Commercial Corner—July 2009

Larry has asked me to write a series of articles for this column on single tenant commercial NNN investment properties. The first article came in January 2009.  I would strongly recommend that you read all the articles in sequence. 

In this article I want to cover an important issue that all gurus will agree on.  To succeed you need to build a team of competent professionals who are working in your best interest.  One of the biggest reasons that many real estate investors fail is because they try to do everything themselves instead of using professionals.  It is one of best examples of being penny wise and pound foolish. 

I have seen emails on investor bulletin board, where real estate investors ask other investors for sample contracts, comparables on properties, and information on the tax laws instead of using a lawyer, a real estate broker or an accountant.  Many people learn the hard way that the money they saved by not using a professional, costs them many times that amount when they run into a problem—not to mention all the headaches that goes along with the problems.

I am a real estate broker, a financial planner, and a retired attorney and still I use the services of other professionals especially lawyers and accounts. I would encourage you to form a team of at least the following to assist you with your real estate investing—a CPA, a lawyer and a real estate broker.  You may also consider adding inspectors, electricians, plumbers, etc depending on your lack of expertise or needs.

For any professional that you plan to add to your team, you should require the following.  The must be competent, accessible, reasonably priced, and must work in your best interest.  In my opinion, 95% of the professionals in any field are incompetent.  It is critical to find that 5% who really know what they are doing.  Another problem with many professionals is they are very hard to get a hold off.  A professional who understands the importance of good customer service will be always take your calls during normal business hours and often after hours.  I always take all calls even if I am in a meeting.  It takes me a few seconds to determine if it is urgent or not and often in just a few seconds, I can provide the caller with the information they need. If it requires a longer response, I tell the person I will call them back in x hours and always do so. Most people who I am meeting with do not mind the interruption because they know when they have to get a hold of me I will be similarly accessible to them.   I have also found that clients highly value that they can get a hold of me and it has contributed greatly to my success.  Finally it is very important to find a professional with integrity who is looking out for your best interest rather than providing service that will generate the most income to them.  By building your team with professionals with the right qualities, you will be one step closer to building a successful real estate investment career.

Winston T. Rego is my commercial NNN real estate guru and handles my commercial real estate transactions.  Commercial NNN transactions are very complex and there are a lot of tricks and strategies. Winston and I are also writing a course on Commercial NNN real estate and it should be available shortly.  I have asked him to write this column for the newsletter.  Please email him directly at WinstonRego@yahoo.com if you require his assistance.  He charges $500 for his initial consultation.—Larry Goins.

Larry has asked me to write a series of articles for this column on single tenant commercial NNN investment properties. The first article came in January 2009.  I would strongly recommend that you read all the articles in sequence.

In this article I want to cover a very important issue that all people should pay attention—the difference between being “rich” and “wealthy”.  I define “rich” people as people who have a high income and “wealthy” people as people who have a high net worth.  There are many rich people such as CEOs, rock stars, football players, etc. who have very high incomes but have little or no wealth.  When they get fired or quit their jobs, they lose their only source of income and become destitute–especially as many of them have become accustom to living at their previous level of income.  There are also many wealthy people such as some retired people who have paid off their multimillion dollars home but receive no income from their assets.  These people also face severe hardship and often have to take a job in their retirement years to get an income to live off.

Another example of rich but not wealthy people are successful real estate investors who buy residential properties that are distressed in some fashion or the other, put in the money and labor into the property, and flip them in a quick resale.  As these properties are usually vacant and do not produce any cash flow, the only return is the capital gains return when they sell these properties.  By constantly buying and flipping these properties they are generating an income but not building wealth.  Then one day when they get burned out and stop flipping properties, their income evaporates too and they also face severe hardships.

Some of the smarter real estate investors have realized that they need to build income and wealth try to accomplish this by buy income production residential real estate such apartment complexes, duplexes, triplexes, quadplexes or rented single family homes.  However the best income producing properties that also increase in value over time are single tenant NNN commercial properties.  These properties if acquired correctly can produce an excellent income and grow a person’s wealth.

