Tag: Cash Flow Investment Real Estate

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Why Sell Your Commercial Real Estate and Pay Taxes?

If you're like most long-term commercial real estate investors, you're holding  your properties to avoid paying the capital gains tax.  I don't blame you. Who likes paying taxes, anyway? No one. But if you're like most long-term commercial real estate investors, you're also faced with a dilemma.  You're thinking of selling, but don't want to 1031 exchange into another property and you don't want to pay those taxes. Should you pay your taxes or take your chances? There are a few tricks you can use: estate planning, charitable remainder trusts, 1031 exchanges, installment sales, etc.  But what if none of these tactics suit your goals of selling your property, liquidating your equity, and moving on from commercial real estate ownership? Bad news.  You may have to pay your taxes. The Bush Tax Cuts provided us with a 15% Federal capital gains rate, which is one of the lowest rates since 1987.  This rate is was extended under the Obama administration through the end of 2012 and after that, all bets are off. With the spending out of control in Washington D.C., repaying the debt must come from us, and a larger slice of your profits and depreciation will be one of the places the government targets. The 2012 deadline means that you and I have no idea what the new capital gains rates will be. Simply, let's say the capital gains rate increases by 10% to 25%, returning to 1996 levels.  A commercial property investor with $3,000,000 in profits would owe an additional $300,000 in capital gains taxes.  This amount may be survivable, but here's the sticky part. The investor who buys your investment property plans for a 25% capital gains rate when he sells.  If he's planning to improve the commercial real estate by adding value, he's selling the building for a profit in the future. And when he calculates his profits, he allocates a portion of his proceeds to Uncle Sam, which means he'll offer you less for your property. Now your $3,000,000 in profits equates to $2,500,000 as your buyer reformulates your market value.  You're down $500,000, plus your additional $250,000 in new capital gains taxes, which amounts to a $750,000 difference in your checking account. Many owners I speak with tell me that they don't want to sell their commercial real estate because of the tax liability.   Who wants to sell a property and send 22.5% to the federal government? I don't. I believe, however, that by the end of 2012, 22.5% might seem like a bargain. It's up to you. Is it better to get out now and pay your taxes, or wait to see what happens in Washington, D.C? Please comment below.  

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Commercial Real Estate Investing Tip for Working with Brokers

Honestly, I confess that if you've used this expression "I'm just looking for a deal that makes sense," to share what you're looking for, it's not your fault. It's ours--the commercial real estate broker community. Here's a real estate investing tip. In the real estate investing advisory business, we believe that there are no bad prospects, only bad salespeople.  This means that if you've been frustrated with the lack of performance and results you've achieved from your conversations with commercial real estate brokers, then it's our fault for not asking you to be more specific about what you're looking for. Unfortunately, commercial real estate brokers accept that statement because it's easy. They'll add you to their database, possibly send you a list of properties from one of the commercial real estate listing services such as CoStar or Loopnet, and then leave you to fend for yourself.  After a few weeks, you haven't heard anything , so you repeat your investment property search--frustrating. Next time you call our office, we pledge to ask you to be more specific.  If we can help you locate what you're looking for, we will.  If not, we'll tell you and refer you to someone who may be able to satsify your requirement. And the next time you call on a commercial real estate broker, try this experiment.  Don't use the words deal, sense, cash flow, creative, good, add value, or upside.  Instead, describe the property type, location, type of owner, yield requirement and price range you're looking for and see what happens. Your specificity will produce more commercial real estate investing opportunities for you to consider and your commercial real estate investment broker will have a clearer picture of what you're hunting for and who to call first when they see it.

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Buy Low, Sell High

Buying low and selling high is a great idea, unless everyone else is thinking the same thing.

