Andrew Vaughey Real Estate Marketing Blog

Author: Allen Cymrot

The dictionary definition for strategy is as follows: A plan of action or policy designed to achieve a major or overall aim. When applied to purchasing commercial real estate, it means setting the rules for achieving the desired return on investment with the least risk.

Before we set any rules, we need to know the current issues that will affect the value of commercial real estate. A perfunctory list would include the war in Iraq, terrorism, illegal immigration, the trade imbalance, energy dependence with unfriendly dictatorships, nuclear proliferation, the weak dollar, a softer economy, healthcare problems, environmental issues, a decline in educational performance, a subprime credit crunch, decreasing job creation, a questionable future for social security, increasing energy costs, and tax reform. Not exactly a favorable climate for investing in commercial real estate.

When NetGain analyzes the business cycles for the last one hundred years, history has shown that when compared to everything looking rosy, now is a better time to invest. Today’s successful investors will be the ones who ignore naivety and greed. That said, current times dictate that you don’t buy real estate using the greater fool theory (there will be a greater fool than you who will buy the real estate from you). The present economic climate dictates that you adhere to sound economic guidelines. Following is a composite list of those guidelines that NetGain believes are a necessary requirement for successfully investing in commercial real estate for 2008.

- Buy commercial real estate that has a positive spread. Positive spread means the capitalization rate is greater than the annual percentage rate (APR) cost for debt service. Negative spread is a guaranteed mathematical loss.

- Do not use projected income when computing the capitalization rate. Use current collected income.

- Do not use guaranteed income when computing the capitalization rate. Use market rate rents.

- Do not extrapolate physical occupancy into income when computing the capitalization rate. Use economic (collected) occupancy.

- Use current annual operating expenses when computing the capitalization rate. Do not use some short-term amount that is amortized into an annual amount.

- Include adequate operating expenses for a preventative maintenance program.

- Factor in all the costs for renewing short-term leases when computing the capitalization rate.

- Do not buy commercial real estate with a negative cash flow. Buying commercial real estate with a negative cash flow is the same as buying a failing business.

- Do not use the gross rent multiplier (GRM) as a leading indicator. Use it as a validating indicator.

- Do not use replacement costs as a leading indicator. Use it as a validating indicator.

- Set aside adequate reserves. Each property is unique as to age, amenities, lessees, etc. The current cycle (soft market or recession) will pass and you do not want to run out of money before it ends.

- Do not finance the property with a short-term maturity.

- Avoid a variable rate mortgage.

- Use NetGain’s Economic Valuation System (EVS). As the leading proactive due diligence system on the Internet, it is a must when buying commercial real estate in today’s market climate.

Author: Kris Koonar

The real estate investment industry, within a region or offshore, is very lucrative as it is unpredictable. The industry is known to have made people rich overnight and at the same time reduce the careless investors to paupers. The benefits of offshore real estate investments include tax benefits, regular and profitable cash flow and the opportunity to expand. However, the industry is also one that involves intricate aspects to every deal, which any investor cannot afford to ignore.

Real estate is big time investment for anyone, irrespective of the indulgence. You can make the real estate investment market work for you by exercising a little caution and paying heed to your intuition! There are a number of first-timers who end up parting with cash, without even studying the market. You cannot rely wholly on traditional trends within a region. As an offshore real estate investor you need to assimilate all the information you can on the current market trends, professionals who can give you sound advice and the legalities involved.

You need to pre-plan essentials like the cash flow, both during the ‘ups’ and ‘downs’- calculating on the differences experienced in the recent past, capital appreciation and tax benefits and most importantly the equity implications which could be major. You should always evaluate your needs and ‘cover’ the possible deal from all angles. You should also double check claims and contact numbers. Never get carried away. Look into aspects like the payment history, taxes, expenses, and possible future modifications. Cover yourself and your business with a sound insurance policy.

Do not only focus on the positives of offshore real estate investing. You should also consider some potential difficulties like possible eviction, re-investment and even dealing with inefficiency in time management. Avoid properties that simply eat into the business capital. This will culminate in stress and frustration. However, a thorough inspection could save you the negation. You could consider hiring a professional inspector, who can check out tenant problems and structural damage on your behalf. This will save you from making some costly mistakes in the long run.

Remember that investment property always brings along liability in different forms. Hence, an insurance coverage is indispensable to protect your hard earned assets. Go through the documentation personally, with a professional. In the case of offshore real estate investment there are building permits, zoning laws, lease applications, health licenses, by-laws and title policies amidst a myriad of other documents that have to be looked into and maintained.

Take the time to check references and insist on Estoppel letters. Offshore real estate investment can be very rewarding with a little care and professional handling. It can enhance your existent financial portfolio. But, ensure that you play by the rules pertaining to offshore real estate investments. Conduct thorough research and do not hesitate to call in the professionals. There are a number of online and offline resources available to guide you through the nuances of offshore real estate investment; all you need to do is look!

Author: Kris Koonar

The real estate market is not merely an open one, but also an experimental ground for many experienced as well as freshers. However, there are some real dumb mistakes that many investors make when it comes to investing. Primarily, the main reason for these errors is the fact that this particular market gives investors little or no time at all to learn how to know to make good and profitable decisions.

The irony of the situation is that invariably your dumb mistake ends up with somebody else’s pockets being filled! The path is not easy and establishing yourself in this very experimental market is not easy at all; demanding timely action and the right moves. Research reveals that to earn from this industry, you need to network and diversify extensively.

Some of the real dumb real estate investment mistakes include the following:

Inspite of knowing the importance of diversification within the industry, many choose to ignore this market essential. It is often observed that investors prefer the paradigms of a particular market only, especially the one they are associated with. They end up with contained and very ‘closed-in’ investments. The investments that should be considered could be along the set limitations set by numerous statistical calculations within graduate finance textbooks.

Many people, who have been long time players, do disagree on the suggestion that it is viable to hold limited stocks. However, these people are usually geniuses who in time, end up underestimating their intellect. They rigidly disagree with diversification, but at the same time utilize power-packed analytical skills to calculate the desired stock picking.

Investors need to arm themselves with strong and updated accounting knowledge. This enables them to accurately read and analyze the quarterly and annual financial statements made available to the public by companies. It is dangerous to invest blindly, without considering the instability that lurks within the garb of partial information.

Another very important virtue that real estate investors should try to cultivate is patience. The market is full of ups and downs. There are bound to be the bad and good years, sometimes alternatively and sometimes even successively! However, big time players with years of experience will vouch safe for the fact that the good years certainly outlive and compensate for the bad years.

Investors in the real estate marketing should make every attempt to master the art of dollar-average investing. This implies that instead of investing in a set number of shares, you should plan investments around a pre-set and agreed upon dollar amount. One major advantage of dollar-average investing is that you are at a lower risk of getting carried away on a high-roll of optimism, which usually culminates in the purchase of stock when the market is high.

It is very natural to ignore the small differences in expense ratios. Ignored investment expenses spring from costly newsletter subscriptions and other related online and offline financial services. These ignored expenses end up amounting to thousands of dollars negated from your net worth.

It is human tendency to err in the face of avarice. Way out investments and ‘immediate-returns’ investment strategies are a sure-shot way to investment downfall. It is very important to keep these common and dumb errors made within the real estate investment market in mind before investing further or for the first time.