If you want financial security must become rich and wealthy.  In other words you must build wealth that produce sufficient income to support your life style. If you have an income but have no wealth, you can use your income to build wealth by acquiring income producing assets.  Alternately if you have wealth but have no income, you can use your wealth to build up an income by for example by taking a mortgage or a line of credit on your non income producing assets such as your home and using that money to buy income producing assets.  By distinguishing between the rich and the wealthy and paying attention to whether you need to focus on increasing your income or growing your wealth, you can build true financial security.

Winston T. Rego is my commercial NNN real estate guru and handles my commercial real estate transactions.  Commercial NNN transactions are very complex and there are a lot of tricks and strategies. Winston and I are also writing a course on Commercial NNN real estate and it should be available shortly.  I have asked him to write this column for the newsletter.  Please email him directly at WinstonRego@yahoo.com if you require his assistance.  He charges $500 for his initial consultation.—Larry Goins.

Larry has asked me to write a series of articles for this column on single tenant commercial NNN investment properties. The first article came in January 2009.  I would strongly recommend that you read all the articles in sequence.

In this article I want to cover one of the most important mistakes that real investors make. Many real estate investors try to find a property that is a “deal” and then they try to see if they can afford to purchase it by either using their funds or borrowing the funds.  What they should do is first determine the optimal property for them based on their resources, needs and preferences and then they start looking for that property.

A simple illustration will make that clear. Let us take two people—Mr. Smith and Mr. Jones.  Mr. Smith has $50,000 in cash and Mr. Jones has $100,000 in cash.  Let us suppose that they have the same credit and can an interest only loan at 5% interest.  They both find an excellent property that they can purchase for a wonderful price of $100,000 and it will give them a $10,000 annual net rent.  So Mr. Smith puts down $50,000 cash and borrows $50,000 at 5% paying $2,500 in debt service.  His net at the end of the year is $10,000 minus the $2,500 debt service, which equals $7,500.  His annual cash flow ROI is $7,500 divided by his $50,000 cash investment is 15%.  Let us look at Mr. Jones’ number. He puts down $100,000 cash and buys the property.  His net at the end of the year is $10,000.  His annual cash flow ROI is $10,000 divided by his $100,000 cash investment is 10%.

Mr. Smith and Mr. Jones could both afford to buy the property using their available cash and credit.  However Mr. Jones ended up with a 10% return, while Mr. Smith got a 15% return.  If Mr. Jones wanted a 15% return instead of a 10% return, he should have instead bought a $200,000 house.  By increasing his leverage even more he can increase his ROI even more.

Please note that as you increase the leverage you lower your net income. Mr. Smith gets a 15% ROI but only a $7,500 net income while Mr. Jones gets a 10% ROI but a $10,000 net income.  So there is a trade off between ROI and net income.  There are also trade offs between properties that give more cash flow returns versus better capital gains returns.  Some properties are buy and hold and others are quick flips.  There are hundreds of these trade offs that I consider in determining the optimal property for my clients based on each client’s unique needs and preferences.  For example some clients need more income to help them pay for their bills. Others have plenty of income and want to grow their wealth as aggressively as possible.  You want to make sure you get enough income and also growing your wealth. You also need to account for your risk tolerance, time preference, and hundreds of other issues in determining the optimal property for you.  The initial analysis is complex and time consuming and I charge $500 for the initial consultation to perform this analysis and it often takes more than four hours.  The complete analysis may take weeks.

If you want to invest intelligently regardless of whether you want to grow your wealth or increase you income or lower your risk, etc. you should first do your analysis and then look for the property that will give you the optimal results rather than find a property and just see if you can afford it.

Winston T. Rego is my commercial NNN real estate guru and handles my commercial real estate transactions.  Commercial NNN transactions are very complex and there are a lot of tricks and strategies. Winston and I are also writing a course on Commercial NNN real estate and it should be available shortly.  I have asked him to write this column for the newsletter.  Please email him directly at WinstonRego@yahoo.com if you require his assistance.  He charges $500 for his initial consultation.—Larry Goins.

