee benefits, insurance, here is a line item for the leased property that is on the trip center, payroll expenses, management fees, security expenses, telephone expenses, repair expenses, general and admin, utilities and the most important one, property taxes. Property taxes are the expenses that can kill deals for inexperienced investors. Why? Because the real estate agent is going to put the existing property taxes on their analysis. And typically you are buying the property for a higher price than what the seller bought it for. And so property taxes can double and sometimes triple as it is in this example. And if you don’t realize that until the last minute, or even until after you purchased the property, that can be a huge problem. So in this example, the real estate agent put the existing property taxes, and for a 3 million dollar property, these taxes were $20,000 per year.

I asked the real estate agent, what do you estimate the property taxes will be at the $3 million purchase price? And the real estate agent answered $61,000. That is three times what they had in their financial analysis. This is something that you really need to be watching out for, for these type of deals, and also for other asset classes. As we have talked about before in the retail world, even though your tenants will pay for that tax, you really want to be considering if they can afford to pay for these additional taxes. And in the retail example, a lot of times they may have in their lease that the only increase in tax that they’re willing to pay is an additional 10 percent per year, for example. And 10 percent per year isn’t going to cut it if your property taxes are being tripled.

Contact me here: https://montecarlorei.com/contact-us/
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