Investing in Real Estate is One of the Best Ways to Make Money

/in , /by

There are many ways to earn money from real estate.

When you buy a stock, the only way you can make money is if the stock appreciates in value, and you sell it at the good time. With real estate you can make money in many different methods.

  • Rental income. Rental income is the main source of profit investors are going for when buying a rental.
  • Buying below market value. Earn an instant profit buing a property for under market value. Think foreclosures, quick sales, and awesome negotiation skills.
  • Selling high. Make extra money by staging the property to attract buyers over market value. With stocks, you always buy and sell at market value. With real estate, you can try to beat the market.
  • Increasing equity. Take a mortgage to finance a rental and increasing equity with every mortgage payment. I put down 25% on my last rental and with mortgage repayments am around 33% equity at the moment, those 8% of the property value were paid by rents and are increasing my net worth every month.
  • Leverage increases returns. If you put 20% down on a property, you will still receive rental income based on 100% of the property value, making it a great return for your 20%. Say your property is worth $100,000 and you charge $750 in rent with $500 in mortgage, taxes and fees. You have a $250 profit on $20,000 down. That is $3,000 a year, or a cool 15% return on your deposit.
  • Leverage makes you profit on the full selling price. If that same $100,000 property you bought with $20,000 down sells for $120,000 a few years later, you get your $20,000 plus principal payments back, and a $20,000 profit. It is only a 20% profit over the full value of the property, but thanks to your leverage, you are making a profit of 100%, minus principal payments to the $80,000 mortgage. The higher the leverage, the larger the return.
  • Renting smaller units. You can divide your family house into a duplex or a triplex and increase the rent. I rent three rooms by the room, to three tenants. I can charge more than if one family was renting the whole place.
    Renting to businesses. Businesses are a different type of tenure and rents are generally higher. They are also safer if you choose a well-known business to rent to.
  • Tax benefits on interest. You can often deduce the mortgage interest from the rental income, and create a tax-free profit.
  • Tax benefits on improvements. You can also reduce the cost of the improvements from the rental income, while the added value to the property is yours to keep.
  • Profit from a lump sum on a refinance. So you bought your $100,000 property, and put $10,000 worth of improvements, that the tenants paid back with rents. The property is now worth $125,000, you can refinance to get the $25,000 cash and put 25% down on your next $100,000 rental!
  • Profit from extra cash flow on a refinance. If you are able to refinance a property to lower your mortgage payments while the rent stays the same, you are generating more cash flow every month. You can build a cushion for maintenance, save up for a deposit on a new rental, or have more passive income to live off.

There is less risk in real estate leverage than in stock leverage

Stocks are volatile. Penny stocks and currencies even more so. Some trading companies will allow you to trade on leverage. That means if you buy 1,000,000 shares of a penny stock valued at $0.05, the trading company will not require that you fund your account with the full $50,000, it will let you buy the shares with only $5,000, BUT if the share goes down to $0.045, which it almost certainly will, you will get a margin call and your whole account balance will be wiped out.

With real estate, you can put the same $5,000 as a deposit on a $50,000 or even a $100,000 house, and rent it. If you have a renter, you don’t really care about the ups and downs of the market, as you are able to meet your monthly repayments. If the property sits empty for a while, all you have to do to keep it is pay the mortgage yourself. It isn’t fun, but it is much better than seeing your whole trading account annihilated by a margin call.

Give Crowdfund Builder a try today!

Making Money In Real Estate

/in , /by

Learn how wealth is created through real estate. This article focuses on the basic ways that money is made through real estate. These haven’t changed in centuries, no matter how you spin it the basics have remained the same.

Appreciation
The most common source for real estate profit is the appreciation – the increase in the value – of the property in question. This is achieved in different ways for different types of real estate. And, most importantly, it is only realized through selling or refinancing. (For related information, be sure to check out Avoiding A Big Tax Bill On Real Estate Gains.)

Raw Land
The most obvious source of appreciation for undeveloped land is, of course, developing it. As cities expand, land outside the limits becomes more and more valuable because of the potential for it to be purchased by developers. Then developers build houses that raise that value even further.

Appreciation in land can also come from discoveries of valuable minerals or materials, provided that the buyer holds the rights. An extreme example of this would be striking oil, but appreciation can also come from gravel deposits, trees and so on.

Residential Property
When looking at residential properties, location is often the biggest factor in appreciation. As the neighborhood around a home evolves, adding transit routes, schools, shopping centers, playgrounds and so on, the value climbs. Of course, this trend can also work in reverse, with home values falling as a neighborhood decays.