Larry has asked me to write a series of articles for this column on single tenant commercial NNN investment properties.  The first article came in January 2009.  I would strongly recommend that you read all the articles in sequence.

These are two independent and separate returns from single tenant commercial NNN investment properties.  NNN investment properties.  In the February article we discussed cash flow returns.  The return you get while you are holding the property.  In the March article we discussed capital gains returns.  The turn you get when you sell the property.  In this article I will cover total ROI returns.  Total ROI is the cash flow ROI plus the capital gainis ROI divided by the number of years you have held the investment.

Many investors subscribe to the traditional view that “investing is buying and holding.”  Unfortunately that is not the best strategy for growing your wealth.  A simple example will make that clear.  Suppose you have a NNN property that give you a 50% cash flow ROOI and a 50% capital gains ROI.  Suppose you hold the property for two years and sell it at the end of two years.  In the first year you get the 50% cash flow ROI and the second year you get the 50% cash flow ROI plus the 50% capital gains ROI.  At the end of the 2 years you have received 50% + 50% + 50% = 150%.  When you average it over two years you get 150% divided by 2 which equals 75% ROI.  However if you sold the property at the end of the first year you would have received 50% + 50% = 100% total ROI.  Clearly the longer you hold the property the lower is your total ROI and the faster you can sell it, the higher is your total ROI.  Furthermore usually the cash flow ROI is about 10% to 15%, which means that the total ROI in many cases is much lower the longer you hold the investment.

From the above it would imply that the best strategy is to buy and flip properties every month to maximize the total ROI.  However ther are other factors that should also be considered including closing costs, tax benefits, and having the time and energy to flip a lot of properties.  Generally but not always I find I can optmize the results better when I hold a property for a little over a year, to be able to take advantage of long term capital gains and 1031 exchanges.

This leads us to next months article where I will cover optimizing properties and the biggest mistake that most investors make.

Winston T. Rego is my commercial NNN real estate guru and handles my commercial real estate transactions.  Commercial NNN transactions are very complex and there are a lot of tricks and strategies.  Winston and I are also writing a course on Commercial NNN real estate and it should be available shortly.  I have asked him to write this column for the newsletter.  Please email him directly at WinstonRego@yahoo.com if you require his assistance.  He charges $500 for his initial consultation.

Larry has asked me to write a series of articles for this column on signle tenant commercial NNN investment properties.  The first article came in January 2009.  I would strongly recommend that you read that article first.  In January we discussed why single tenant commercial NNN investment properteies are such a great deal and have lower risks.  There are two returns to rental properties.  You get a cash flow return while you are holding it and you get a capital gains return when you sell it.  These are two independent and separate returns.  Last month, I covered cash flow returns.  In this article, I will cover capital gains returns.  There are two main ways to make a resale profit.  One way is to buy properties at prices lower than the properties are worth.  The other way is to buy properties tht will appreciate in value.

The capitalization rate or cap rate is simply the net rent divided by the price.  For example if you purchase a property for $100k, and it has an annual net rent of $8k, then the cap rate is $8,000 divided by $100,000, which is a 8% cap rate.  Normally when we are purchasing a property we know what the net rents are because they are locked by the lease.  However to figure out the correct price for the property we need to determine the cap rate for the property.  The cap rate is a subjective term and is based on thousands of factors, such as age and condition of building, length and terms of the lease, credit of the tenant, location of property, financial market, economy, how other similar properties are selling, etc.

