Pain Points in Cold Calling Real Estate Prospects

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In commercial real estate your ability to make cold calls in reasonable number every working day will impact your career significantly. Not enough real estate salespeople make cold calls in sufficient number for it to be of real benefit. They will avoid the issue at all costs. 

Unfortunately the cost to them is the loss of listing opportunity and average commissions. Territory domination is then hard to achieve.

If you make cold calls in real numbers every day, you will build a great real estate business. The best real estate salespeople earning the highest commissions are not normally the best natural negotiators, but they are usually the best prospectors and cold calling advocates.

Whats the Pain?

Salespeople see pain in making cold calls on the telephone. They see the process and the negative answers that they get as real pain to them. They then avoid the pain by not doing the process.

Now all this is fine if you want ordinary commissions. If however you want more listings and results then you will have to make the calls in sufficient volume each working day. About 2 or 3 hours of cold calls is about the right time frame to stick to. In that time you should be able to make 50 calls and speak to 20 people (not everyone you call will be available to take your call). On most average days speaking to those 20 people will create about 2 meetings. How successful would your real estate business be if you made 2 extra meetings per day with fresh prospects?

To make more cold calls you have to take on the pain of the process. Once you start making the calls they must be a habit in your daily diary. Confront the pain.

The pain in cold calling is a number of these things to most people:

1. Can't find the time
2. Don't know what to say
3. No system of contact to record results
4. No tracking system to see how they are progressing
5. Lose momentum and focus
6. Don't know who to call
7. Don't like the 'no' or 'not today answers'

The list can go on into many hurdles and problems. The reality of resolving this pain is that it comes down to you the person; you are the right person that must fix them. Take on the challenge and make the cold calls; pretty soon you are in control of your market and of your destiny. The more calls you make the better things get.

 

Commercial Real Estate - Valuing The Cash Flow

Many investors don't understand the power of commercial real estate. I too had reservations until I understood the power and safety commercial real estate can provide. Commercial real estate is similar to trucks. Trucks come in all sizes and all shapes - a Ford Ranger to an 18 wheeler. Commercial properties come in all sizes and shapes - a standalone building that houses a small restaurant to the Empire State Building. People read in the newspapers that commercial property prices are crashing. People notice the strip malls have a lot of vacancies and it scares them away. Let's take a look at the power of commercial real estate and a quick note about market cycles. Commercial real estate is a business and is priced based on current cash flows. For simplicity sake, commercial property pricing is based on 10 x annual cash flow, not including debt service (loan). So a property that yields $10,000 in cash flow is worth $100,000. Regardless of the type of property, if you increase rents by 1% ($100) the value goes up a $1000. Decrease expenses by $100 and the value goes up $1000. So what? Let's look at a simple apartment example.

A small apartment complex (10 units) has an annual cash flow of $50,000 and is for sale for $500,000. It has a lot of long-term tenants paying below market rents. You put down 20% or $100,000 (there are ways to make it someone else's money). We'll assume it is a positive cash flow property even with the debt service (loan payments). First a storage area is made into a laundry facility that provides $5000 on annual basis. You just increased the value $50,000. Next rents are raised the first year to market rents. Raising rents $50 per unit increases cash flow $6000. You just increased the value $60,000. That means you have doubled your original $100,000 in the first year and you get to keep the $11,000 cash flow. There are many more ways to increase the cash flow including: separate utilities and have tenants pay utilities, decrease vacancy, work out a deal with dish network and get paid, reduce maintenance costs, and more. Just by raising the rent $10 a year increases cash flow $1200 a year and increases the value $12,000. In three to five years you'll have cash flows of $70,000 to $100,000 (less debt service which remains constant) and you can sell the property for $700,000 to $1,000,000. Now you see the power of commercial real estate.

Just like single family homes, not every property is a good deal. First you look for commercial properties in areas that have improving rents, increasing employment, and areas where the entire area is going through gentrification. Next you look for properties that have a value proposition - rents too low, poor management, ability to install laundry or some other measure to increase cash flow. You would be surprised how many buildings are poorly managed or have below market rents.

I've used an apartment as the example; however this same model works for office buildings, mobile home parks, strip malls and more. All types of real estate (all types of investment) go through cycles. When the economy is booming for example, the vacancy in office buildings goes down significantly (prices go up). Of course the opposite is true during an economic downturn. During economic downturns more people move to apartments, mobile homes and need storage facilities. By observing these cycles one can move in and out of various positions to minimize risk and increase portfolio value.