Home improvements can also spur appreciation, and this is something a property owner can directly control. Putting in a new bathroom, upgrading to a heated garage and remodeling to an open concept kitchen are just some of the ways a property owner may try to increase the value of a home. Many of these techniques have been refined to high-return fixes by property flippers who specialize in adding value to a home in a short time.

Commercial Property
Commercial property gains value for the exact same reasons as the previous two types: location, development and improvements. The best commercial properties are in demand, and that drives the price up on them. (For related reading, see 7 Steps To A Hot Commercial Real Estate Deal.)

The Role of Inflation in Appreciation
Of course, there is one major factor we skipped in our summary – the economic impact of inflation. A 10% inflation of the dollar means that your dollar can only buy about 90% of the same good the following year, and that includes property. If a piece of land was worth $100,000 in 1970, and it sat dormant, undeveloped and unloved, it would still be worth many times more today. Because of runaway inflation throughout the ’70s and a steady pace since, it would likely take over $560,000 to purchase that land today – assuming $100,000 was fair market value at the time and all other factors remained constant.

So, inflation alone can cause appreciation in real estate, but it is a bit of a Pyrrhic victory. Even though you may get five times the money due to inflation, many other goods cost five times as much to buy now. (Learn more in 5 Tales Of Out-Of-Control Inflation.)

Income

Generally referred to as rent, income – or regular payments – from real estate can come in many forms.

Raw Land Income
Depending on your rights to the land, companies may pay royalties for any discoveries or regular payments for any structures they add. These include pump jacks, pipelines, gravel pits, access roads, cell towers and so on. Raw land can also be rented for production, typically agricultural production.

Residential Property Income
Although it’s possible to earn income from the installation of a cell tower or other structure, the vast majority of residential property income comes from basic rent. Your tenants pay a fixed amount per month – and this will go up with inflation and demand – and you take out your costs from it and claim the remaining portion as rental income. While it’s true you will get an insurance payout if your tenants burn down the place, the payout only covers the cost of replacing what is lost and is not income in a real sense.

Commercial Property Income
Commercial properties can produce income from the aforementioned sources – with basic rent being the most common – but it can also add one more in the form of option income. Many commercial tenants will pay fees for contractual options like the right of first refusal on the office next door. These are essentially options that tenants pay a premium to hold, whether they exercise them or not. Options income is sometimes used for raw land and even residential property, but they are not common.

What About REITs or MICs?
Real estate investment trusts (REIT) and Mortgage Investment Corporations (MIC) are typically considered to be great ways of earning income from real estate. This is true, but only in the sense that real estate is the underlying security. With a REIT, the owner of multiple commercial properties sells shares to investors – usually to fund the purchase of more properties – and then passes on the rental income in the form of distribution. The REIT is the landlord for the tenants (who pay rent), but the owners of the REIT get the income once the expenses of running the buildings and the REIT are taken out.

MICs are even further removed, as they invest in private mortgages rather than the underlying properties. MICs are different from MBSs in that they hold entire mortgages and pass on the interest from payments to investors, rather than securitizing the interest streams independent of the original mortgage. Still, they are not so much real estate investments as they are debt investments, and thus outside of our area of interest. (Learn more in How To Assess A REIT.)

Similar to securities with real estate underlying the investment, most alternativesare merely a layer on top of these two basic steams of income.

For example, there are informal residential real estate options where you pay a fee to have the right to buy a house at a given time, say after a month, for an agreed upon price. Then, you find investors who will pay more than your option price for the property. In this case, the premium you get is essentially a finder’s fee for matching a person looking for an investment with a person looking to sell – no different than a real estate agent. Although this is income, it doesn’t come from buying (i.e. holding the deed to) a piece of real estate.

Similarly, no money down or OPM deals are simply the financing aspect of the deal – it doesn’t change how the buyer is planning to make money in the long run.

The Summary
If someone is trying to sell you a new way to make money from real estate other than buying low and selling high or collecting rent, they’re probably trying to sell you on the process of real estate investing rather than a new mechanism for making profits. Whether the process is worth it or not is up to you, but know that it doesn’t change how money will be made (or lost).

Investing in Real Estate Made Easy

/in , , /by

Buying real estate is not just finding a place to call home. Investing in real estate has become a common investment over the last 50 years.

Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds. This article, explores real estate as an investment.

Rental Properties
This is an investment where a person buys a property and rents it out to a tenant. The owner is the landlord and he/ she is responsible for paying the mortgage, taxes and costs of maintaining the property.

