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