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Costly Mistake To Avoid When Investing in Commercial Real Estate

Many of you would like to close more commercial real estate deals but see your commercial real estate opportunities crushed when the first agreement is circulated. The problem is that too many commercial real estate investors make the mistake of mishandling the transition of the meeting of the minds to the written word. They short circuit their deal by circulating a written agreement that introduces new terms, pricing, and conditions that have not been discussed or agreed upon.

Here are 3 steps to ensure that your deal survives the transition of the meeting of the minds to the written word.

1.  Break down your agreement into business terms and legal terms. Negotiate your business terms in great detail.  Thoroughly. Create a term sheet to document the agreement.   Have all parties sign off on the term sheet. 2.  Prepare each party's expectations for legal term negotiations. Set expectations that the legal terms of the agreement will be revised so that your deal will have a greater likelihood of a successful outcome. 3.  If business terms reemerge, stop negotiating your legal terms and obtain consent from all parties to revisit your initial discussions. Be open and notify all involved that the conversation has changed.   You will build trust and emotional capital in your transaction that you can use to navigate challenges that will arise later in your deal. Once agreed, circulate a final copy of the written agreement for signatures and keep your deal moving.

Why Your Commercial Real Estate Broker Doesn't Find You Deals

You call commercial real estate brokers in your market, tell them about what you're looking for, and meet with a few.  It feels like you're making progress. The word is on the street, you're looking to buy a commercial real estate investment property with great cash flows, upside potential, and at distressed prices.  Every commercial real estate broker knows.  You wait by the phone and check your email for the wealth building deals to roll in. Here they come....the emails you've been waiting for.  You open them. You see a pattern.  These commercial property listings are all the same.  You chock it up to the fact that you contacted the commercial real estate brokers at the same time and they're sending you what's available on the market.  A few weeks go by, and the investment property sales lists dwindle and no agents are calling. What happened? You're every commercial broker's business and no broker's responsibility. Rewind a few weeks. You're a commercial real estate broker. You receive a phone call from an investor who's looking for a good deal in your market. He wants you to send him a good investment property to buy, so keep your eyes open and start hunting. You want a commission right? Well, sure. But here's the catch.  You get at least one phone call like that every day.  You're asked to find a good deal for this investor, maybe go hunting for him, and start sending him listings.  He's probably not a hot horse who's going to buy a property off the first list you send him and he's likely having the same conversation with other investment property brokers in your market. He's everyone's business and no one's responsibility. You add him to your database. Maybe you put him in your email distribution list and figure that something might happen, but if not, you may get a call one day when he has a property he needs to lease or sell is commercial property. After a few weeks, you stop sending him lists of investment properties for sale because you've also been asked by 15-20 other investors in the same period of time to do the same activity.  Somehow, they think you're out there working for them, too, because they're getting the same listings as everyone else.  What they don't know is that no commercial broker's out there hunting, they're just entering a search and clicking the send button. You've been selling investment properties long enough to know that most of these calls are a fool's errand.  The promise of a commission looms on the horizon, but you know you're going to have to spend more in time and resources to maybe get that commission than you'll likely earn, plus you have no commitment from any one investor that they'll honor your commission if you bring them a commercial real estate investment opportunity.  Pretty risky if you're a broker. You decide you're better served investing in those who have hired you to help them acquire and dispose of investment property. Ultimately, as an investor, ask yourself, when you repeat the same behaviors as everyone else by calling a bunch of brokers to tell them what you want, should you expect an outcome that's different than everyone else who's doing the same? The next time you're on the phone with a commercial broker, try asking him how many calls he's had from investors "looking for a good deal" in the last 30 days.  Then ask him how many of those investors he's spoken to after the initial conversation. Chances are you already know the answer. To get different results than everyone else, change your approach. Ask your investment property brokers how many investors they're representing.  The ones who have clients are getting deals done, while the ones who aren't....well, just check your email box for the latest commercial property listings. By taking a different approach and employing an investment property broker to execute a search and acquisition on your behalf, you may be delighted that when you become someone's responsibility, you're everyone's envy. Get free weekly email updates of this blog. About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.