 

Purchasing a Business - The Final Inspection

You have come a long way in the business buying process if you get to the final business inspection stage which occurs just prior to you taking possession of the business. However, be warned, this is not the time to be complacent or let your excitement blind you.

Case in point - Lynn - a first time buyer who purchased a business herself earlier this year only to find after the possession date that not everything was as it had been presented to her. Lynn's experience should be viewed as a lesson learned and not as an opportunity for criticism. In fact, her experience is a common experience for many entrepreneurs buying a business who do not have representation, or as it was in Lynn's case - not having "competent" representation.

I have therefore taken the liberty to outline what you must do during the Final Inspection of the business. This list is not to be used as an alternative to hiring a savvy business broker but is provided as a means to help you understand why these particular items are important. These are not the only items that need to be covered in a final inspection but are certainly 5 things you must do regardless of the type of business you are purchasing.

5 things you MUST do during the final inspection:

1. Inspect every square inch of the business yourself!

Take the time to inspect the entire business - inside and out. Look for anything that stands out as being unusual or of concern, such as bare electrical cables sticking out of the wall, mold, missing lights, large cracks or water damage in the structure and animal feces to name just a few.

2. Check that there is no missing equipment that should have been included in the sale of the business.

A list of equipment included in the sale should have been included as part of the Offer to Purchase. Print this list out and visually check that each piece of equipment listed is present and accounted for.

3. Check the operation of the equipment, that it has an operating manual and that it is in a good state of repair.

While checking that all the equipment is present, be sure to check it is operating normally, for example computers, printers, ovens, fridges and freezers to name just a few. Any equipment not operating normally should be repaired at the sellers expense unless otherwise agreed upon.

4. Count all the inventory included in the sale.

As with the equipment a list of the inventory should have been included as part of the Offer to Purchase. Again print this list off and check each inventory item. For large inventory based businesses this might mean you need to hire a inventory company to come in and count the inventory.

It is important to note that for many businesses, inventory is a fluid dynamic so when it comes to inventory, there may be a need for a financial adjustment to be made in favor of the buyer or the seller.

5. Have the seller confirm in writing that they have paid all supplier accounts to date in full.

The reason we mention this is sometimes there is the assumption that the lawyer will take care of such matters. That may be so but consider the following. As an example assume for a moment that you are taking over an existing account, say the Point of Sale system at a retail location. If the seller has not paid the bill to date, then the vendor of the Point of Sale system may deactivate the account until the outstanding balance gets paid. This immediately effects the operation of your business and intern turns the excitement of business ownership into a high stress, mission critical, situation.

From what I understand of Lynn's situation, problems started when the person who was brokering the sale did not turn up to the final inspection. Lynn was therefore left to handle a situation without experience or representation - by representation I mean someone impartial to the sale, ensuring that the best interests of the buyer are met.

Upon taking possession of the business, Lynn found out that the computer system was constantly crashing, the toilet was not working and cupboards had to be replaced due to damage from animal feces. A key supplier account had not been paid that effected the operation of Lynn's business.

Lynn was fortunate to have the financial means to replace computers, cupboards and complete the necessary repairs to the business however it came at a considerable cost that amounted to thousands of dollars. The key is to identify and address such issues before you take possession of a business. This, we believe, only comes from experience.

Even if you want to handle the purchase of a business yourself hiring a business broker as a consultant can literally save you tens of thousands of dollars. Certainly for us being hired to provide a buyer with a second opinion is an opportunity to share our knowledge with the buyer, support the buyer and share in their excitement of purchasing a business.

Mortgage Interest Deduction Could Hurt Commercial Real Estate Values

It's simple to fix the budget in Washington D.C. According to Fareed Zakaria, author and foreign affairs analyst who hosts "Fareed Zakaria GPS" on CNN, eliminate the mortgage interest deduction.

Among recommendations that include removing tax deductions for employers that take health care deductions, scaling back Obama's health care overhaul, and increasing taxes, Mr. Zakaria recommends the destruction of the mortgage interest deduction, or the "sacred cow" that would take in a hundred billion dollars for the U.S. Government. He emphasizes that our country's appetite for debt is fueled by this subsidy and that Washington D.C. should eliminate it and profit from the savings they can use to pay for the 1.5 trillion dollar deficit and 1.3 trillion dollar deficit next year.