Hopefully, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit.

Furthermore, the property may also have appreciated in value over the course of the mortgage, leaving the landlord with a more valuable asset. According to the U.S. Census Bureau, real estate has consistently increased in value from 1940 to 2006, then proceeded to dip and rebound from 2008 to 2010 and has been increasing overall.

There are, of course, blemishes on the face of what seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. This leaves you with a negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments. There is also the matter of finding the right property. You will want to pick an area where vacancy rates are low and choose a place that people will want to rent.

One of the he biggest difference between rental properties and other investments is the amount of time and work you have to devote to maintaining your investment.

When you buy a stock, it simply sits in your brokerage account and, hopefully, increases in value. If you invest in a rental property, there are many responsibilities that come along with being a landlord. When the furnace stops working in the middle of the night, it’s you who gets the phone call. If you don’t mind handyman work, this may not bother you; otherwise, a professional property manager would be glad to take the problem off your hands, for a price, of course.

Real Estate Investment Groups
Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property, but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you.

A company will buy or build a set of apartment blocks or condos and then allow investors to buy them through the company, thus joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all the units, taking care of maintenance, advertising vacant units and interviewing tenants. In exchange for this management, the company takes a percentage of the monthly rent.

There are several versions of investment groups, but in the standard version, the lease is in the investor’s name and all of the units pool a portion of the rent to guard against occasional vacancies, meaning that you will receive enough to pay the mortgage even if your unit is empty. The quality of an investment group depends entirely on the company offering it. In theory, it is a safe way to get into real estate investment, but groups are vulnerable to the same fees that haunt the mutual fund industry. Once again, research is the key.

Real Estate Trading
This is the wild side of real estate investment. Like the day traders who are leagues away from a buy-and-hold investor, the real estate traders are an entirely different breed from the buy-and-rent landlords. Real estate traders buy properties with the intention of holding them for a short period of time, often no more than three to four months, whereupon they hope to sell them for a profit. This technique is also called flipping properties and is based on buying properties that are either significantly undervalued or are in a very hot market.

Property flippers will not put any money into a house for improvements; the investment has to have the intrinsic value to turn a profit without alteration or they won’t consider it. Flipping in this manner is a short-term cash investment.

If a property flipper gets caught in a situation where he or she can’t unload a property, it can be devastating because these investors generally don’t keep enough ready cash to pay the mortgage on a property for the long term. This can lead to continued losses for a real estate trader who is unable to offload the property in a bad market.

A second class of property flipper also exists. These investors make their money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment depending on the extent of the improvements. The limiting feature of this investment is that it is time intensive and often only allows investors to take on one property at a time.

REITs
Real estate has been around since our cave-dwelling ancestors started chasing strangers out of their space, so it’s not surprising that Wall Street has found a way to turn real estate into a publicly-traded instrument.

A real estate investment trust (REIT) is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, just like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends, to keep its status as an REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

Much like regular dividend-paying stocks, REITs are a solid investment for stock market investors that want regular income. In comparison to the aforementioned types of real estate investment, REITs allow investors into non-residential investments such as malls or office buildings and are highly liquid. In other words, you won’t need a realtor to help you cash out your investment.

Leverage
With the exception of REITs, investing in real estate gives an investor one tool that is not available to stock market investors: leverage. If you want to buy a stock, you have to pay the full value of the stock at the time you place the buy order. Even if you are buying on margin, the amount you can borrow is still much less than with real estate.

Most “conventional” mortgages require 25% down, however, depending on where you live, there are many types of mortgages that require as little as 5%. This means that you can control the whole property and the equity it holds by only paying a fraction of the total value. Of course, your mortgage will eventually pay the total value of the house at the time you purchased it, but you control it the minute the papers are signed.

This is what emboldens real estate flippers and landlords alike. They can take out a second mortgage on their homes and put down payments on two or three other properties. Whether they rent these out so that tenants pay the mortgage or they wait for an opportunity to sell for a profit, they control these assets, despite having only paid for a small part of the total value.

In Summary
This article has looked at several types of real estate investment. However, within these examples there are countless variations of real estate investments. As with any investment, there is much potential with real estate, but this does not mean that it is an assured gain. Make careful choices and weigh out the costs and benefits of your actions before diving in.

Real Estate Is Your Smartest Investment

/in /by

Inflation is defined as, “a general increase in prices and fall in the purchasing value of money.” Your money doesn’t go as far — simple. The $30k you made at your job 10 years ago and lived comfortably with barely gets you by now. You can’t control inflation (the Federal Reserve does that) and the government has doubled their debt since 2008. It’s now at $18.3 trillion and grows every day.

