REAL ESTATE INVESTMENTS

In the past four decades we have met with hundreds of real estate investors and have a strong understanding of their goals, questions, and concerns. The sophistication of the investors has varied widely.
Why would an investor come to us for investment advice? The answer is clear.
There are three critical components to any real estate investment. They are TIME, EXPERTISE, AND MONEY. If any element is missing, there is a strong probability of under performance or failure.

TIME: The most successful real estate investors I have met have one full-time job. Real estate. This allows them time seek out the best acquisitions and access to vehicles to assist them in the search and promotion of the asset. Clearly the acquisition cost is the single most important facet of the real estate investment. We believe that the profit is made at the time of purchase. Pay too much, and you are chasing after an elusive profit.

EXPERTISE: A real estate investment expert understands the fundamental dynamics of the marketplace. This includes, but is not limited to, the market segment with the highest yield, the impact of current interest rates and cap rates, the steps necessary to turn a particular property around to maximize the gain.
It is also important for the expert to understand the goals of the investor. Often, this takes multiple conversations, as some investors have not clearly thought about, or differentiated between long and short-term goals.
We have met with many investors that preferred buying and selling, often referred to as churning. As licensed real estate brokers, we understood that, in a vibrant marketplace, churning represented numerous commissions and that strategy worked well for the broker. Did it work for an investor? The answer is “it did as long as the marketplace was strong”. However, real estate is subject to cycles. In some respect it is the economic equivalent to musical chairs. When the music stops, many found themselves with no chair, that is, they had properties that were designed to sell, rather than operate and the result was, often, fatal.
If the goal in the investment is to add value, that is, to take an under performing asset and turn it around, sound property management principals are essential. Professional property management includes:

o Rent collection
o Property maintenance
o Serving legal notices
o Managing repairs and maintenance issues
o Supervising capital improvements
o Providing regular reports to ownership

Leasing vacant spaces is an additional component to a successful commercial real estate investment. This is coordinated between the investor, broker and property manager.
Another area of expertise involves banking. The real estate professional knows what type of loan works best for various investments. For example, if the investment is meant to be “flipped” within 12 months, an interest only loan may be more beneficial, as it reduces the operating expense during the short term of ownership.
On a longer-term hold, if interest rates are low, locking them in for the longest possible period would be tremendously beneficial.
On value added projects, this if, for example, a mostly vacant retail strip center, the initial financing may need to include money for capital and tenant improvements, along with the acquisition cost.
There are many financing decisions that need to be made during the acquisition phase that will dictate how the property will be handled during its operational phase. Not planning properly can greatly reduce the investor’s ability to maximize the return.
In closing, a real estate expert can guide an investor towards a solid short and/or long-term investment. One that weathers every storm until the property is ultimately refinanced or sold.

MONEY: Every investment needs to be properly capitalized. This is typically a combination of investor capital and bank financing. Under capitalization is the most common cause of failure in a real estate investment.

TIME, EXPERTISE, AND MONEY: If you have all three components, you are among the small percentage of investors who will successfully grow their real estate portfolio. If you are missing one (or more) of these three components, talk with us about joining our growing family of investors.