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Selling Your Commercial Real Estate in a Down Market

When do you know that selling commercial real estate in a down market is the right decision? Ask Sam Zell.  He says, "Everyday you're not selling, you're buying."  If he's right, then how do you make a decision about the right time to sell commercial real estate in a down market? Read more

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How to Catch a Commercial Real Estate Lifeline

Have you ever heard the story about the man who rows out to sea, jumps in the water, lets his boat float away, proclaiming "I am a man of faith. God will save me."?

A fisherman spots him treading water and throws him a lifeline. The man pushes it away and says, "No, thank  you. I am a man of faith. God will save me."  The fisherman shakes his head and calls the Coast Guard. Read more

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How to Double Your Money Buying REO

Two types of investors exist in commercial real estate: the equity-type investor and the loan-type investor.  Simply illustrated, you know the equity-type investor as a real estate investor.  You know the loan-type investor as the bank.  Think of the two together as investors in a property, as illustrated in the capital stack graphic.  Each is invested in a $1,000,000 property. The investor commits $250,000 and the lender commits $750,000.

As property values decline, investors delay and pray, borrow and extend, and hold onto the property until their equity and cash reserves are wiped out and lenders become involved in making investment decisions with commercial real estate. That $1,000,000 property is now worth $750,000.  The original investor has no equity and no interest in staying involved in the property.  He sends his keys to the lender. (We are in the end of the beginning of this phase of the commercial real estate market correction.) Now the bank owns the $750,000 property and needs a buyer.  You call the bank and offer $500,000.  You're told that that they aren't selling for any less than their $750,000.  The lender begins to "delay and pray", "lend and extend", and hold onto the property until their equity and deposits are at risk. (We will enter this phase of the commercial real estate market correction in 6-12 months.)  The lender hopes the market will rebound and they will sell the property equal to their initial investment or more. Fast forward 12 months. The lender owns the property and you want to buy it. You offer the lender $500,000 and they accept--regulatory agencies are in their offices asking what they're doing with their real estate owned and are ordering them to liquidate.  The lender accepts your $500,000 offer.

Your hard work begins. You buy the property for $500,000 and spend $250,000 in improvements, lease to new or existing tenants, and ultimately force appreciation of another $250,000 into the property, which is now worth $1,000,000. You've doubled your initial investment. Congratulations.

How would you feel about a deal with a few extra zeroes next time?

Are you looking exclusively for REO commercial real estate today? If so, email me at Jeremy@Mansardcre.com with the words "Help me find REO properties" in the subject line.  Include your name, when you would like to be called, and the best number to reach you. I will contact you to schedule a time for you to invite me to your office for a free consultation on how to take advantage of our bank relationships to shop for REO opportunities.  If there's a fit, you may retain us to source your next REO property.  If there isn't a fit, we'll tell you we cannot help and will refer you to another firm that may be a better match.

Get free weekly email updates of this blog.

About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com.

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How to Make Your Ugly Commercial Real Estate Pretty Again

Do you remember the Seinfeld episode about the ugly baby?  Jerry and Elaine were invited to visit their friends after they'd just given birth to a new baby.  When Jerry and Elaine arrived to congratulate the couple, they looked down and were appalled at what they saw.  The baby was butt ugly.  After recoiling,  they faked their way through the conversation with the new parents, telling them what every parent wants to hear--that their baby is beautiful, charming, looks just like them. What if that baby were your property and you didn't know it? Read more

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100% Occupied Investment Property For Sale - Arlington Commercial Real Estate

New to market: 100% occupied mixed use building to the market in Arlington, MA. It's located between Arlington Center and Arlington Heights, was built in 1940, but went through about $100,00 in capital improvements over the last two years, and is being sold because the owner's retiring. The owner's agreed to offer up to 80% loan-to-value financing for a qualified buyer and is eager to sell.   Get free weekly email updates of this blog.