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Real Estate Espresso

Author: Victor Menasce

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Your morning shot of what's new in the world of real estate investing. Daily real estate investment outlook from investor, syndicator, developer and author Victor J. Menasce, so that you can compress timeframes as a real estate investor or developer. Weekday shows are 5 minutes of high energy, high impact awesomeness. The weekend edition consists of interviews with notable guests including Robert Kiyosaki, Robert Helms, Chris Martenson, George Ross, Ed Griffin, Dr. Doug Duncan, and many more.
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Brendan from Pennsylvania asks:I bought my first commercial rental a few months back using seller finance and it was a breeze since the property was off market and I could talk to the seller directly. The seller and I haggled it all out based on their retirement needs and since it was still a good deal the interest didn’t matter much to me since it was an excellent cash on cash return.I am currently searching for my next deal and have found one that interests me on the MLS but the price doesn't make sense as-is. The realtor is telling me the seller will entertain owner finance offers. Without being able to directly contact the Seller without realtor involvement I’m stuck as to how to build my offer.Brendan,This is a great question. Congratulations on your first successful deal. There’s no question that seller financing can be a great financial tool. The thing to remember is that seller financing is still financing and you are still the owner of the property after the transaction closes.The property should still be a property you want to own, not just because of the financing structure. That means that the property is in the right area from a management point of view. You want to know that you are invested in an area where you will see an ongoing stream of investment. You want to make sure that the investment meets your criteria in terms of supply and demand.For example, you may choose to invest within a radius of a major hospital and target health care workers as your ideal tenant. Or you may choose to be within a radius of a major university and target students as your ideal client.You want to be in an area where there is inflow of population, and inflow of jobs. I will never invest in properties in a shrinking market. At the end of the day, properties are simply part of the inventory of your business.You really want to find out from the broker why the seller is selling the property. You are correct in saying that the negotiation will need to be direct with the seller. Some realtors are uncomfortable with a direct discussion with the seller. Offer for the realtor to be present in that discussion.Your strategy of offering a lower purchase price and a larger overall deal value makes sense. But in reality you could actually be offering more than the asking price, but then choosing the payment terms. Let me give you a simple example.Let’s say that the seller is asking $100,000 for the property. You want to purchase the property for $50,000 up front and then $10,000 per year for the next 8 years. You could tell the seller that you’re offering them $50,000 up front which they may find alarming. Another way you can write the offer is to set the purchase price at $120,000 payable as $50,000 on closing, followed by annual payments of $10,000 for the next 8 years. Such an offer will certainly get the seller’s attention. Note that a realtor is legally obligated to send any offer to the seller. The realtor can’t hold onto the offer, even if they don’t like it.Once you are in the dialog with the seller, you can have the discussion about what is more advantageous from a structural point of view. The seller may desire to have the payments secured on title using a collateral mortgage until the property is paid in full.
Multi Family Is Going Green

Multi Family Is Going Green

2019-11-1800:05:18

On today’s show we’re talking about environmentally sustainable buildings. These are part of a growing trend of buildings globally and in North America as well.A new report published by CBRE details what’s happening in the multi-family asset class. The buildings that have traditionally been energy hogs have been in the office and industrial asset classes. Most of the work in environmental sustainability started in that asset class.In fact, much of this work dates back to the 1940’s and 1950’s. My mother was an architect in NYC and she used to design mechanical systems in those buildings that would use the air conditioning to manufacture ice during the night-time hours when the outside air was cooler. During the day, the air conditioning systems would melt the ice and heat the water in huge tanks. These systems used much less energy than the traditional air conditioners that we know and love today. Some of these systems are coming back into fashion.I recently visited the JC Penny headquarters building in Plano Texas. This 500,000 SF building is LEED certified and uses the same technology that my mom was working with in the 1950’s. The only difference is that they think it’s new technology.Historically, energy efficiency hasn’t been a big factor in multi-family construction. Increasingly though, while the number of green apartments remains small as a percentage of the total inventory, it is a growing proportion of new construction.To help the commercial real estate market measure and understand the adoption and prevalence of green buildings across markets, CBRE and a consortium of Maastricht University and the University of Guelph developed the Green Building Adoption Index (GBAI) in 2014. The index tracks the adoption of green building certifications across the largest U.S. office markets since 2005 and this year has been extended to the 30 largest U.S. multifamily markets (measured by number of units) in collaboration with Yardi and supported by the National Multifamily Housing Council.Three of the main certification programs for multifamily buildings in the U.S. are the EPA’s ENERGY STAR rating, the National Green Building Standard and the U.S. Green Building Council’s LEED certification.The 2019 Multifamily Green Building Adoption Index shows that green building certification is on the rise in the multifamily market. A total of 251,763 units, representing 3.3% of the 7.7 million multifamily units across 39,071 investment-grade properties (i.e., those with 50 units or more) within the top 30 markets, have already been certified as “green.”The top 5 markets for green certification are Denver, where 7% of multifamily units are green certified, followed by Washington DC / Suburban Maryland (6.9%) and Seattle (6.5%), Northern Virginia with 6.5% and Chicago at 5.9%. Green building adoption rates vary widely among the 30 largest markets, which could be related to the differing green building mandates and incentives for each of these markets. For example, some cities now require green building certification for all new construction.Just in case you’re thinking these efforts are in the traditional tree hugger communities, even cities like Austin and Dallas that have a reputation for high energy consumption made the top 10 list for new Green buildings.
Special Guest Aaron Chapman