Given that determining the cap rate is extremely complicated, the best deals are found by locating what I call mispriced properties.  I amnot talking of discount properties — properties that are sold at a reduced price because of some problem with the property.  These properties are really sold at full price but the price is discounted from what it would have been if the property would have been in perfect condition.  Prooperties are usually mispriced because the ower or the realtor was unable to determine the correct price of the property.  This usually happens when owners try to save themselves the commission by selling the property themselves as FSBOs or ask the residential realtor who they really liked to help sell their commercial investment property.  I sualy find the best deal when the property is listed by a commercial realtor but not a commercial investment realtor.  A commercial realtor is someone who represents a business helling them find a space to occupy by either buying or leasing the space.  The issues that they are knowledgeable about are locations of local properties, rental rates, size, parking rations, etc.  Commercial investment realtors are commercial investment realtors and it makes a big difference.  It is like going to a general practicioner doctor and asking him to perform surgery on you.

The other major way to increase the capital gain return is to purchase properties that have rent escalations.  Even a small annual rent increase of 1% or 2% can translate in big increases inthe ersale price because of the multiplier effect.  For example let’s sya you purchase a 10% cap property for $1,000,000.  In the next yera the rent will go from $100,000 to $102,000, which at a 10% cap will be a $1,020,000 — a whoppng $20,000 increase in the value of the property.

Next month, we will cover total returns and ow to combine cash flow and capital gains returns.

Winston T. Rego is my commercial NNN real estate guru and handles my commercial real estate transactions.  Commercial NNN transactions are very complex and there are a lot of tricks and strategies.  Winston and I are also writing a course on Commercial NNN real estate and it should be available shortly.  I have asked him to write this column for the newsletter.  Please email him directly at WinstonRego@yahoo.com if you requrie his assistance.  He charges $500 for his initial consultation.  Larry Goins

Larry has asked me to write a series of articles for this column on single tenant commercial NNN investment properties.  The first article came in January 2009.  I would strongly recommend that you read that article first.  Last month we discussed why single tenant commercial NNN investment properties are such a great deal and have lower risks.  There are two returns to rental properties.  You get a cash flow return while you are holding it and you get a capital gains return when you sell it.  These are two independent and separate returns.  In this article, I will cover cash flow returns.  Next month we will cover capital gains returns.

Weith single tenant commercial NNN investment properties as ther eare no expenses other than debt servie, the cash flow return on the property will be based on not rent minus the debt service divided by how much cash you put into the deal.  You can get a higher return by either buying a property that gives you more rent, or pay less in debt servie or put less cash into the deal.  Lt us look at each of these pieces.

As commercial properties can have different prices and net rents to compare two properties, we compare their cap rates.  The capitalization rate or cap rate is simply the net rent divided by the price.  For example if you purchase a property for $100,000 and it has an annual net rent of $8,000 then the cap rate is $8,000 divided by $100,000, which is 8% cap rate.  This way when you are trying to decide between two properties, one that costs $90,000 and gives you $8,000 in net rents and a second property that costs $110,000 and gives you $9,000 in net rents, you can determine that the cap rate of the first is 8.89% and the second is 8.18% and know that the first will give you a better return.

The second way to increase the cash flow return is to reduce the debt service.  You can lower the loan payment by getting a lwer rate, longer amortization, make interest only payments.  The rate is baded on economic factors, your credit, the term of the loan and what you can negotiate with the lender.  Never accept the rate that a lender offers you unchallenged.  Shop around and negotiate.  The amortization period will be based on the lender’s determination of the useful life or the future income of the property.  Again this is something you should negotiate.  You can also get a better rate if you do a baloon loan or tak a shorter term.  this is an especially good strategy if you are planning to sell the property uqickly or expect interst rates to drop in the future.

The third way to increase the cash flow return is by using leverage.  For example, let’s compare the returns if you buy the same 10% cap property for $100,000 with all cash and 50% cash.  In the first case you buy it all cash and will get a $10,000 annula income, which divided by your $100,000 investment will give you a 10% return on investment (ROI).  In the second case you buy it with $50,000 cash and finance the purchase with a $50,000 interst only loan at 5% interest rate.  Your net income would be $10,000 minus the $2,500 debt service, which is $7,500.  Your ROI will be $7500 divided by the $50,000 cash you put into the deal which is a 15% ROI.  By putting less cash into the deal, you have increased the ROI.

