Commercial Real Estate: The Importance of Population Trends

While commercial real estate can be an excellent investment, it’s all but impossible to succeed in this competitive environment without some sort of game plan. The most successful professional real estate investors are those who are able to look at a given area and accurately predict which parts of a given city are likely to experience the most growth in relation to other areas in or near that city. Those who are able to gauge such trends can enjoy enormous advantages in the real estate investment marketplace.

One of the major advantages of this approach is the investor’s ability to often purchase properties at significant discounts to their future, improved market values. One example of this in urban areas is where some neighborhoods go into decline over a period of years. Property values decline, but local populations remain high. Should the city council decide to “re-zone” or offer incentives to developers to rehabilitate the neighborhood, savvy investors have an opportunity to come in while real estate prices are still “low.” Thus, they can enjoy excellent profits once those blighted neighborhoods begin to turn around.

One of the methods used by these professional real estate investors is a thorough analysis of current and future population trends. Tracking the trends in population growth and population movement can provide an accurate predication of which neighborhoods are likely to succeed and which ones are doomed to at least short term failure.

Over the past several years it has been those markets with the strongest and fastest population growth that have been the hottest markets in the country. This trend has held true both in residential and in commercial real estate, and those investors who took advantage of this fact were able to realize excellent profits through the buying and selling of residential and commercial properties.

It is easy to see how population movement and population growth impact the housing market, since a higher population density increases the demand for local real estate. In turn companies looking to open new facilities or new branches often look to areas with high population growth, causing a spike in commercial real estate prices as well.

The movement of population from one area of the country to another can also be an accurate predictor of when it is time to sell. The nature of the neighborhoods in which investors own property can sometimes be difficult to determine, especially from a distance. So, tracking population trends can be a big help to business owners and owners of commercial real estate around the country.

Whether you are planning to buy commercial property, sell commercial property, or do a little bit of both, paying attention to the growth and movement of the local population can be a huge help. Real estate investors need to be cognizant of the trends which could effect their investments and population growth is one of the most important to track.

By: Craig Higdon

Commercial Real Estate: Raising Equity

Those researching the subject of commercial real estate investment are likely to encounter the term “OPM” on a regular basis. OPM is an acronym for “Other People’s Money.” I’ve covered this topic in general in an earlier article, but today I want to focus on raising “equity” for your commercial purchase transactions.

To review, the reason many people are reluctant to invest in commercial real estate is that the property values are often so high that it takes a great deal of money to complete a transaction, even using75% to 80% loan to value commercial loan. Few individuals have the financial resources needed to buy suitable properties for cash, let alone the $1,000,000 or so you would need to purchase even a moderately priced $4,000,000 building. This is where the concept of using other people’s money comes into play. The idea is to pool the funds of like-minded investors to purchase a property and then duplicate the process to build a portfolio.

The difficulties facing most investors are finding the other people with the money and proactively structuring the transaction. Everyone needs to be clear on their role in the transaction, how profits (or losses) are distributed, how results are reported, and how the project ends successfully. The process is not as difficult as it may seem at first and it even has a name: “Syndication.” Potentially, even commercial real estate syndicators with little or no credit history have access to hundreds of thousands of dollars, all as close as the people they already know. One word of advice here, though: Start making a serious effort to clean up your credit if you are challenged in this manner. You may have to guarantee some loans and you don’t want your credit history to be a stumbling block.

Before you start telling everyone you know that you are raising money for a commercial real estate investment, there are some things you need to know and that you’ll likely have to research:

First, you need to understand investment entities, such as Limited Liability Companies. You need to know how they are formed, operated, taxed, and unwound because they will be your primary investment vehicle. They also establish who is responsible for what actions through the life of the investment.

Second, you need to learn about and understand a document called a “Private Placement Memorandum.” It has other names like “Investment Circular,” “Investment Disclosure,” etc. This is the document that discloses all of the potential risks inherent in your proposed investment. You need to be extremely thorough in discussing those risks because should something go wrong with the investment and you don’t cover it here, you could be subject to a lawsuit. One key aspect of this part of the process is having a good attorney working for you with experience in these types of transactions.

