| People often ask me how I got started in | | | | nicer doorknobs and bathroom fixtures and |
| commercial real estate, and I tell them that | | | | lighting fixtures, perhaps even adding some |
| it was a conscious decision for me.Most | | | | ceiling fans - all relatively inexpensive |
| people who begin investing in real estate | | | | fix-ups. As a result, we can now raise the |
| start off with single family residential | | | | rents by $50 per month per unit. That's $600 |
| properties because that is what they are most | | | | more in annual income per unit times 10 |
| comfortable with. They tell themselves, "All | | | | units, or $6,000 more per year total (which |
| I need to do is a couple of deals a month. | | | | will also recapture all the costs of the |
| I'll make myself five or ten thousand | | | | fix-ups).Next, let's decrease our expenses by |
| dollars, then at the end of a very few months | | | | $100 per month by passing on a portion of the |
| most of my problems will be taken care of." | | | | utilities to the tenants, or by doing some |
| They do not really understand everything that | | | | competitive shopping for our lawn-care |
| is involved in getting these properties | | | | service and finding a company that does the |
| going.They think they are going to be making | | | | same great job for less money per month. |
| big money, but before long, oftentimes they | | | | Times 12 months, we've just saved ourselves |
| end up with a lot of problems and a lot of | | | | $1,200 per year.Total increase in annual |
| headaches. They might have traded in their | | | | income is $7,200 ($6,000 plus $1,200). By |
| job for a perceived higher paying job, but | | | | increasing our income by $7,200 per year, |
| find that it is really taking a toll on their | | | | we've increased the value of the property by |
| lives.If you belong to a real estate | | | | $72,000 or more. That's the power of forced |
| investment group, take a look around you. | | | | appreciation.There are a lot of strategies |
| Look at the people who have done twenty-five | | | | that you can use to force appreciation and |
| to fifty houses or more. Are they living the | | | | these are just some of the simplest. But |
| life of their dreams? More importantly, are | | | | needless to say when you're dealing with 10 |
| they living the life of your dreams? They may | | | | units in one building, for instance in our |
| be better off than you are now, but is this | | | | small example, you've got an opportunity to |
| really what you want to work towards? I know | | | | improve many things that will help you |
| so many people who have a large portfolio of | | | | justify the increased rents. Also, you'll be |
| properties but really haven't achieved the | | | | seeing yourself dealing with a better tenant |
| type of freedom, success, and wealth that | | | | mix. Higher quality properties tend to bring |
| they truly desire. How can you change this? | | | | more stable tenants.PASSIVE INCOME = |
| In my opinion, the answer is commercial real | | | | FREEDOMAll of this leads us to the fifth |
| estate.WHY COMMERCIAL REAL ESTATE?When I | | | | reason why you should be investing in |
| decided to start investing in real estate, I | | | | commercial real estate and that is the |
| stopped and took a look around. I realized | | | | passive income. Passive income is the key to |
| that the people who were making the big money | | | | commercial real estate. The way that |
| in real estate were the people who owned | | | | commercial properties are managed and the way |
| buildings not houses. People who owned the | | | | they allow for a concentration of efforts |
| large apartment buildings, the large office | | | | lets you to put someone in place to manage |
| buildings, the large warehouse and industrial | | | | those properties.In the beginning, on the |
| space - those are the ones who really seemed | | | | smaller 10-unit buildings, you'll probably |
| to be living a lifestyle that I wanted.They | | | | need to manage them yourself. But as you |
| didn't have to be there tending to their | | | | climb your way up the ladder, and you start |
| properties; they had property managers who | | | | dealing with 20-units or above, you can then |
| took care of that for them. Yet, they were | | | | offer free rent on one of the units to |
| the ones spending the checks, catching planes | | | | someone in return for managing the rest of |
| to exotic locations and destinations, and | | | | the units for you. As we discussed earlier, |
| living the lifestyle that I desired so | | | | even with 10 units you can still make a |
| much.After looking at this for quite a while, | | | | monthly profit if a couple of the units are |
| I decided that there must be a way of getting | | | | vacant, so giving away one unit is certainly |