As you can see, the returns you get from a property are not just based on the property, but also on how you structure the deal and financing.  Next month we will cover capital gains returns.

Winston T. Rego is a commercial real estate investor with Executive Commercial Realty and the author of Single Tenant NNN Investment Properties with Larry Goins.  Mr. Rego may be contacted by email at WinstonRego@yahoo.com.

Larry has asked me to write a series of articles for this column on single tenant commercial NNN investment properties.  For those of you who do not know me, I am a commercial investment broker and work exclusively with investors.  Larry and I have worked together for some timenow and recently he and I wrote a book together.  I am also an investor and have doubled my own assets every year for the last six years.  I also get the same results for all of my clients.  I study different forms of investments and analyze their risks and returns and help investors grow their income, assets, and net worth by buying commercial investment properties that have very low risk but high returns.  The first tule in investing is — it is more important to minimize risk than to try to get higher returns, if you want your wealth to grow in the long run.

The one thing that all eal estate gurus agree on is if you want to attain financial security or retire, you need to have more passive residual income than your living expenses.  I would add that you not only want enough passive residual income to coer yoru living expenses, but you also want a little bit more so to keep up with inflation and any unexpected financial needs.

Passive residual income is income you get without doing anything in the future.  In other words, getting paid without havin ga JOB!  Examples of NON passive income include working for others or having others work for you.  It also includes flipping residential properties.  It takes work to buy them and work to sell them, not to mention all the work that you have to do in betwen those two pionts to maintain the property.  Examples of passive residual income include interst from money in a bank savings account, yield from stocks, etc.

Why single tenant commercial NNN investment properties?  Residential rental properties may give you cash flow but they an be a major headache.  With commercial properties, the tenant is a business and the business has an incentive to maintain the premises because otherwise their business suffers.  A triple net or NNN property is a property where the business tenant takes care of all the maintenance, taxes and insurance.  Now not only has the headach of maintaining the property moved to the tenant but even the risk of taces, insurance and maintenance increasing have passed to the tenant.

Furthermore the better the tenant’s credit, the better the property is because there is a lower risk of the tenant defaulting on the lease.  A single tenant property means there is no management.  With multiple tenants, you have different leases having different lengths and termination dates.  Furthermore you are going to have some vacancy and have to go through the hassle of finding a new tenant.  That costs time and money and is a headache.

If you buy a property with a single credit tenant, who also takes care of all the maintenance, taxes, and insurance, you get a predictable rent check every month.  You do what I do and set up to receibve the rent by automatic deposit and pay the mortage by automatic withdrawal.  I even have a portion going over to my personal checking account and then have all my bills paid by online banking.

Now my income and expenses are handled by autopilot and there is nothing I have to do.  It is easy to see why single tenant commercial NNN investment properties are such a good deal and low risk.

Next month we will cover why single tenant commercial NNN investment properties give such high returns.

Winston T Rego is a multi-millionaire commercial real estate investor.

Commercial Real Estate: Asking the Right Questions

By Craig Higdon

There are many insider” commercial real estate secrets. One of the most important secrets is knowing the right questions to ask when investigating a commercial property investment. While I’m not going to cover all of the potential questions in detail, I will make you aware of some of the key issues. I’m also going to suggest some places to go for assistance.

Investing in real estate is a complex process. Unfortunately, far too many people jump into this complicated marketplace without the knowledge, training, and tools needed to be successful. It doesn’t help that we have hundreds of self-styled gurus” selling the latest no-money-down-get-rich-in-three-minutes programs to confuse and demoralize the un-initiated when things don’t work out as advertised.” These first-time real estate investors are often disappointed in the results they achieve and as a result, often abandon real estate investment entirely without realizing just how lucrative it can be.

Asking the right questions can greatly increase your probability of success, as can learning as much as possible about the world of commercial real estate. This is not an overnight process. One of the best place to start is to learn about your local commercial real estate market. In fact, being aware of the status of your local market can literally be half of the battle.