What Mr. Zakaria has forgotten is the effect of the mortgage interest deduction on home values. It's priced into market values today. How would home owners, lenders, and the real estate and related industries recover? And what would the secondary effect on IRS revenues from such a contraction?

What's more, watch out, commercial real estate investors. The mortgage interest deduction is one of the reasons commercial real estate investors buy commercial properties today: including depreciation, leverage, and appreciation. The deduction provides them with the ability to take advantage of tax savings on their leveraged cash flows as well as to account for an expense incurred to leverage real estate in an effort to drive value.

The removal of the mortgage interest deduction for commercial real estate would be catastrophic to property valuations across the country. Returns would be significantly affected in an environment where we're already struggling to absorb corrected valuations, some of which are less than the debt.

The mortgage interest deduction allows commercial real estate investors to subtract the cost of the interest paid on their property's debt from their cash flow before taxes. The reason the IRS allows investors to deduct mortgage interest is because it's paid as an expense the lender and the lender pays tax on the interest as income to its business. If the IRS were to eliminate the mortgage interest deduction, property owners would be less motivated to borrow money to purchase property and would no longer receive the benefit of this deduction as an expense.

Consequently, commercial real estate values would decline as investors revalued investment properties based on the tax regulations, which would mean they'd offer less for existing properties.

 

Multi-Family Apartment Loans

There are a number of different multifamily apartment financing programs available. They are generally divided into small apartment loans for properties costing between $1 million and $5 million, mid-balance loans for transactions between $5million and $25 million, and large financing programs lending for transactions with no specified upper limit, and a bottom limit of $2 million.

Small multifamily apartment financing

The Fannie Mae loan program offers financing for multifamily apartments with more than 5 rental units. The loan amounts are between $750 thousand and $3 million dollars and have terms of between 5 and 30 years. Another option in this category is a multifamily FHA loan, which is administered by HUD. These government loans are attractive because they do not depend on the volatility of the market. The source of financing remains in place because it is government allocated and controlled. Small conduit multifamily apartment mortgages are also available from 1$ million to $5 million and terms of 5 to 20 years.

Mid-balance and large multifamily apartment financing:

The same basic categories apply to mid-balance multifamily apartment financing as noted above. There are the Fannie Mae programs, FHA loans, and small conduit loans for these monetary ranges. There may be other types of loans available in addition to these so ask your loan broker about the programs they recommend.

How to get approved for multi-family apartment financing:

Specific programs have their own criterion for borrower approval. These lenders base their decision both on certain criteria that the borrower must meet and stipulations for the multifamily apartment being purchased. An example will serve to illustrate this.

Let's say you are trying to take out a small multifamily apartment loan under the Fannie Mae program. They require that your FICO credit score be higher than 680, and that you have a minimum of 2 years' experience with 2 multifamily properties. They also require that the post closing liquidity (that is, the amount of cash you will have after purchase of the apartment building) is equal to or greater than the loan amount.

As concerns the property itself, it must be able to demonstrate an average 90% occupancy in the 12 months prior to receiving the loan and it must have 5 or more rentable apartments. The properties are also restricted in most cases to 25 year amortization schedules.

Multi-family apartments are a good real estate investment in these troubled times. The demand for multifamily housing remains fairly steady and the existence of multiple players (i.e. the borrower, tenants, lenders, and possibly government sources) in the cash flow patterns of the transaction distinguish it from other lending and borrowing markets. So if you are thinking of getting into real estate investment, this is a potential area to consider.

 

A Six-Step Checklist for Establishing a Group Investment Partnership

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Follow this 6-step process to set-up your group investment partnership. This process covers critical functions a sponsor needs to complete to be successful.

1. Prepare the Private Placement Memorandum (PPM): In preparing this extensive document, the sponsor should engage the assistance of qualified legal counsel to make sure the document is properly put together. If you are syndicating your first group investment, then I highly recommend you obtain the guidance from local legal counsel.

2. Prepare the Offering Circular: To help expedite the marketing program, the sponsor should prepare a simple, one to four page brochure that includes the facts on the proposed offering.

3. Obtain Securities Clearance: Federal and state law clearance or registration must be complete before offering securities to investors. Each of the fifty states has different rules and regulation governing the sale of real estate securities.