The government cannot save you or your family, or ensure your financial freedom. Set your mind right about earning money. More cash = more freedom! Money itself won’t make you happy, but it will give you the ability to provide a better life for yourself and your loved ones. You must invest with income streams that give you positive cash flow, learn to leverage your debt, learn to handle inflation and take control of your physical assets.

Do you currently have commercial real estate assets in your investment portfolio? Are you scared to have your money in the stock market (like I am) but also fed up with almost no return on investment with your money at the bank? Do you instinctively like the idea of being invested in income producing real estate with results you can see?

Here are eight compelling reasons why investing income producing real estate is an excellent choice for protecting and growing your wealth:

Positive cash flow
One of the biggest benefits to income producing real estate investments is that leases generally secure the assets. This provides a regular income stream that is significantly higher than the typical stock dividend yields.

Using leverage to multiply asset value
Another important characteristic of commercial real estate investing is the ability to place debt on the asset, which is several times the original equity. This allows you to buy more assets with less money and significantly multiply asset value and increase equity as the loans are paid down.

Low-cost debt leveraged to multiply cash flow
Placing “positive leverage” on an asset allows for investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out. For example, if a property generating a 6 prcent cash-on-cash return were to have debt placed on it at 4 percent, the investors would be paid 6 percent on the equity portion and approximately 2 percent on the money borrowed, thereby leveraging debt.

Hedge on inflation
For each dollar that is created, there is a corresponding liability. Real estate investments have historically shown the highest correlation to inflation when compared to other asset classes, such as the S&P 500, 10-year Treasury notes and corporate bonds.

As countries around the world continue to print money to spur economic growth, it is important to recognize the benefits of owning income producing real estate as a hedge against inflation. Generally speaking, when inflation occurs, the price of real estate, particularly multi-tenant assets that have a high ratio of labor and replacement costs, will also rise.

Capitalize on the physical assets
Income-producing real estate is one of the few investment classes that, as a hard asset, has meaningful value. The property’s land has value, as does the structure itself, and the income it produces has value to future investors. Income producing real estate investments do not have red and green days, as does the stock market.

Maximizing tax benefits
The US Tax Code benefits real estate owners in a number of ways, including unlimited mortgage interest deductions and depreciation accelerations that can shield a portion of the positive cash flow generated and paid out to investors. At the time of sale, IRS allows investors a 1031 provision, allowing investors to exchange into a like-kind instrument and defer all taxable gains into the future. (See your tax advisor for full explanation.)

Asset value appreciation
Over time, more and more inflation has made it into the economy, drastically reducing purchasing power. However, income producing real estate investments have historically provided excellent appreciation in value that meet and exceed other investment types. Properties historically increase in value as the net operating income of the property improves through rent increases and more effective management of the asset.

Feeling the pride of ownership
The right property in the right location with the right tenants and ownership mindset can produce a tremendous pride of ownership factor that is highest among all asset classes. Homeownership is out of reach for most people. Imagine owning thousands of multi-family housing units instead?

No one can guarantee the future of rental of income properties’ values, but this asset class seems positioned to continue to benefit from many other socio-economic issues that I will save for another time.

Real Estate Crowdfunding for Retirement

/in , , /by

Real estate is an important part of any well-diversified portfolio. Not only is it a good way to protect yourself against volatility in the stock market, it can also provide retirement income.

One of the best things about investing in real estate is that you have so many different ways to do it. House-flipping is one option if you want to pocket big profits all at once. Becoming a landlord is another way to go if you’d rather be on the receiving end of monthly rental payments.

Real estate crowdfunding, is an alternative that’s gaining popularity. It’s estimated that the real estate crowdfunding industry topped $2.5 billion in 2015 and is still growing. If you are wondering if this is a good time get in on the game and start fortifying your retirement goals, here’s a overview of real estate crowdfunding.

Real estate becomes more accessible. Private real estate deals have historically been reserved for high net-worth investors who possess the right connections to gain access. Real estate crowdfunding opens up many of these opportunities to the average investor.

This is a great opportunity for investors who are struggling to find an entry point into the real estate market. Crowdfunding enables investors of all ages, risk profiles and wealth levels to acquire real estate for the first time. With as little as a $5,000 investment or in some cases even less, investors can buy a stake in a property. From residential projects to shopping malls to office buildings, there are numerous options.