| this done. They couldn't have been much | | | | a small price to pay in return for the |
| smarter, have learned much more, or have had | | | | freedom it gives you.Now you've got an |
| access to more resources then I could. Even | | | | on-site building manager who handles all of |
| though I didn't know how immediately, I knew | | | | the tenant problems, tenant issues, tenant |
| I could figure out a way to do it.I sat down | | | | improvements, cleaning, and trash removal - |
| and took the time to learn how to invest in | | | | all in return for free rent in your two |
| commercial real estate, which is what I would | | | | bedroom, $550-per-month unit. Usually these |
| recommend that you do. I studied and figured | | | | people have other jobs, so you're not their |
| out exactly what it would take, and as I | | | | sole source of income. If your buildings are |
| learned, commercial real estate became less | | | | large enough to keep them busy full-time, |
| and less of a mystery to me.How can you | | | | however, you will probably have to pay them |
| start? First of all, let's talk about why you | | | | an hourly wage in addition to the free rent, |
| would want to do it.MORE CASH FLOWWhat are | | | | but that will only be a small portion of your |
| the benefits of commercial real estate? First | | | | total monthly profits.Meanwhile, all the |
| of all, one of the biggest benefits is that | | | | checks come directly to you. You deposit |
| commercial real estate is valued differently. | | | | them, you pay the bills, you keep the |
| By "valued differently", I mean the amount of | | | | difference - and believe me, that difference |
| income that a property produces is directly | | | | can be substantial. Even on the small 10-unit |
| proportionate to its worth. So if a property | | | | buildings that we've talked about, it's easy |
| produces more income, then it is worth more. | | | | to generate $2,000 to $3,000 dollars per |
| It has very little to do with "market | | | | month in positive cash flow, over and above |
| comps".Second, along the way you are going to | | | | your expenses. On larger, 20+ unit buildings, |
| get a far greater cash flow. Imagine if you | | | | it's not difficult to create positive cash |
| were to buy a $250,000 home. That $250,000 | | | | flows in excess of $5,000 to $10,000 per |
| home may rent for somewhere in the | | | | month if these properties are acquired |
| neighborhood of $1,500 per month. The | | | | properly. And since someone else is managing |
| underlying mortgage on that home may be | | | | the properties for you, all this money flows |
| somewhere between $1,000 and $1,400 per | | | | to you passively, while you are spending time |
| month. So you end up struggling to gain | | | | with your family, or traveling, or looking |
| between $100 and $500 per month in positive | | | | for exciting, new opportunities.Obviously |
| cash flow. That's not a very high number for | | | | there are many more great reasons to invest |
| the amount of work you have to put in, and it | | | | in commercial real estate than these five |
| certainly is not going to get you on the jet | | | | that I've given you - in fact, I could easily |
| set.Now, let's take a look at a similar | | | | list another thirty: cost recovery, how it's |
| investment from a commercial standpoint. That | | | | financed, management opportunities, scales of |
| same $250,000 investment may end up yielding | | | | economy, and so on.GETTING STARTEDSo, how do |
| you an 10-unit apartment complex, based on | | | | you get started?Just as you would get started |
| $25,000 per unit to acquire the | | | | investing in residential real estate by |
| property.(Please note: Although these numbers | | | | getting your education first (either "the |
| work in MOST parts of the country, I realize | | | | easy way", through books and courses and |
| there are certain high-priced areas, notably | | | | investor group meetings, or "the hard way", |
| the west coast and parts of the northeast, | | | | through the school of hard knocks), the place |
| where houses start in the $600,000+ range, | | | | to get started with commercial real estate is |
| and $60,000 and up per unit is much more | | | | by getting your education and learning the |
| common for apartments. Rest assured that | | | | terminology. It's not that different from |
| these concepts still work 100% -- only the | | | | residential real estate, and it's not that |
| numbers, and the PROFITS, are larger.)Let's | | | | difficult to understand.Next, look around - |
| say each of those units were two bedrooms, | | | | see what's going on in your market place. |
| which could rent in most areas of the United | | | | Find several small apartment, office, or |