Special Guest Aaron Chapman

2019-11-1700:15:36

All the way from Mesa Arizona, Aaron Chapman specializes in helping investors finance properties. He won't finance a residential condo for an owner occupant. On today's show there are some powerful nuggets that could really impact the way you look at business. 
Special Guest, Mark Owens

Special Guest, Mark Owens

2019-11-1600:10:52

Mark Owens has been a fixture in real estate investing in the Baltimore area. He knows the local market and has figured out a niche that is solid and repeatable. He's not after home run deals, but lots of consistent growth using simple proven strategies. 
The City of San Francisco continues to be one of the most sought after places to live in the nation, and also boasts some of the least affordable places to live.San Francisco is a notoriously difficult place to have any project approved. The process allows for community input on virtually any application.San Francisco’s general plan makes new development difficult. Approximately 74% of the land is zoned for no more than three-unit homes, with the majority dedicated to one- or two-unit homes. Most of the city has a maximum 40-foot height limit for all new development.Unfortunately, even the city’s general plan downplays the difficulty of building in the city. The ever-proliferating bureaucratic documents underpinning this plan muddy whatever potential clarities developers could glean from the plan itself. A typical example is the Planning Department’s area East and South of Market Street. This has been a rough area for years. The city drafted a neighborhood plan back in 2008. The plan lays out 42 separate “objectives” the city wants to achieve through development in the area, with no ability to rank them in case they conflict, as many clearly do. Now somehow there has been some redevelopment, but it hasn’t been easy.Developers Prado Group and SKS Partners first submitted their proposal close to five years ago.The developers originally aimed for 558 homes and an office component that was since axed to make room for the senior housing,After years of planning — and battling neighborhood opposition — a proposal to build 744 homes on California St. in San Francisco is finally moving forward.Earlier this week, the city’s Board of Supervisors voted unanimously Tuesday evening to approve the project, which represents the largest new home development in the city’s northwest quadrant in decades. There are so many competing interests, that every project has to have features that will satisfy every special interest group that wants to have a voice at the table, even though they have no cash invested in the project. It’s amazing that people with no ownership get to dictate what happens on a property.The project includes 186 homes for low-income seniors, a childcare center, five acres of public open space and 35,000 square feet of retail.Even after the approval, the ground breaking is still more than a year away in 2021 and complete the first phases of homes two years later. Overall, the project will cost more than $600 million.During a three-and-a-half hour hearing on Tuesday, opponents said the project’s environmental impact report was flawed.Many speakers opposed a plan to cut down existing trees on the site and destroy what they called a swath of natural open space.The trees became a point of contention.One special interest group claimed that the city doesn’t have enough senior housing. So now the project includes a senior housing component.If you are contemplating undertaking a project that requires community input, make sure you understand the process that you might be subjected to. The process on paper might only be a few months. But the process in reality can stretch into years if the community opposes your project.
Why Are You Selling?

Why Are You Selling?