For example, when purchasing land it’s important to understand that the price of particular parcel varies according to a number of factors. These can include the relative abundance or scarcity of similarly sized and located parcels, the population’s growth trends for the area, and the proximity to good employers. Raw land buyers need to ask plenty of questions about such factors as local zoning laws, land use restrictions, utility easements, traffic patterns, other planned development, the permit process, and other issues. The answers to these questions can have a profound impact on the purchase price of the land and its final, developed value. Where do you go? Your city planning or building department is a great place to start, as is the local utility company. Also check in with a title company or active escrow company for contacts at the city and knowledge in their specialties.

These aforementioned factors are also important when it comes to buying existing commercial real estate, including retail, office, warehouse, and mixed use properties. Knowing the restrictions on building and use of property is essential to successful real estate investment, so investors need to learn where, how, when, and of whom to ask these questions.

One of the next best places to turn to for the answers is a commercial real estate agent, called a broker,” familiar with the area in which you have an interest. You can even ask the broker representing a specific property. But, when asking your questions of a broker representing a specific property keep in mind that he or she is working for the seller of that property, not you. A local bank loan office or independent mortgage broker are good sources to consult for alternative opinions.

Investing in commercial real estate isn’t too different from investigating a crime scene. You need to ask tough questions and find the evidence to back up the statements. It can sometimes be a tough process, but asking the right questions will only increase your chances for a profitable transaction.

About the Author:
“The Investment Property Insider” is published by Craig S. Higdon, a veteran commercial mortgage banker. He publishes the e-zine and blog, http://www.InvestmentPropertyInsider.com, for commercial real estate investors, developers, and industry professionals. Visit the blog and get this free report: “The 7 Biggest Loan Mistakes Real Estate Investors Make And How To Avoid Them.”

Commercial Loans: There are Some New Sheriffs in Small Property Town!

By Craig Higdon

It was hot and dusty in the wide open street. The steely-eyed man with the badge standing in front of the small retail center was perfectly still, totally focused on the bank underwriter who had stopped his scribbling on the yellow pad. The underwriter looked scared … very scared as the Sheriff said: “Put the pen down, pahdner … and put it down real slow-like.”

OK … so it’s a bit dramatic. But there is a new class of lender in the small commercial loan market, one that I call “Hybrid Lenders.” For loan amounts up to $1.5MM on commercial properties, we can get the Loan-to-Value (LTV) as high as 90% in some cases regardless of the property’s cash flow. For those of you who have been in the business for a while, you might be somewhat shocked at that statement. But there may be some of you who are thinking: “Big deal, Higdon. I can get that and even better on my home!”

That’s true. But then you probably don’t know that until recently, most lenders in commercial real estate based their loan amounts on the property’s ability to pay the loan payments without regard to how much the buyer made. So even if the borrower made an extra million dollars a year, traditional lenders wouldn’t increase a commercial loan amount past their guidelines. On top of that, you’d usually see a maximum LTV of 75% on most commercial properties, with 80% being the top on apartments. So what changed?

These new lenders blend commercial underwriting with residential. They look at the whole picture when considering “free” cash flow and the borrower’s ability to pay the payments on the loan. They also require full recourse, meaning that they’ll come after the borrower’s other assets in the event of non-payment, and they charge more in rate. The good news in all of this is that you can get into commercial real estate with far less capital than you have in previous years.

About the Author:
“The Investment Property Insider” is published by Craig S. Higdon, a veteran commercial mortgage banker. He publishes the e-zine and blog, http://www.InvestmentPropertyInsider.com, for commercial real estate investors, developers, and industry professionals. Visit the blog and get this free report: “The 7 Biggest Loan Mistakes Real Estate Investors Make And How To Avoid Them.”

With commercial real estate sales volumes down 60% nationwide,
it seems as if almost every market is slowing down. Lenders are
being much more conservative … and sellers are hesitant to
accept that their properties are now 5 to 10% less valuable than
this time two years ago.
 
