What to Consider When Buying a Single or Multifamily Investment!

Many first time investors have the idea that their first investment should be a single family home due to the cost of entry and ease of management, however, this may not always be the best path to go down. One of the main issues that you have to consider is the fact that if the single family homes goes vacant you will have to cover the entire mortgage until you find a new renter, now if you have a duplex, triplex or fourplex that mortgage will be spread out across more units giving you some cash flow to help with the mortgage.

Another reason the first time investors tend to like the single family homes is that you can put a lot less down then you can on a commercial loan and the residential loan can be amortized out over the life of the loan. Residential loans can be on properties that have 4 units or less and can be acquired with as little 5% down, however, commercial loans are on 5 units or more will require at least 25% down and you will need to show a business plan plus as well as management experience and cash flow. When shopping for a commercial loan, be prepared to answer a lot of background questions regarding the property. Some of these questions include:

Who pays the utilities?

What types of maintenance are required?

Numerous questions regarding cash flow will also be asked. Commercial mortgage borrowers should be prepared to provide proof of business revenue and profits as well as a detailed plan for how the commercial property will generate enough income.

Where an investment in a residential property can be attractive is in the maintenance costs, you will have only one tenant in stead of multiple so it makes sense that your costs should be less providing you have a good tenant; however, multifamily properties typically afford synergies of scale (one yard, roof, etc…) so your overall cost per unit vs. rent will be lower.

When deciding on which direction to go with your first investment really look at your appetite for risk as having a home go vacant for a few months and having to cover all the expenses on your investment can be a big drain on your savings.

What Is The Safest Investment You Can Make In Real Estate

The truth be told there is really no SAFE investment in real estate, there are however investments with less risk and STNL (Single Tenant Net Leased) properties are a strong leader. A STNL property is typically structured under a triple net lease.  Under this type of lease  the tenant is solely responsible for all costs relating to the leased asset, above and beyond the base rent.   This includes the real estate taxes, building and liability insurance and maintenance and repairs.   Generally, a new STNL lease will be for a longer term (15-20 years) with options to extend and increases at set periods (either annually, or every 5 years).  This limits the chance for income fluctuations and allows for an investor to really know what their expected income and return projections will be for a long period of time.

Acquiring a STNL can be a more secure investment when you have a strong tenant, you can get a local operator, regional operator or a national credit tenant.

A local operator can be an individual that has this one location or a few locations, these are the more riskier of the three as the smaller operators are more susceptible to the local market fluctuations. To offset this risk though, many operators will cross collateralize their lease with the other locations, and many times also offer a personal guarantee on the lease.

A regional operator is a company that has several locations in a state or region of the country, these operators usually have a good amount of experience and can be less riskier than a local operator and they are spread across a larger area and in many cases have a higher volume allowing them better pricing on their goods purchased and therefore better operating margins. Many regional operators can be just as strong as some national operators

A National Credit Tenant is someone like a 7-Eleven, McDonalds or a Walmart, these can be the safest investment of the three if the leases are backed by the parent corporation. Be aware of national or international companies with only the franchisee as the guarantor, but don’t discount them as safe investment, as many franchisees can be as strong and as large as some comparable national companies. The price fluctuations on triple net leases across different regions of the country can vary widely so be sure to speak with a broker that knows the NNN market place.

These three types of STNL investments are good for investors of any level, as a new investor it’s a good investment option due to the stability and will help build a solid foundation for your investment. A more seasoned investor will want NNN as a means of wealth preservation as they have created their wealth and do not want to risk it.

3 Effective Tactics to Boost Revenue From Your Rental Property

The usual tactics to boost revenue from property rental is acquiring as many properties as possible. While this may be a valid method for those who are in the property business per se, when it comes to “regular” people that have just a few properties to rent, a better approach would be to focus on their current portfolio and see what they can do to earn more without investing more. Let’s talk:

Minimize Turnover

Turnover is one of the worst things for everyone in the property rental business. Every turnover costs money and going through tenant after tenant will cost you more than you’ll earn. Apart from advertising costs, there are costs of vacancy, patching and painting walls, replacing and repairing flooring, or fixing anything else left broken by your previous tenant, etc. But, how do you minimize turnover and keep the right tenants in place? There are several points to it:

• Lowering the rent: Although this may sometimes be counterintuitive, it does show the tendency to increase revenue, long-term and here’s why. When tenants don’t have to pay high rents, they appreciate the place they live in and usually tend to keep it in good shape as if it were their home. Also, they are less likely to leave.

• Customer service: Whether you have a property manager or personally manage your properties, you’ll keep your tenants in place if you treat them with respect. The more professional you are, the longer they’ll stay, meaning – make sure their concerns are valued and their reasonable requests dealt with straight away.

• Open agreement: It’s in your best interest to keep your tenants in place so make sure you stay away from shady deals, unclear arrangements and, well, lies. Stick to the agreement you initially made with your tenant and be open to suggestions, changes, etc. When your tenants know you can be trusted, they are likely to stay around for a long time.