2019-11-1400:04:27

On today’s show we’re talking about one of the most important questions when evaluating a potential project.You’ve received the executive summary. The glossy pictures are great. The pro forma looks enticing.If the project is so amazing, then why would the seller be selling? If it’s so great, why would you ever let go of such an amazing asset? Or maybe its not an amazing story and the seller clearly has a problem that they need help solving. Whatever the reason, the answer to this question affects two things.Your potential interest in the project at all.You approach in negotiationSo why are they selling?Are they selling because the owner is in their 80’s and the kids don’t want to own it, and the owner is tired of being an active business owner?Are they selling because the property is distressed and the owner doesn’t have the financial resources or resourcefulness to solve the problem on their own?Are they simply trying to take some profit off the table to reposition their portfolio for the next downturn?How motivated are they as a seller? Do they need to sell, or do they merely want to sell if the market delivers their price?Now of course the seller might not be 100% truthful in the reason they give for selling. But it gives a clue as to how you might negotiate the purchase.For example, if the seller is aging out of the market, but they still want the income from the property, there might be a case to be made for seller financing a portion of the asset. Seller financing, if properly structured can result in some tax deferral for the seller, and a continuing source of passive income for the seller without the hassle and responsibility of ownership. The seller may simply be tired of the active side of managing a business and want to spend some time on the beach with their grandchildren without having to check in on the property on a periodic basis.If the seller is in a distressed situation, you can be helping the seller solve a problem. Often times, the property can be a good asset, but the seller is dealing with a problem elsewhere in their business. The sale of a performing asset can bring much needed cash to strengthen the balance sheet of a seller and solve a problem they may be facing elsewhere.The seller may be on a fishing expedition and looking to see if they can get someone to offer them too much money. Maybe they’ve heard that properties are selling for high prices and want to use the opportunity to take some profit off the table on an opportunistic basis. If that’s the case, I can tell you that I won’t be the buyer, unless I see something in the property that the seller doesn’t. That would mean changing the property substantially to add significant value to it. Maybe it means demolishing what’s there and building something new. Perhaps it’s a land assembly with a property next door. There are so many different ways to add value to a property.I make sure to ask the broker for the seller why the seller is selling. I then ask the same question directly of the seller. It’s amazing that sometimes that fundamental question gets answered two different ways, by the broker and by the seller.There are so many answers to that simple question. Knowing the answer guides your interest in the property, and certainly guides the approach you’re going to take in the negotiation.
Get Rich Quick - Uh, No.

Get Rich Quick - Uh, No.

2019-11-1300:04:49

On today’s show we’re talking about another aspect of short term rentals.I’m in the short term rental business. My partners and I operate our units legally and at a very high level. The consistent 5-star reviews are not an accident. They’re the result of hard work by our team and our staff on a daily basis.Now, I don’t know about you, but my social media feed is filled with advertisements for training classes that advocate getting into the short term rental business.The headline reads “Everything you need to become a property investor without owning any properties”The ad goes on to sayThis Exclusive Webinar will Show you how to RENT Properties, Not Buy them, and List them on Airbnb™and other short terms Rental Platforms, Just Working Part-Time.Step by Step Blueprint, Easy to Follow Instructions on How to set up this Incredible Business with One Rental Property at a Time.So I clicked on the ad.The webpage invites you to an exclusive webinar. It’s amazing, the webinar starts in just 7 minutes from now. It’s my lucky day.The web page invites me toJoin hundreds of people worldwide making money using other homes as short-term rentals. Many property owners earn up to five times the profit of traditional rental properties. Sign up to this exclusive FREE training webinar today!The company claims to have cracked the code on how to rent properties and make money with them by listing them on Airbnb and other short rental websites.In less than six months, Jimmy was earning 15,000 pounds per month (around $20,000 US Dollars) with just five rental properties and he was able to quit his job for now, Jimmy teaches other people how to do the exact same thing.The web page has a live chat window. So I clicked on the live chat window.Sarah in the chat windows asked me if I had any questions.I asked Sarah how their system works around one small issue. You see in many jurisdictions, not all, but many, there are laws that prohibit subletting a property for more than you rent it for. So I asked Sarah how they get around the law that prohibits subletting a property for more than it is rented for.The chat window confirmed that my question was delivered to Sarah. At that point, I’m guessing there must have been a technical issue, because I still have the chat window open and have not received any further correspondence with Sarah. I wonder what the problem might be.Now I know that subletting an apartment on a short term rental platform has been a common practice a few years ago. In fact, there was a rash of these units appearing on the market in New York City. There was one unit in particular, located near Union Station and close to NYU in lower Manhattan. That property is owned by someone who is from out of town. The tenant never occupied the property. They set themselves up as an AirBnB host and despite the monthly rent of $3,500 per month, they were able to get a monthly profit by using someone else’s asset.This particular host had done this with nearly a dozen properties in NYC. When NY instituted the new rules prohibiting short term rentals for an entire apartment, the host continued to operate.When the city went to enforce the new bylaw that prohibits rentals of entire homes, the unsuspecting owner of the property received very hefty fines for the violation.The key is for operators who want to get into the commercial end of the short term rental business to be aware of the marketplace they operate in. You need to understand the supply and demand dynamics of the market. What is the barrier to entry? And what are the regulations? Nobody ever built a sustainable business that operates outside the law. You might not like the law, and you might want to influence changes in the law. But the law still is the law.
When The Rules Change

