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Keys to success in commercial real-estateKeys to success in commercial real-estate
tomtat1 said: "Many people talk about a system to make money in commercial real-estate. I have found that what you need is a good team of professionals. This more than anything else will determine whether you succeed or fail.
First you need a good broker. Don’t negotiate commission with your broker, if you find the right one and pay him well, he will repay you in spades. Good brokers have a lot more to offer than simply showing you properties and running some basic numbers. The good ones have a wealth of experience and knowledge of the current market that you will never tap if you are low balling them on commission. Why should they go all out for you if you aren’t paying them for it?
Second you need a good banker. Bankers do more than loan money. The good ones assist you at evaluating the deal, and work with you to put you in a loan that is in your best interest. They also have a lot of knowledge on how certain types of real-estate have performed in certain areas and market cycles. Bankers don’t want nonperforming loans so it is in there best interest to help you find good deals, you simple have to find a good one and ask for help.
Third you need a good attorney. As with the broker you need to find a good one and pay him well. There is nothing more expensive than cheap legal advice. You want a lawyer that you can trust will get everything you want into a contract, and can talk to you plainly about what the other party is asking for. It is his job to make sure there are no surprises in any given deal.
If you get strong teammates in these three key areas and develop good relationships with them; your chances of success are greatly increased. Concentrate on building the team first and the deals second."
deltaneutral said: "Tomtat1
Wise words. It would be great if everyone could read your posting.
I agree that you should never grind [B][I]anyone[/I][/B] on their fees for services.
If I might add, a good property manager, insurance agent and CPA will round out your team nicely.
The property manager is responsible for making sure your asset runs smoothly and that the tenants are happy. Happy tenants = full building = more cash in your pocket. On such a large asset, this is a very key role in your team.
Having a good insurance agent is also someone to have on the team. Being properly insured is something that a lot of people are not, plus having someone that can describe to you the different riders in plain English is nice. Don't be just another policy number to your agent. If something were to happen in which my property was one of many to be destroyed, I want my call returned before the others.
Lastly, a good CPA with commercial RE experience will be able to help maximize your tax savings whether it's from cost segregation, expense write offs or your 1031. I'm not saying to get a guy that will cheat the government, but do get someone that understands commercial RE tax complexities so you can keep more of what belongs to you."
tomtat1 said: "[QUOTE=deltaneutral;70032]Tomtat1
I agree that you should never grind [B][I]anyone[/I][/B] on their fees for services.
[/QUOTE]
Nice additions to the list.
The exception I would make to this statement is your banker. Banks throw so many junk fees into every deal it will eat you alive if you don’t beat them up a little. I have a good relationship with my banker and he has told me candidly that he is actually a little leery of anyone that pays all the fees without negotiating. It may sound counterintuitive but he is getting into bed with you for a long time, and wants you to be an aggressive negotiator. The way he explained it to me was that banks throw all these junk fees in thinking that if you are willing to pay them you are a greater risk so they need them to compensate for that risk."
deltaneutral said: "Tomtat1.
Good point.
I meant more the folks who are commission based or provide service for fees."
buyproperty said: "Thank you fr your information. We will make use of it efficiently."
tomtat1 said: "Once you have your team together, what should you focus on?
First, finding and analyzing deals. There are many factors that go into every deal. Initial price and what the expected return on investment will be is just the start. You need to look at financing and taxes (taxes on businesses can vary greatly from county to county with many offering tax incentives to attract business). Most important is location of the property. I have found that paying up for prime spots is a good strategy especially when leasing to businesses.
Second, negotiating the deals. To succeed in commercial real-estate you need to be a good negotiator period. This is one of the most important skills and you need to love to do it. All great real-estate guys love negotiating. There eyes light up when they talk about how they closed this deal or that.
Third, Cash flow management. You need a good understanding of your buildings cash flows with contingency reserves to cover vacancies, and or repairs. To consistently succeed you need to be disciplined enough to pass up good deals when you do not have adequate cash reserves to cover potential problems. A lot of investors try to grow there assets too quickly and run into real trouble when a hiccup occurs. Slow and steady wins the race (cliché I know, but it holds true here).
Finally concentrate on risk management. Insulate your personal finances from your properties (as much as you can), and one property from the others through separate LLCs for each property you own. Look at your overall mix of properties and diversify by real estate type and tenant. Don’t get into bed with one company even if their finances seam rock solid. You must understand that as a landlord you will always be in second position to secured debt. I have had a billion dollars of debt jump in front of me when a tenant bought out a competitor. The company declared bankruptcy a year later and I got screwed. Several acquaintances that had done multiple deals with these guys faired much worse. It doesn’t seam fair, but it is part of the game. Last but not least if you have a lot of variable rate funding hedge against interest rate risk through interest rate swaps or caps."