Crowdfunding is removing barriers to investing in real estate that previously shut a large number of investors out of the game. The SEC’s approval of Title III of the JOBs Act in October 2015 widens the possibilities even further by allow non-accredited investors to take part in crowdfunded real estate deals.

The opportunity for diversification expands. With direct ownership, your options are more limited when you don’t have the ability to purchase multiple properties. Real estate crowdfunding eliminates that obstacle.

Instead of being locked in to a single property type, investors have more flexibility where they put their money. They also have a choice between investing in equity in return for a share in a particular property, or debt investments, which are tied to the property’s mortgage.

If you buy a property to flip or rent, you’ll most likely feel more comfortable investing in your own backyard. When you are investing through crowdfunding, you can invest throughout the country and more easily diversify across property types, investment types and geographies.

It’s a less stressful way to invest in real estate. Owning a rental property or tackling a flip project is great for investors who prefer an active role but it’s not necessarily a good fit for someone who wants to relax in retirement.

With house-flipping, investors have to factor in all the costs involved, from buying the property to physical construction, as well as the interest paid to lenders if you’re financing the project. Besides that, there are the tax implications that go along with realizing short-term financial gains. Bottom line, it takes a long time to master the art of rehabbing. Investors have to be able to anticipate problems and have a counterattack ready.

Owning a rental house is no less of a challenge. There are the difficulties that go along with finding tenants and making sure you’re adhering to the legal guidelines for renting. Then there’s the day-to-day demands associated with managing a property, which can be time-consuming.

The passive nature of real estate crowdfunding as being more suited to retirees who have less of an interest in direct involvement.

Real Estate Investing is a Great Way to add Retirement Income
For some investors, real estate is a viable option for generating money and diversifying your investments.

Understand the risks. While real estate crowdfunding may be more preferable to direct ownership for some retirees, there are some potential drawbacks.

Liquidity is one issue that may be of more concern to retirees. Depending on how a deal is structured, you may be looking at a holding period of anywhere from 18 months to seven years before you’re able to recoup your investment.

In that scenario, owning a rental property or flipping homes could begin to look more attractive because there’s a more immediate payoff. Factoring in the holding period is important if you have a pressing need for sustainable cash flow outside your existing investments.

With crowdfunding deals that are structured as debt or loans, investors receive returns for loaning the owner/ developer money.

Learn the basics of commercial real estate

/in /by

The Basics of Commercial Real Estate

Commercial real estate is property that is used solely for business purposes. Examples of commercial real estate include malls, office parks, restaurants, gas stations, convenience stores and office towers. Commercial real estate is one of the three primary types of real estate; the other types are residential real estate and industrial real estate.

Commercial Real Estate – Summarized
Commercial real estate includes various types of real estate from gas stations to shopping centers. As its name implies, commercial real estate is used in commerce. Residential real estate is used for living purposes, while industrial real estate is used for the manufacture and production of goods. While residential real estate may be quoted in total price or rent per month, commercial real estate is customarily quoted in dollars per square foot through lease agreements, as businesses that occupy commercial real estate usually lease their spaces. An investor usually owns the building and collects rent from each business that operates there.

Types of Commercial Real Estate Leases

There are four primary types of commercial real estate leases, each requiring different levels of responsibility from the landlord and the tenant. In addition to rent, a single net lease makes the tenant responsible for paying property taxes. A double-net (NN) lease makes the tenant responsible for paying property taxes and insurance. A triple-net (NNN) lease makes the tenant responsible for paying property taxes, insurance and maintenance. Under a gross lease, the tenant pays only rent, and the landlord pays for the building’s property taxes, insurance and maintenance.

Commercial Real Estate Classifications

Commercial real estate can be a shopping center with multiple retail tenants or a skyscraper with dozens of tenants. Commercial real estate is categorized into different classes. Office space, for example, is divided into one of three classes: class A, class B or class C. Class A represents the best buildings in terms of aesthetics, age, quality of infrastructure and location. Class B buildings are usually older and not as good-looking as Class A buildings. These buildings are often targeted by investors for restoration. Class C buildings are the oldest, usually over 20 years of age, located in less attractive areas and in need of maintenance.

Investing in Commercial Real Estate

Investing in commercial real estate often requires a considerable amount of startup capital and extensive knowledge of the legal, financial and regulatory aspects of owning this type of property. Investors who don’t want to deal with these hassles directly can gain exposure to commercial real estate through real estate investment trusts (REITs). Commercial real estate REITs are publicly traded on stock exchanges, so they are easy to buy and sell, providing liquidity to investors who otherwise would not have it by owning commercial real estate properties directly. Commercial real estate REITs can provide income to investors as well as capital appreciation.

