I have been a real estate investor for 15 years and a coach for several. I personally have completed 25+ syndications and have raised millions. Trust me when I say…Deal makers always need to be raising money. Investors who want to deploy a certain amount of their net worth into alternative investments need deal flow.
What I found by working with beginning real estate investors for that long is the problem that occurs is with all the fear that comes up, there is too much of a paralyses around lack of current money to get through the fear about how you are going to invest in real estate. It is just too much to overcome. They are too concerned about the end goal and their fears kick in and say no one will invest with me.
Rather they should understand its a proven process that works. Milestones need to be achieved and once those milestones are learned – the end goal just happens through successful steps along the way. Remember success breeds success.
This business that is so incredible, one that provides so many benefits for so many people. Why is it that most are never able to overcome that fear? They simply never had a proven plan that outlines the steps to be successful & would put consistent money in their pocket fast enough before they quit.
A WIN FOR SYNDICATORS
I’m pleased to report, on Augut 29, 2012, the Securities and Exchange Commission issued proposed changes to its regulations in the federal securities laws that were outlined in the JOBS Act which can be used by real estate syndicators to permit advertising without the registration of the offering with the SEC. In the past, we had to rely on old fashioned networking to attract investors to us. Under these proposed changes, we can use more traditional marketing methods to solicit potential investors which is a huge win for our industry.
In the past syndicators had to have “pre existing relationships” with the investors which was quite a process and had many restrictions placed on them with attracting investors.
Title II of the JOBS Act reversed the limitations and permitted general solicitation of the offering as long as the investor is accredited. Syndicators must also take reasonable steps to ensure that the investors are accredited. By removing the ban, a wider audience can be reached through advertising, the Internet and seminars.
The NCREIF Index through 3Q 2012 is 7.59%. As a frame of reference it finished 2011 at an impressive 13.56%.
Other equity markets year-to-date 2012 (as of 11/5/12)
Dow Jones Industrial Avg.
MSCI EAFE (int’l developed)
MSCI EM (emerg. mkts.)
Accordingly to Fidelity, American workers should aim to save at least eight times their salary to retire.
Fidelity Investments recently published a set of guidelines to help workers evaluate whether they are on track for retirement. To meet their goal to retire at age 67, workers should have saved one year’s salary at age 35, three times their salary at age 45, and five times their salary at age 55. “The two factors that have the greatest impact on retirement savings over time are starting early and saving consistently,” says James MacDonald, president of Workplace Investing for Fidelity. “Having age-based targets provide benchmarks to help retirement savers stay on track toward their ultimate goal.”
President Obama will move into his second term facing a divided Congress that looks a lot like the Congress of the last two years – with the Democrats controlling the Senate and Republicans solidly controlling the House of Representatives. With the country facing immediate fiscal challenges that require complicated negotiation, many of his top financial advisers expected to announce their resignations by the end of the year. The president and congressional leadership are both under intense financial market and public pressure to address the nation’s troubled and uncertain fiscal condition before the end of the year. How will commercial real estate be impacted?
Since the election concluded, my phone has rung off the hook. That tells me that the commercial real estate industry was waiting for the election to be over and return to business. There is a ton of capital out there and you have to find it – its not as easy as it was but its there.
I have heard from a lot of investors lately that their goals have not been met this year and they are stuck. I have suggested that they contemplate coaching or mentoring. Check it out – It’s a curriculum based platform that teaches the milestones needed to be a successful real estate investor with personal interaction rather than some marketing guy selling a bunch of dvd’s.
The horizon for hotel deals during the next 5 years looks better than ever and here is why…
There is real demand for supply and the new supply is at an all time low. When inflation kicks in, hotels will benefit more than most asset classes. Operators can raise rates daily to keep up with inflation.
The thought of hotel operators I know is to buy at a very low price per key and sit back and watch rack rate rise.
Hotel Financing is very aggressive and PIP financing is plentiful and very competitive.
Because of the lagging economy, deals will be upside down as maturities come. The massive PIP requirements that are needed won’t help things.
All signs in medical office leasing are leading experts to believe that medical offices buildings (MOB’s) are one of the top asset classes trading right now. Many brokers in the medical office asset type are leasing themselves out of jobs. Further they state that well located buildings are leasing up – its not IF its when. They also report rents too are beginning to push higher and tenants are locking in long term deals.
One major reason for this is that the first of the roughly 77 million baby boomers began turning 65 last year (The Medicare Age).