Third, you need to have good analysis and presentation skills. You should know the ins and outs of spreadsheets (or know someone who does) so that you can dissect a transaction completely and put together a good case for making the investment to your potential investor partners.

Fourth, you need to find the investors. Start with busy, successful people whom you know, who have more money than time: Your doctor, dentist, psychologist, veterinarian, accountant (who is really good for knowing OTHER busy, successful people with more money than time), attorney, dry cleaner, golf pro, etc. You’d also be surprised how many people you know who have I.R.A.’s or 401k plans full of under-performing money who are looking for a good investment vehicle. You can advertise for investors, but be VERY careful before doing this. You MUST talk to your attorney about local securities laws and how they affect what you say and to whom you say it. You want calls from investors, not regulatory agencies!

The process of raising commercial real estate investment equity isn’t rocket science, but it does involve some study and the help of some knowledgeable professionals. Take your time to do it right and you’ll be making more money (your own, this time) than you thought possible.

By: Craig Higdon

Want to Learn What Donald Trump Has that You Don’t- But Can Get It?

Donald Trump is probably the most recognized commercial real estate investor in the world. His savvy investment strategies, awesome legal advisors such as George Ross, and personal skill shave allowed him to rise to the top of the commercial real estate industry.

There are other investors who are just as smart and creative, if not smarter and creative than Mr. Trump, but they lack something that Donald has perfected- almost right out the gate.

It is not his ability to locate below market value deals. It is not his ability to find financing of astonishing dollar amounts. It is not even his ability to identify patterns and trends in the commercial real estate market and make moves before other investors even know what was going on.

Donald Trump has charisma, can build relationships between many parties, and is an expert at selling the big picture. These characteristics are extremely important to the successful commercial real estate investor and will allow for accomplishments that otherwise would not even be possible. He has accomplished impossible deals and has made luxury lifestyle the premier way to live. His ability to add tremendous value to every property he has worked with had made him who he is today. Without charisma, his ability to build relationships, and sell the big picture, his wealth and reputation would not be what it is today.

Charisma is the ability to ignite passion and motivation among all those who are in an ear’s reach of the person. Charisma allows everyone to breakthrough barriers that otherwise would remain standing. Those who are charismatic can make even opposing forces to agree on a common goal and move forward ambivalently. Donald can do just this- igniting passion and excitement that lines people up to follow in his direction. He becomes a true leader that others happily follow because they believe in him and his message. This characteristic will let you bring people on board that otherwise wouldn’t even think about working in your favor. It is a very helpful and powerful characteristic to possess.

The next characteristic is being able to build relationships with everyone that you work with, is absolutely critical in the commercial real estate industry. You want to rub elbows with the decision makers in your city; those who run the chamber of commerce and zoning and planning committees at every level of the city. Get past the gate keepers and speak to the core people asking for their advice and become close acquaintances on a first name basis. These relationships can be implemented before you even think about doing a deal where their influence may be necessary. Relationships will not only get you insider information, but will give way for special favors and a good word to others who may influence your accomplishments.

The final characteristic is selling everyone on the pig picture- everyone who is influenced by the value created in the deal. The community, the city, builders, developers, banks and even businesses around the location in which the project is growing all need to understand what is not there currently. As you know, these projects that were once old, dilapidated buildings that did absolutely nothing but bring the city down, can be turned into multi-million dollar establishments that can change the value of the entire city.

You see, not everyone has vision. Not everyone can see what it is you have pictured in your mind. You must deliver it to them in beautifully drawn pictures and in a very charismatic way so that they understand what it is you want to accomplish. Deliver the benefits and the experience of what it is you want to create. Do this and you will have people lining up to help add value to your vision.

Master these qualities, and you will bring a room of onlookers to their feet in admiration and appreciation. Get the insider information and create relationships that will give you the upper hand in any deal you move forward with. Be the person everyone looks to for inspiration and motivation. You will see how much easier and more effective you will be in creating the deals that create massive wealth.

By: Tony Seruga, Yolanda Seruga and Yolanda Bishop