When The Rules Change

2019-11-1200:05:52

On today’s show we have an update on a story that we’ve been following for some time. The topic is short term rentals. The staff at the City of Ottawa completed their public consultations on the short term rentals and have issued their recommendations to a committee of City Council which I will be speaking at this coming week.At the end of 2018 there were an estimated 6,278 listings. Listings include individual rooms and complete dwelling units.It’s estimated that the number of investor owned commercial short term rentals in the market is approximately 1,236 units.These properties have been put in the short term market and serve purely a commercial and no other purpose. This is an issue to which there are two sides and quite frankly I see both sides of the argument.As an investor, I fully support the notion of investors making an honest dollar by providing a product for which there is real demand.I live in a lovely home backing on park land and a lake. If my neighbour decided to move to the Caribbean and put their home into the short term rental market, I’d be pretty upset. The transient nature of the traffic next door would negatively affect the value of my property. So I fully understand the issue from the perspective of residents who bought residential property in a residential area, never expecting a hotel product to open up next door.I own several short term vacation rentals in an another community that is heavily tourism centric. The properties that I own are zoned for tourism and for short term rentals. There’s no conflict between the intended use and the actual use.In response to this shortage, the city is hoping that by regulating short term rentals, they will eliminate some of what they see as problems with short term rentals, and that these second homes will appear in the long term rental market to help address the shortage of properties in that segment, or sold outright in the open market to help address some of the shortage there.The new rules provide for residents to benefit from the sharing economy while attempting to establish appropriate regulations that minimize the negative consequences of short-term rental activities that impact the availability and affordability of housing, generate community nuisances, and disrupt community cohesion.Where the problem lies is with those investors who purchase properties for the sole purpose of entering the short term rental market and are now facing a dramatic drop in income as their properties will no longer be allowed to operate as a commercial short term rental.The city has been incredibly slow to act on this, compared with other communities around the world. Platforms like AirBnB have been around for more than a decade. The city has the right through their zoning policy to dictate what types of businesses are allowed in a given area. But the city hasn’t used the zoning code to guide the current proposed bylaw. My comments to the city will be to amend the zoning definitions to specifically include short term rentals within the zoning. That’s the mechanism that currently governs the use of properties in the city. If all of a sudden chicken farming became really popular, we don’t need a new set of special chicken farming regulations. The use is governed by zoning, and this is no different.I have no issue with the city charging hotel tax. That’s a level playing field.I’m going deep on this situation because it’s a dialog that is happening in cities around the world. If you’re an investor in your local market you definitely want to understand what is happening within your city’s government and their bureaucracy so that you can influence the
Avoid The Daisy Chain

Avoid The Daisy Chain

2019-11-1100:05:01

On today show we are talking about conversations with potential funding partners. If you are in the marketplace for capital, you will invariably meet new people and develop relationships that a long way down the road could become a source of capital for your future projects.The initial positioning of the person you meet might be unclear. Are they an individual investor who has capital to deploy? Are they a fund manager who places capital into projects using their funds? Are they a mortgage broker who simply wants to get another loan done? Are they an amateur who fancies themselves a connector of people? Are they a project sponsor who is out there in the market trying to raise capital just like you are and will never be a source of capital for your projects unless you join forces to work on a project together?In my conversations I’ve encountered all of these.It’s sometimes difficult to tell them apart.The problem is that people like to make a good first impression. They will talk about their recent projects with the same level of ownership as if they were the principal in the project. Sometimes they were a broker on the deal. Sometimes they were a partner. Sometimes they were a principal. And then there are those who merely have friends who are principals in the project, but were not directly involved themselves.I’ve even had situations where I’ve been talking to someone who is clearly not the money, but they tell you they are connected to the money. So after several lunch meetings and phone conversations an introduction is made, only to discover that the new player in the conversation is not the money either. They have some amazing relationships and can talk at length about the projects they have been involved with and how they placed $30 million in a project, or how they have continual deal flow. They’re a real player. So a few conference calls later it becomes clear that these folks don’t have the money either. If the deal meets their criteria, they might be willing to go out into the market and help you raise the money.If you are listening to this, perhaps you have encountered the same situation yourself. These types of daisy chains are incredibly common.I find that nothing happens in terms of a funding commitment until I’m speaking directly to the decision maker who has the funds and the authority to make the decision. Anyone else is just a connector. If they are not the decision maker or part of the core team that makes the decision, they are a connector.So the question is, if you are dealing with a connector and not the money directly are you wasting time?
Sterling White is based in Indianapolis, Indiana. He grew up in a tough part of town without the advantages of connections or capital. Sterling's story is highly inspirational. You can reach out to Sterling at sterlingwhiteofficial.com.
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