Real estate is property comprised of land and the buildings on it as well as the natural resources of the land including uncultivated flora and fauna, farmed crops and livestock, water and minerals. Although media often refers to the “real estate market” from the perspective of residential living, real estate can be grouped into three broad categories based on its use: residential, commercial and industrial. Examples of residential real estate include undeveloped land, houses, condominiums and townhomes; examples of commercial real estate are office buildings, warehouses and retail store buildings; and examples of industrial real estate are factories, mines and farms.

Commercial Real Estate Loan

A mortgage loan secured by a lien on commercial, rather than residential, property. Commercial real estate (CRE) refers to any income-producing real estate that is used solely for business purposes, such as retail centers, office complexes, hotels and apartments. Typically, an investor (often a business entity) purchases commercial property, leases out space, and collects rent from the businesses that operate within the property. Financing, including the acquisition, development and construction of these properties, is typically accomplished through commercial real estate loans. Commercial real estate loans are typically made to business entities formed for the specific purpose of owning commercial real estate. Entity types include corporations, developers, partnerships, funds, trusts, and Real Estate Investment Trusts, or REITs.

Commercial Real Estate Loan – Summarized
Like residential loans, banks and independent lenders are actively involved in making loans on commercial real estate. In addition, insurance companies, pension funds, private investors and other capital sources, including the U.S. Small Business Administration’s 504 Loan Program, make loans for commercial real estate. And, like residential lenders, various commercial lenders have different levels of risk that they will undertake. As a result, lenders have different terms they are willing to offer to borrowers.

Private Equity Real Estate

Private Equity Real Estate is an investable asset class that consists of debt and equity investments in the property markets allowing multiple investors to pool their funds. Private Equity Real Estate funds became prominent in the 1990s as an alternative way to capitalize commercial real estate to real estate syndications.

Private Equity Real Estate
Investing in Private Equity Real Estate traditionally requires a longer-term consideration, an active management strategy, and significant upfront capital commitment to a fund that seeks potential investment opportunities in the space. Little flexibility is offered to investors since the capital commitment typically requires several years. However, given real estate’s popularity as an asset class, it provides high potential levels of income with strong price appreciation in the future.

Commercial Property

Real estate property that is used for business activities. Commercial properties fall into many categories and include including industrial properties, shopping centers, farms, offices, or even vacant land.

Commercial Property – Summarized
Common examples of commercial property include the grocery store you regularly visit and the office buildings found near major urban centers. It is possible to monitor the trend in nationwide commercial property prices by following the Moody’s Real Commercial Property Index.

Commercial real estate 101

/in , /by

Commercial real estate — comprised of office space, hotels, retail space, industrial property, land and multi-family homes — is one of the three main types of real estate, along with residential and industrial. Owners of commercial real estate, say a gas station or strip mall, make money through appreciation when they sell, but they can also pull in revenue via rent they collect from tenants.

Lease Lowdown
Leases can run from one year to 10 years or more. Leases on multi-family homes usually run a year, while leases on industrial space average about five years. Office and retail space can range from five to 10 years. “Larger tenants tend to have longer leases,” said Brian McAuliffe, an executive managing director in CBRE Group’s (CBG) Capital Markets division. “Shorter-term leases provide more flexibility to adjust lease rents while longer leases provide more security, especially with credit tenants.”

There are several types of leases commercial property owners use. Under a gross lease, they collect only rent and are responsible for expenses such as property taxes, insurance and maintenance. With a single-net lease, owners generally collect property taxes on top of rent. With a double-net lease, they collect rent, property taxes, and insurance from tenants; with a triple-net lease, tenants pay property taxes, insurance and maintenance.

A commercial real estate firm advises on how to best negotiate lease agreements that will attract and keep tenants — property owners need to strike a balance between maximizing rents and minimizing vacancies and tenant turnover. Turnover in can be costly for owners because a space must be adapted to meet the specific needs of different tenants, like if a restaurant is moving into a property once occupied by a yoga studio.

There are many firms in the commercial real estate space. CBRE is the largest in the world. Other big players include Jones Lang LaSalle (JLL), Cushman & Wakefield, Inc., Newmark Grubb Knight Frank, and DTZ. These companies help source commercial real estate, appraise value, broker purchases and sales, manage upkeep, find and retain tenants, negotiate leases, and navigate financing options. “A full-service company satisfies all of a client’s real estate needs, whether they be individuals, limited partnerships or institutions,” said McAuliffe.