"Fortunately, many types of securities and many transactions in securities, are exempt from state securities registration requirements. For example, many states provide for transactional exemptions for Regulation D private offerings, provided there is full compliance with SEC Rules 501-503. However, though certain types of offerings or transactions may not require registration, many states require filings or place additional conditions on exemptions available for many different offerings for which exemptions are available. The best advice, then, is before offering any security for sale in any state, experienced counsel should be retained to review the applicable state laws and take any action necessary to permit the offering to be made in the particular state."*

4. Market the Offering to Potential Investors: Now that your PPM is complete and is in compliance with state and federal security law regulations, you can market your investment opportunity to potential investors. Take the list of potential investors you have created and send your PPM to them. Since the PPM is confidential, make sure only the intended potential investor reads the contents. Finally, make a detailed record of all the potential investors that have received your PPM.

5. Review the Investor Subscription Package: As the LLC member interests are sold, each investor should send the copy of the subscription booklet and a check for the member interest purchased. The sponsor should carefully review the subscription booklet to make sure that all the requested information is completed and that the investor meets the suitability requirements of the transaction.

If any of the information is not correct, the sponsor should notify the investor to correct the information or notify the investor that they do not meet the suitability requirements. After careful review of this package, the sponsor should sign off on the various documents in this package.

6. Set up an Escrow Account for the Initial Contributions: Prior to any investor contributions being collected, the sponsor should set up an escrow account with a local bank. The bank should have a set of the instructions as to how and when to break escrow and to distribute these collected funds.

Another way to handle step 6 is to have each investor send money directly to the real estate escrow account. All of money from investors will be in the escrow account for closing of the investment property. Normally, from all the money sent to escrow from the investors, there will always be excess funds after closing. The escrow or title company will send the new buyer (investment group LLC) the balance of the funds. Take this check and deposit it into the new LLC partnership account. This partnership account will be used to operate the partnership until the property is eventually sold.

 

German Property Investments - 10 Compelling Reasons That Make Germany a Top Investment Location

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You've read that German property investments are attracting major international investors on a growing scale. Institutional investors are being drawn into the market by low property prices and high yields in addition to other reasons which confirm Germany as a great investment location. Separated from the world's main investment markets by distance and language, here is a list of 10 compelling reasons that make Germany a top investment location for cash deposit holders or pension fund investors looking to recoup some of the losses of the last few years.

10 Compelling Reasons That Make Germany a Top Investment Location

1. Economic Fundamentals - The economic fundamentals coming out of Germany are improving all the time. There are strong signs that Germany is the not only the powerhouse of Europe but the financial saviour of the Euro economy as well.

2. Population - Germany has critical mass with a population of 82 million making it the largest western democratic economy in the world and fourth largest economy in the world overall, after The USA, China and India.

3. Exports - Germany is the world's second largest exporter with a surplus on balance of trade only slightly smaller than China whose population is 15 times larger. Recent economic news points to exports continuing to grow strongly.

4. Economic Growth - GDP - A 2010 GDP figure of 3.5% was ahead of target and the 2011 target has been raised from 2.3% to 2.6% at a time when many world economies are still in contraction. Increasing affluence is causing more Germans to want to own their own homes.

5. Trade Surplus It seems like the world wants more of what Germany makes whether it's a luxurious Mercedes or something more basic like a spiral note-book. In 2010 Germany exported $1.33 Billion compared to the USA's $1.28 Billion.

6. Business Confidence - From January 2010 to January 2011 business confidence has been recorded at an all time high and has started 2011 with great vigor.

7. Unemployment - Germany is one of the few countries in the world where unemployment now is lower than in 2008. Currently at 7.5%, the figure is expected to fall even further in 2011 with over 300,000 new jobs being added to the workforce. Unemployment in the former eastern zone is at its lowest ever since 1991 (reunification).

8. Budget Deficit - The German Budget deficit is on target to reduce to 2.4% of GDP in 2011. Unlike most other economies, it is under control.

9. Purchasing Manager's Index - The Purchasing managers Index tell us about the pipeline of materials being bought by industry for conversion into finished product. The index now stands at 61.0, another indicator that Germany is leaving its Euro Zone partners out in the cold.

10. Domestic Demand - Traditionally a nation of savers, there are now signs beginning to emerge that domestic demand is beginning to contribute to the growth of the German economy.