Here is a tool that may help you be the “Larry the Cable Guy”
in your local market and “Git a Deal Done”. You know it
already…
 
It’s called the “Owner Carry” 
The owner carry is when your Seller (the current Owner)
“Carries” part of the debt you use to purchase their property.
This is usually in the form of a note that sits in second
position behind the Mortgage.
 
When you purchase a property with an Owner Carry, you basically
have two loans. The first loan is from the bank or other lender
and is usually the largest, the second loan you owe to the
Seller.
 
=============
 
Power-Play:
 
If you find a Seller who owns their property free and clear,
you can negotiate for a 100% owner carry. In this situation, you
provide a down payment and the owner carries a single loan. You
don’t even need a bank for this transaction.
 
=============
 
How to negotiate an Owner Carry … 
 
When discussing an Owner Carry with the Seller it absolutely
imperative you understand the benefits the Owner Carry gives
THEM. You must establish the Owner Carry as a win-win
proposition. You win because it lowers the amount of money you
must borrow and the cash you need to put into the deal.
 
The Owner/Seller wins in three ways. 
 
1) No Carry … No Deal …
 
In many cases a significant Owner Carry is the only way the
deal makes sense in the current market – it may be the only way
you will complete the purchase and the only way they can sell
the property.
With our credit crunch in full swing, negotiating an Owner
Carry may be much less difficult than getting a larger mortgage.
And when you run your investor’s pro forma you may see that an
Owner Carry offers the only way for you to hit your ROI numbers.

 
Rule of thumb is this:
 
- The less they owe
- And the more motivated they are to sell – for whatever reason
…
 
The more likely you will be able to negotiate a favorable Owner
Carry
 
2) Maintain an Income Stream …
 
An Owner Carry allows the seller to maintain an income stream
from the property without the hassles of property management.
They get Passive Income, You manage the property. For a Seller
in trouble who has negative cash flow and is “feeding the
beast”, selling with an Owner Carry actually reestablishes
positive cash flow for them.
 
3) Defer Cap Gains Taxes …
 
An Owner Carry defers the Seller’s Capital Gains tax payments
on the amount of the loan.
 
Summary:
 
An Owner Carry benefits the Seller because:
 
- It gets the Deal Done
- It gives them Passive Income
- It defers Cap Gains taxes
 
Ask for it upfront…
 
If you need an Owner Carry make sure you ask for it in the LOI.
Follow up the letter with the call directly to the seller and
tell them why you feel the Owner Carry is a win-win structure.
And make sure you let the Broker know this is the only way you
will purchase the property. They become an ally in convincing
the Seller to accept.
 
=============
Power Tip:
 
If the numbers make sense, you may wish to present a Two-Part
Offer:
 
A higher price with an Owner Carry and a lower price without
one. You will basically give them full price, in exchange for
favorable terms on the Owner Carry.
=============
 
Carry Back Terms:
 
Ask for as long a note as you can get. Typical time periods are
3, 5, 7 and 10 years. Offer a reasonable interest rate –
something around 6% in today’s market. And try to make the Owner
Carry co-terminous (end at the same time as) your underlying
mortgage.
 
==============
Yet Another Power Tip:
 
If you need money for rehab, here is how you can use the Owner
Carry to get that money from cash flow at the property…
 
When you and the seller agree that rehab is essential, you can
ask the seller to defer payments on the owner carry back for a
period of several months.
 
The terms might look like this: a five-year note for $200,000
at 6% interest with no payments for the first six months. This
would give $2000 a month for a total of $6000 you can use for
improvements … taken right out of the property’s cash flow.
===============
 
Those are the basics of the Owner Carry. Make sure you review
and understand the concepts. The Owner Carry may be the key to
your next Commercial Property purchase.

About The Author: Learn Insider Secrets of Commercial Property
Investment from Monte Lee-Wen who has personally purchased over
$150M in Commercial Real Estate. VISIT HIS WEBSITE NOW
http://www.investortours.com for Instant Access to the 14 page
FREE Report “35 Reasons You Should Invest in Commercial Real
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