The specialized knowledge of a commercial real estate company is helpful as the rules and regulations governing such property vary by state, county, municipality and industry and size. The rewards can be substantial, though.

Lucrative Holdings
The U.S. commercial property market took a hit during the 2008-2009 recession, but it has experienced annual gains since 2010 and has since recovered almost all recession-era losses.

Washington-based Urban Land Institute recently released a forecast of real estate trends that predicts commercial real estate prices will continue to sharply rise through at least 2017. The Real Estate Consensus Forecast surveyed 46 industry economists and analysts. It sees commercial property increasing an average of 7.6% annually through 2017, which is up from historical long-term increases of 5.3% annually.

The rents collected from commercial property is also on the rise. Commercial lease rates are usually quoted in annual dollars per square foot. Newmark Grubb Knight Frank recently reported that the national average for office space rent was $27.76 a square foot in the first quarter of 2015, up 4% from a year earlier, while the price asked for industrial space was $5.70 a square foot, up 7%.

The Bottom Line
As one of the three major sectors of real estate, the commercial property market is on fire. Prices are expected to appreciate sharply over the next few years. Whether owners are making money via selling or renting properties, there should be plenty of cash on hand to buy lots of hair products.

Rising Interest Rates And Commercial Real Estate: A Primer

/in /by

There has been much talk recently about what the Federal Reserve’s first interest rate hike since 2006 means for the U.S. economy as a whole. Here we take a look at the impact of rate hikes (current and future) on commercial real estate, examining first the prospective disadvantages and then the potential benefits.

Figuring this out isn’t straightforward, as interest rate changes have multiple impacts on commercial real estate (CRE). Further, the very causes of the Fed decision to raise interest rates may signal that other economic factors are at play, and these, too, may impact CRE.

Further complicating things, the timing of the rate hike coincides with the “maturity

wall” of commercial mortgage-backed securities that need to be refinanced within the next two years. The maturity wall means there will be many borrowers who need refinancing in any case because their loans are maturing, while the rate hike could prompt those borrowers to seek out refinancing sooner rather than later.

It is worth noting that since the recent rate hike is small and the rate remains low – the quarter-point increase raises the target range to 0.25%-0.5% – the current hike may not have a massive effect on its own, but subsequent hikes are predicted for next year.

SEC Targets Reg A+ Marijuana Company, Med-X, in Administrative Proceeding.

/in /by

Reprinted from Crowdfund Beat, By Samuel S. Guzik, CrowdFundBeat special guest editor, Guzik & Associate

The Regulation A+ industry was buzzing this week – not with excitement, but with a healthy dose of trepidation. One of the first, high (no pun intended) profile Regulation A+ offerings, launched in November 2015, after a seemingly successful “Testing the Waters” campaign, was for a company called Med-X, a startup formed to participate in the newly burgeoning marijuana industry – the so called “Green Rush.”

But this month’s headline for Med-X was a bit more sanguine, enough to counteract even the most potent dosage of THC: “REGULATION A EXEMPTION OF MED-X, INC. TEMPORARILY SUSPENDED.” The story that followed was not the kind of publicity any company is looking for – especially when it is in the throes of raising money under Reg A+. Actually, it was not a story. Rather, it was an Administrative Order issued by the SEC on September 16, 2016, temporarily suspending the exemption of Med-X under Regulation A+.

Why? Well, it seems that this company failed to notice, or at least heed, the requirement that Reg A+ issuers file periodic informational reports as a condition of maintaining their status as Reg A+ issues. The basic requirement calls for a company, at the least, to file a semi-annual and annual report with the SEC following the “qualification” of the offering. Seems that Med-X failed to file its annual report, which would include audited financial statements, when due back in the Spring of 2016.

Some have speculated that the SEC was targeting a disfavored industry – Rule 506. I doubt it. The SEC has approved the registered sale of other companies in this industry long before Regulation A+ was adopted.

Others have speculated that this action reflects an uneven hand towards Regulation A+ issuers. After all, this type of swift action is rare for fully reporting companies which are delinquent in their filings. One more time: I think not.

The Staff at the SEC has been remarkably supportive of the rollout of Regulation A+, as measured anecdotally in terms of the efficiency in which it has been processing the review of Regulation A+ offerings.

Rather, I think back to one of the more notable sound bytes I coined in a Webinar back in April 2015: “Regulation A+ is not your daughter’s Kickstarter campaign.” Raising capital from outside investors is serious, heavily regulated business. And as indicated by some of the early Regulation A+ participants, the level of sophistication of the management of some of these issuers has hardly met the bar required to file and prosecute a Regulation A+ offering.

