Real Estate & Property Smart Investing

If you want to be a successful home broker or real estate investor, there is one major element that you must overcome. You need to stop being intimidated by the aspect of commercial real estate. I believe this happens because people think that commercial or investment properties require a level of investment savvy or financial education that is greater than they possess or are capable of obtaining. Once you face them and discover that even many of the real insiders don’t know the truth about them, you will be able to face them down and no longer be intimidated about any aspect of the real estate investment arena.

Commercial Real Estate Is Complicated

There is some math involved, only you don’t have to do it. The same is true with forms and taxes and all that. That is what accountants and lawyers are for. They are cheap if you start with them and only expensive if you try to do it yourself and need them to bail you out of a jam. The fact is that the benefits of getting into multitenant investment property far outweigh the complications that you will be able to farm out to hired help. The investor who is trying to make his investment capital work for him by keeping the books, collecting the rents, inspecting the property, and doing the year-end tax reporting is doing more than he should be doing. So don’t get caught in that trap.

You will understand that knowing what is going on in the marketplace is 90 percent of the effort. Arriving at this level of knowledge is simple, easy, and fun, and does take some time. This is the time that you will devote to making contacts that will work for you year after year and cost you nothing more than the time it took to meet them and to cultivate them as your friends and business associates. It is also the time you will spend getting to know what creates value within your comfort zone, and how you can take advantage of the obvious signals that have been sitting right on the next-door neighbor’s fence all the time, only you didn’t recognize them.

The other 10 percent of the ingredients needed to fill out the formula for success are elements that you will absorb all by yourself as you work your way up the ladder of becoming a true real estate insider. It is to meet these ends that this book is dedicated. As you may suspect, 90 percent of the book is designed to hold your hand and lead you through the initial 90 percent of your effort. Not once will you be asked to take an SAT test, or attend graduate school, or apply to law school. No one will ask to see your diploma.

Real Estate Is Management Intensive

Remember management postures 1, 2, 3, and 4? They are the foundations to all the real estate management you need to begin with. You will add finesse to each of them as you go along. You will discover that MP 4 is not always the best approach to real estate management. Sure, MP 4 is ideal for property you plan to keep for a while, and property that is not already near its economic obsolescence. There are times when you simply want to keep the property producing income, at its highest level, for a short period of time. This means you do not want to plow more capital into a property that is going to be torn down in a few years. In such cases, MP 2 or MP 3 might be all that is needed. You will also discover that the Rule of Small works with almost every aspect of real estate and especially applies to the management side of things.

The most important aspect of real estate management is to deal with it quickly and decisively without big moves. Tenant complaints should be addressed and not ignored, problem tenants removed if possible, and rents kept at or below the market rate of similar properties. If the property is in a constant upgrade program (MP 4), then stay at or above market rates.

“Location, Location, Location”

There is a smidgin of truth in this statement. Location does have both merit and value. But as you will shortly understand, it is not the location that makes the property most valuable. As an investor, you may not have a clue what the future use of this property will be. So the word use must be viewed as referring to the possible uses that the local zoning and other restrictions will allow. In essence, what will they let you put there? If you are the actual user looking for a place to put one of your existing businesses—say a tire store, or a muffler shop, or a full service restaurant with lounge—your first choice may be to find a good location, but you need a location that allows the use that you need. The best location in the world, if it does not allow a muffler shop, will have no value to Midas Muffler stores, or any other muffler shop for that matter.

Use, then, is a critical element that needs to be understood. Use is controlled by a number of factors, some governmental in nature, such as zoning ordinances, controls dealing with fire issues, and regulations about hazardous substances (relating to such things as gas storage, paint booths, and chemical sales). Deed restrictions imposed by past owners or developers can also restrict use, as can setbacks from other similar uses or prohibitions on activities within so many feet of their front door. Use is the key to the value of any location.

The subject of use and all the elements that control it is discussed in the balance of this book. It will be very important for you to recognize these elements because they are often hidden, and only the real insider is able to sort them out.

Real Estate Is Complicated

Real estate is found everywhere, to be sure, but if you think that you can invest in Fort Lauderdale by being the expert in real estate in San Francisco, then you are headed for a disappointment. Trends do follow certain similarities, but they can occur for different reasons and last for different periods of time. What is going on in Fort Lauderdale may not be the same thing that is happening only 25 miles away in Miami. Local trends are really local. Certain neighborhoods suddenly become hot and start to go through a phase of rebuilding. If you get in early enough, that might be the only ticket you need to your fortune. If a local growth phase is nearing an end, then you need to look at nearby or adjoining neighborhoods that will take off due to the supply-and-demand effect of the market.

Real estate is so local, in fact, that many people who have had good success investing in their neighborhood have run into difficulty because they believed they could relate that success to anywhere they went. They go on a vacation and fall into what I call the “greener grass syndrome.” You know about the green grass on the other side of the fence, don’t you? Well, this happens to real estate investors too. What suddenly looks like greener grass than they have at home seems to be a bargain because it is one-third or less the price of a similar piece of grass at home. Uh oh, not so! It might turn out that there are too many restrictions, only one-fourth the traffic, building and zoning won’t allow more than two floors of building, and on and on.

Rely on your comfort zone. The idea is to build your comfort zone in your own backyard first. Expand it and then, if you are so inclined, begin another comfort zone in another neighborhood where, at first at least, the grass looks pretty green.

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