Top 5 Mistakes That Mean Immediate Failure

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In any business, one of the best ways to avoid failure is to avoid the things that cause failure. This can be done by identifying the things that cause failure, and avoiding them at all cost!

It is normal to not know everything when getting into a new business, as it takes extensive practice and experience to learn what mistakes to avoid. It is very helpful to have a mentor or someone to identify these mistakes that you should never make.

Here I have identified 5 very serious mistakes that could land you in deep commercial real estate trouble! I have learned by experience, and, unfortunately, not every experience was a good one. If you can avoid learning the hard way, then take this advice, so you do not have to experience the hardships of making any of the following mistakes.

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The Benefits of Commercial Real Estate Revealed

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Getting involved with commercial real estate could be the best decision you have ever made. Whether you are currently working within the real estate industry, or are new to the business, commercial real estate is one of the best kept secrets of those already succeeding in the business. The rewards reaped within this industry compare to no other, as you will soon learn.

If you feel commercial real estate is something you are not able to accomplish, I would have to say you are greatly mistaken. With a little knowledge and a great amount of motivation, anyone can succeed in this business. The benefits far outweigh the costs, as you can create a life of which many dream, but never actually experience.

The first great benefit is one that allows you to create a schedule that best fits your personal situation. In commercial real estate you can work full or part-time and still create wealth and equity you never knew was possible!

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Sell Commercial Real Estate Notes

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Selling commercial real estate notes allows you to convert small monthly payments into an immediate lump sum of cash. A commercial real estate note is simply a loan document signed when you financed the sale of your investment property. Commercial real estate notes are available for office, retail and industrial establishments.

Commercial real estate note selling is based on certain fixed standards. The outstanding balance amount and the period of time are important for most buyers. Second in importance is the value of the property. People generally sell part of their commercial real estate notes instead of selling them as a whole. Partial sales are more profitable in most cases.

When a business involving real estate is sold, two notes are generally created, one each for the business and the real estate. The business note is similar to private mortgages and trust deeds, but it is not secured by real estate. A business note is generated when a person sells a business and decides to carry on the financing and collect regular payments from the new business owner.

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10 Things Every Buyer Needs

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For nearly 30 years, I have represented borrowers and lenders in commercial real estate transactions. During this time it has become apparent that many Buyers do not have a clear understanding of what is required to document a commercial real estate loan. Unless the basics are understood, the likelihood of success in closing a commercial real estate transaction is greatly reduced.

Throughout the process of negotiating the sale contract, all parties must keep their eye on what the Buyer’s lender will reasonably require as a condition to financing the purchase. This may not be what the parties want to focus on, but if this aspect of the transaction is ignored, the deal may not close at all.

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Understanding Basic Commercial Real Estate Lease Clauses

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Do you know what commercial real estate lease clauses to include a commercial real estate lease agreement? Learning basic commercial real estate lease clauses will help you structure a commercial real estate lease agreement correctly. You should include introductory clauses in your lease agreement that do the following:

• Describe the premises • Specify the lease term • Indicate the rental or lease payment amount
Many times, you will be dealing with a five-year lease. Therefore, you need to explain in the lease, how rental increments will happen every year over the period of the lease. You could also include additional tenant conduct, indicating what tenants can or cannot do. This is where you would specify whether they could assign the lease, sublease it, or limit it to sub-leasing (subject to landlord’s approval).

Signage Signage becomes a problem in some places such as Florida, because of hurricanes. One of the most serious threats to life and limb in a hurricane is not the wind per Se, but the debris that the wind blows around.

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Back On Your Feet

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Everyone wants to remain free from any sort of financial obligation. But what to with the financial deficits which come in between running or establishing any enterprise? To fight away from such crux, the lending authority has come up with various loans. Commercial real estate is one of those loans which are used to buy, improve or refinance commercial property. Availability of this loan online and offline has opened the financial knot of aspired borrowers. For instant appraisal and quick result, online method of availing commercial real estate is in vogue.

Basically, commercial real estate deals with all properties, both rental and for sale, that are not residential. So any grocery store, book store, or coffee shop that moves into an area must deal with a commercial real estate representative to make the buy or leasing agreement. Likewise, builders who focus in buildings that will be used for non-residential belongings should use a commercial real estate negotiator in their planning and to lease or sell their buildings out for business.