Yes, Regulation A+ is a little more complex than the pipedream: filling out a form, waiting for SEC approval, and then crowdfunding your way to $50 million. Apart from detailed disclosure rules, including audited financial statements, and the always difficult task of raising capital – especially for early stage companies – there is an ongoing SEC reporting requirement. Yes, the requirement is lighter than a fully reporting public company, to be sure, but enough to quickly overload an early stage company, with limited financial and human resources.

So if nothing else, this is one SEC enforcement action can be expected to inject a dose of reality into the Regulation A+ capital raising process. As our President might say, “A Teachable Moment.”

Samuel Guzik

Samuel S. Guzik has more than 35 years of experience as a corporate and securities attorney and business advisor in private practice in New York and Los Angeles, including as an associate at Willkie Farr and Gallagher, a major New York based international law firm, a partner at the law firm of Ervin, Cohen and Jessup, in Los Angeles, and in the firm he founded in 1993, Guzik & Associates.

Mr. Guzik has represented public and privately held companies and entrepreneurs on a broad range of business and financing transactions, both public and private. Mr. Guzik has also successfully represented clients in federal securities litigation and SEC enforcement proceedings. Guzik has represented businesses in a diverse range of industries, including digital media, apparel, health care and numerous high technology based businesses.

Guzik is a recognized authority and thought leader on matters relating to the JOBS Act of 2012 and the ongoing SEC rulemaking, including Regulation D Rule 506 private placements, Regulation A+, and investment crowdfunding. He has been consulted by Congressional members, state legislators and the U.S. Small Business Administration Office of Advocacy on matters relating to the JOBS Act and state securities matters.

Guzik & Associates
1875 Century Park East, Suite 700
Los Angeles, CA 90067
Telephone: 310-914-8600
www.guziklaw.com
www.corporatesecuritieslawyerblog.com
@SamuelGuzik1

10 Passive Income Strategies You Can Use

/in /by

1. Rent What You Own
Renting out something you own takes little upfront work and can yield a stable monthly income. One of the most popular ways to do this is to rent out a spare room or your entire home on Airbnb. But there are plenty of other things around your house or apartment that you can rent.

2. Invest in Exclusive Real Estate
Crowdsourced real estate investing through sites like corwdfundbuilder.com is a great way to invest in exclusive real estate opportunities. Spend just $5,000 and start investing in properties while someone else deals with all of the hassles, from maintenance to upkeep. It’s also one of the few ways to invest in commercial real estate rentals without needing to be a multimillionaire.

3. Start Microbusiness and Outsource It
Entrepreneurs often suffer from dreaming up too many ideas with too little time to execute. Do some hustling to get that simple, straightforward, and irresistible-to-customers microbusiness off the ground. This could be anything from content marketing for startups to developing simple websites for dentists’ offices.

4. License Your Ideas
You don’t have to be a product guru to license an idea to a company. Although the process to create a passive income this way is a long one, it can pay off big. Take your product ideas to equipment manufacturers and seminars to get them into the hands of companies like Coca-Cola.

5. Start a Subscription Business
It’s true that a subscription business takes some upfront hustle and hard work to get off the ground, but execute it correctly, and you could sit back and watch it run itself.

6. Become an Angel Investor
You don’t need millions to become an angel investor when you can become a silent partner to a growing company right now. Angel Investors invest money in an enterprise and can see a healthy return on their investment without doing much once the set up is complete.

7. Create CD Ladders
Despite low interest rates, CD ladders can help save money and ensure a safe return on your investment. The strategy involves dividing the amount of money to be invested into equal amounts to CDs with different maturity dates. This can ramp up your return for more interest income.

8. Package Your Skills
It’s easy to dismiss your expertise as something no one would pay for, but that is rarely true. Book a free speaking event at a seminar or conference on anything from small-business bookkeeping to running a remote team. Ask your audience to sign up for your newsletter and sell your video series, print-on-demand resource book, or product to interested parties.

9. Resell Your Work
What’s lying around in your online storage? Business templates, sample contracts, PowerPoint presentations, and audio notes can all be repurposed and sold multiple times. Start big, like selling a complete series of helpful business resources to your clients, all the way down to Kindle books and membership sites that offer ongoing resources to paid members.

10. Sell Electronic Artwork
There are more options for selling digital artwork than just stock photos and WordPress templates. There are hundreds of users on sites like Etsy selling digital downloads of website buttons, graphics, illustrations, and wallpapers over and over again for a profit.