| States anywhere between $400 and $600 per | | | | retail buildings for sale, get the financial |
| month. For simplicity's sake, let's use an | | | | information on them, and learn how they work |
| average of $500 per month. At $500 per month | | | | - what they rent for, how full they are, how |
| times ten units, you're bringing in $5,000 | | | | the utilities are split up, what the expenses |
| per month - more than double the rent that | | | | are, and so on. Start doing some "practice" |
| you could expect to get from that same | | | | deals - go through the motions of buying the |
| $250,000 single family home. Your underlying | | | | property with as much diligence as you would |
| mortgage payment would be very similar to | | | | if you were buying a single-family home. Once |
| what you would expect on a residential | | | | you understand what the income is and what |
| property; for this example, let's use $1,400 | | | | the expenses are, you can start to figure out |
| per month.Your cash flow on this 10-unit | | | | how you would acquire that property.The |
| apartment building will be $3,600 per month | | | | sooner you get this process going, the sooner |
| ($5,000 per month income, minus a $1,400 | | | | I guarantee that you will be a commercial |
| mortgage payment). Now that will make a | | | | property owner. Don't wait to get started - |
| difference in just about anyone's life.LESS | | | | now is the time! This is the best commercial |
| RISKThird, and most essentially, you're now | | | | market in the last 50 years. Properties are |
| spreading out the risk over ten tenants, as | | | | available extremely inexpensively, and there |
| opposed to one. If your single-family home | | | | are many distressed properties just waiting |
| goes vacant, you're on the hook for the | | | | to be picked up with millions of dollars in |
| entire mortgage. Every penny of that | | | | equity in all of them. The bank rates right |
| mortgage, all of the maintenance, and | | | | now for commercial property are extremely |
| everything that goes along with it is now | | | | low. These factors combine to offer you an |
| your responsibility. If the house is vacant | | | | incredible opportunity. Do not let this |
| for two months, you'd better be planning on | | | | market place pass you by, or you may very |
| spending a minimum of $2,800 to cover that | | | | well regret it.Can you imagine buying five |
| mortgage plus miscellaneous expenses | | | | 10-unit apartment buildings in the next 12 to |
| including maintenance, utilities, taxes, and | | | | 24 months? At the end of that time, you'd |
| insurance. Potentially, you're looking at a | | | | have 50 units, managed by someone else, and |
| very heavy negative cash flow.On the | | | | generating six figures of annual passive |
| commercial property, however, if one of your | | | | income. The exciting part is that apartment |
| ten units goes vacant at $500 per unit, | | | | buildings are just the tip of the iceberg, |
| you're still bringing in $4,500. So you get | | | | and in my opinion, not even my favorite |
| slightly less positive cash flow but you're | | | | investments. I personally prefer office and |
| certainly not experiencing negative cash | | | | retail space which have a much higher profit |
| flow. Say three units go vacant - you're | | | | potential. Apartment buildings are nice but |
| still covering your mortgage and putting cash | | | | office space and retail space generate the |
| in your pockets! Do you see how there is | | | | really big money.I can promise you that if |
| actually LESS risk in commercial | | | | you start following these simple strategies, |
| properties?INCREASE VALUE AT WILLThe fourth | | | | you'll generate more than enough gold to fill |
| reason you should be investing in commercial | | | | up the pots for yourself as well as your |
| real estate is because of a concept called | | | | family and loved ones. The sooner you get |
| "forced appreciation". Forced appreciation | | | | started, the sooner you'll see your first $1 |
| means doing things with your property that | | | | Million profits!J. Scott Scheel has been |
| will increase your income and decrease your | | | | investing in commercial real estate for over |
| expenses. Remember that the more income your | | | | seven years, and has created profits and |
| commercial property brings in, the more it is | | | | equities of over $8 Million in commercial |
| worth.As an example, let's go back to our | | | | property investments over the last two years |
| 10-unit apartment building. Let's say we plan | | | | alone. He is successfully teaching students |
| on improving the quality of each apartment | | | | across the country how to make millions in |
| unit by replacing the flooring, upgrading to | | | | commercial real estate. |