• Increase rent strategically: After having told you lower rents are king, we have to explore rent increase as well, because, let’s face it, you’ll have to increase the rents eventually if you have a valid reason. Also, your tenants shouldn’t expect the rent never to increase; what they should expect though is a strategic and open approach to the increase. If feasible, inform your tenants right away of potential rent increases over, so they’re not surprised when the day comes.

Decrease Vacancy

To minimize vacancies loss, try to find a long-term tenant who pays regularly and has a stable source of income. If it happens that your tenant has to move, you can minimize vacancy by keeping turnaround time to a minimum. For instance, if you are renting out a condo to two people and one of them has to leave, the best way to keep your occupancy at virtually 100% is by posting ads the minute you learn of your tenant’s move. That way, whether your property is in a good neighborhood or one with lower demand, you’ll have interested parties looking to book a room in your apartment.

Add Revenue Streams

If you are running multi-family properties, add services like coin-operated vending machines, laundry and other useful services that will add resale value by raising the property’s return on capitalization rate or asset value. Plus, they’ll be super convenient for the tenants.

Boosting rental revenue can be achieved by operating a smaller number of properties as long as you’ve got an intelligent approach to the matter.

Vanilla or Grey? How to Choose the Right Space for Your Property Needs

by Joe Killinger

When you begin the process of looking for a new office or retail space some people get confused between a Vanilla Shell and a Grey Shell. Because each market is different, you need to specify what your expectations are and what type of property the landlord has available.

Vanilla Shell

A Vanilla Shell (also known as a warm shell) is a commercial real estate term that refers to a landlord delivering a space to a tenant with the basic finishing’s

The finishing’s typically include taped walls ready to paint, electrical panel and outlets, sealed concrete or finished floor, finished ceiling with lighting, HVAC including duct work and controls, finished bathroom (if no common bathroom), and sprinkler system if required by code.

However; depending on the landlord, it may not include all of these items, so it’s important to clarify what is included. Since Vanilla Shells offer tenants a close to finished space, they allow for a quicker move-in time and provide less initial hassles.

Grey Shell

A Grey Shell (also known as a cool shell) is space offered by a landlord that is completely unfinished.

You will generally find bare stud walls, unfinished floors, and no plumbing or electrical. The space will more than likely include a HVAC unit but no duct work or controls. If required by code, the sprinkler system may be installed but not dropped to finish ceiling height.

As a tenant you need to be aware that this will dramatically increase your costs for tenant improvements, especially if you plan on adding drains and/or bathrooms. Although Grey Shells do require more tenant maintenance they allow for greater flexibility for your individual needs.

Additional Considerations

One thing you do want to remember is that if you are doing a substantial amount of work you will want to have a longer lease and therefore the landlord should have more flexibility.

It’s important to work with an agent that can help negotiate assistance from the landlord for you to complete additional work, either in the form of rent credits or additional tenant improvement dollars from the landlord.

Finally, it’s always a good idea to have your team ready (including a contractor) to prepare a budget prior to looking for your new space. In the end it can save you a lot of time and effort.

Is Small Box Retail The Way Of The Future?

“The economics are in favor of the small-box retailer, having to spend less on your lease rate means you can spend more on marketing, inventory management, customer management and of course less staffing.”

A five room movie theater, redesigned in the Pacific Palisades. (Original Photo by Mel Melcon / Los Angeles Times)

A small-box retailer operates their business very much the same as their larger counter parts but utilizes less square footage. This means that they don’t need as much space for their products and therefore have a lower rent and fewer staff to deal with which equals a lot less overhead.

With the small-box locations you don’t have as much inventory but you can adjust by having an online presence or having the ability to send the clients their purchases the next day.

The economics are in favor of the small-box retailer, having to spend less on your lease rate means you can spend more on marketing, inventory management, customer management and of course less staffing. We’re seeing several retailers that are currently in big-box location grow their presence by opening small-box locations that aren’t far away. There is an entire new development of small-box retail stores that just had its grand opening in the Pacific Palisades neighborhood in Los Angeles on September 22nd and it’s already huge hit.

Customers will find small-box stores located in that development that have big-box locations within a fifteen minute drive. If this development proves to generate continued success it could be a lightning rod that proves this is a great way for a retailer to grow their market share while maintaining control of their overhead costs.

When walking the developments that are focusing on small-box retailers I noticed that they’re customizing merchandise toward clientele that are in the area and are creating an enjoyable shopping experience for their clients, especially targeting the higher end market.

The developments themselves seem to be focusing on creating the best experience for shopping that they can, art is being placed in public, and community events are already being organized or promoted in public.

The convenience and atmosphere that the Pacific Palisades development provided is something that I believe will create an interest for further small-box retailers in the near future.

I can see how these small-box stores could easily become the way of the future