Financing sources for commercial real estate include mortgage banking firms, savings and loan institutions, regional banks, insurance companies, and private investors. Commercial real estate financing can take on very different terms, and the way deals are structured is based on a number of factors including:

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12 Problems to Avoid

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This article describes 12 recurring problems with commercial real estate loans that commercial borrowers and their advisors need to anticipate before it is too late. The following problems are common in traditional bank commercial real estate loans and should be avoided if feasible (special circumstances will periodically make some of these terms unavoidable).

COMMERCIAL REAL ESTATE LOANS PROBLEM NUMBER 1: Tax Returns versus Stated Income
Most traditional banks will require several years of tax returns in order to qualify for a commercial real estate loan. The alternative is to use a Stated Income lender that does not verify personal income or assets. Many borrowers will simply not qualify for a commercial mortgage loan if tax returns are used due to high business expenses (and low net income). Many lenders using tax returns will also continue to verify income after the loan closes. Stated Income lenders will not engage in this practice.

COMMERCIAL REAL ESTATE LOANS PROBLEM NUMBER 2: Special Purpose Properties
It is becoming increasingly difficult to get commercial loans for special purpose properties. Properties that do not fall in the categories of apartments or retail/office buildings are often placed in this special purpose classification. This means that business acquisition loans for commercial properties such as restaurants/bars and auto service businesses are frequently hard to find. Commercial financing will be even more difficult to locate for such specialized properties as churches, funeral homes, nursing homes and assisted living facilities.

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Cold Calling

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Commercial real estate is an easier property market segment to work in because it is built around logic and not emotion. Most of the prospecting calls and meetings you make are with people that are ‘business savvy’, and know real needs and solutions when they see them.

The emotion seen with owners in residential property is not a problem in commercial real estate however you do need to know what you are talking about given that commercial is a complex investment property type and the property owners are usually very aware of what is going on. For this reason, and to all the newcomers to the industry, you must know your product very well and be able to talk to it from many angles. Without this many property owners will discount your relevance to them.

Get Your Head and Thinking Straight
B2B cold calling is an essential part of daily activities in commercial real estate however it frequently fails because most salespeople sound like they are making a cold call. Here are two essential rules of cold calling success in commercial real estate:

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Plan C

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In the past week or so, I’ve seen a lot of buzz on the internet about how a commercial real estate crisis is our next big economic problem. There has not been much in the way of commentary from reputable sources in the last several weeks, so I decided to dig a bit deeper.

Interestingly, there seems to be a wave of positive economic news coming from the media these days and discussion about the problems in the residential mortgage industry have, at least for now, died down. Whether the positive economic news is accurate is another issue — check out Josh’s commentary here about the next wave of residential foreclosures.

Thus, the shift of attention from the residential mortgage problems to commercial real estate makes sense. Commercial lending is different than residential real estate and it’s possible that the average consumer isn’t really interested in figuring out what’s wrong with commercial lending. Many of these people are still trying to save their homes.

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The Future of Commercial Real Estate

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Although serious supply-demand imbalances have continued to plague real estate markets into the 2000s in many areas, the mobility of capital in current sophisticated financial markets is encouraging to real estate developers. The loss of tax-shelter markets drained a significant amount of capital from real estate and, in the short run, had a devastating effect on segments of the industry. However, most experts agree that many of those driven from real estate development and the real estate finance business were unprepared and ill-suited as investors. In the long run, a return to real estate development that is grounded in the basics of economics, real demand, and real profits will benefit the industry.

Syndicated ownership of real estate was introduced in the early 2000s. Because many early investors were hurt by collapsed markets or by tax-law changes, the concept of syndication is currently being applied to more economically sound cash flow-return real estate. This return to sound economic practices will help ensure the continued growth of syndication. Real estate investment trusts (REITs), which suffered heavily in the real estate recession of the mid-1980s, have recently reappeared as an efficient vehicle for public ownership of real estate. REITs can own and operate real estate efficiently and raise equity for its purchase. The shares are more easily traded than are shares of other syndication partnerships. Thus, the REIT is likely to provide a good vehicle to satisfy the public’s desire to own real estate.

A final review of the factors that led to the problems of the 2000s is essential to understanding the opportunities that will arise in the 2000s. Real estate cycles are fundamental forces in the industry. The oversupply that exists in most product types tends to constrain development of new products, but it creates opportunities for the commercial banker.

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