Additionally, Obama Care anticipates to add 32 million more Americans to the insurance rolls beginning 2014.
As with many asset types now, there is more demand for quality MOB investments deals and that has been driving cap rates down.
Now the election is behind us its go time – no excuses!
1. Recognize change is coming. We are hopefully skipping along the bottom if not recovering in certain markets. It is getting better and you want to time it right. Money is made in this business adapting to the cycles.
2. Pick your destination. I did/do value add deals very well – I have patient money. For me, there is no reason to change. You may have more conservative or capital that needs yield – buy net leased deals?
3. Bet Small and Often. Get back on your horse and “get out of bed” for the smaller deals than your use to. Doing a couple of deals (albiet they may be smaller) is more than most are doing…success breeds success! My average size deal use to be $4-5 million now its $2mm,
4. Get your staff right. Hire slow and fire quick. Surround yourself with the best people they are out there.
5. Listen to disagreement. We all had people telling us that 2005-2007 would not go on forever and to take profit…bet some of us think we should of listened to them now! Again its cycles and you have to sell to realize a profit.
6. Being new isn”t bad. There are a lot of investors that are out of the business for good. The new crop of investors are coming (I was one of them in the mid 90′s). If you are a NEWBIE I would like to Hear From You.
7. Don’t hesitate. Take massive action and get out there and do what you do…or align yourself with someone who will help you. 80% ready go and make up the 20% along the way…create the momentum.
Commercial real estate buyers (especially in multi family) are increasingly frustrated by the increased competition and limited supply of quality deals on the market and the increasing prices across the spectrum. In my market several new construction projects are coming out of the ground! Is there a new bubble forming in multi-family? That arguement could be made in Phoenix…
Additionally, net leased investments are being bid up as some investors who were smart and bought in 2009 and 2010 are starting to hit their exit prices and HOLD ON TO YOUR HAT are doing 1031 exchanges…remember what a 1031 is – it was music to my ears when some of my clients called me about their exchange needs. Its been a while since I had to chase around and identify a bunch of deals – another sign that the recovery in in full force
Next, sale leaseback deals in primary markets are expected to intensify in their polarity as investors see a lot of companies have very healthy balance sheets. These deal behave like a bond but yet offer appreciation through cap rate compression.
I see investors are acceping more risk as things get more competitive by taking less credit enhancements, less term of initial lease and sometimes early terminations.
Finally, for all of you capital raisers out there, I am happy to report that most of the investors I have that are HNW individuals (and not professional money managers) are appearing very happy with a 9% annual return. Therefore, I’m structuring 8% “prefs”…What are you seeing?
Recently I was asked to present to a group of investors looking at investing in real estate as an alternative investment. I was asked by one of the investors what makes your deal something I want to invest in? I had to “dummy” down the answer because these people were not real estate experts - rather HNW (high net worth) investors looking to make better than almost Zero in their bank account. I think the eight keys to investment success appeal to a broad range of available investments options.
I find that if you follow this path in looking at real estate deals, success will follow:
- Engage only credible advisors only. For example your team may include: CPA’s, JD’s, RIA’s (Registered Investment Advisors), MBA’s etc. I obtained my professional designation CCIM in 2002. Its the best in our industry.
- Hire service providers that have your fiduciary interests in mind.
Fiduciaries have to act in your best interest. Have advisors on your side
which provide that.
- Diversify your investments. In commercial real estate for example it
probably wasn’t a good idea to own a bunch of centers anchored by K-Mart.
- Focus on keeping your overhead low. Who didn’t learn this in the last cycle.
- Focus on the after tax return. Don’t worry about paying capital gains but make sure you know your basis in deals. And don’t be upset about paying a 15% gain on your investment. It pales in comparison to over paying for an asset and loosing it along with all of your 1031 money back to the bank.
- Know the capital markets. Use leverage wisely. Know when debt is
cheaper than equity. Its starting to be that way now – finally.
- Make sure you have checks and balanced in your management and advisory team. One word Madoff.
- Do not think you can time the markets. If you hit you proforma numbers on a exit, leave a little meat on the bone for the next guy. My rule of thumb was to sell assets on behalf of my investors when there was really only downside risk in continuing to own the asset. I had basically increased the NOI as high as I could so there was nothing buy risk on the horizon…BAM hit the sell button.
If you would like to see my latest deal and related spread that calculated before and after tax Email Me. I encourage you to connect with me.
The market is back and alive…
spread the word.
Thank you, we look forward to seeing in the next issue of www.creblog.com.
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