4 Strong Reasons to Invest in Commercial Real Estate

I realize that many of you reading this can't imagine yourself getting out of making small deals in residential real estate and moving into the commercial real estate arena.  Quite understandable as many of us don't like change or have some fear of it.

What you need to realize is that in commercial real estate, it's not about your personal resources that matters but it's a reflection of the deal itself...IT'S EXACTLY ABOUT THE PROPERTY.

Reason #1

Cash flow is king!  Commercial real estate when purchased right will produce much higher levels of cash flow compared to residential.  This is intuitive, isn't it?  Not really for some people because if you think about it for a moment, a single family home that needs renovations will produce zero cash flow.  Additionally, your money is tied up until at least the renovation is over and if you're flipping a home after renovating it, you must factor in holding time again after the repairs are done.  So, you could have zero cash flow for months or even years!  (Yes, years!).  Without cash flow, your business will grind down or even come to an abrupt halt.  

Reason #2

Related to Reason #1, commercial real estate offers less risk when the right systems are put in place.  If you lose a single tenant in a single family home, you have zero income but when you lose a tenant in a 100 unit apartment building, you've lost 1% of your total income.  I'm sure you get the idea...

Reason #3

Building equity takes less time with commercial real estate.  Bigger total payments from tenants mean your mortgage (if you have one) gets paid down in bigger lumps compared to residential rentals.  Additionally, value appreciation over time also creates more dollars for you in comparison with residential.

Reason #4

Forced Appreciation - This one is the best of the lot if executed right.  By increasing income and/or decreasing expenses, you can effectively increase the value of a commercial property by $10 for every $1 increase in income or decrease in expenses.  This is an average value with the standard understanding that average investors are looking for a 10% rate of return on their investment.  The powerful thing to take away from this is that $1 more in your pocket translates to a $10 increase in value....powerful stuff and very true!

i.e. this comes from the standard commercial valuation formula of:

Rate of Return = Income / Total Value 

By re-arranging this formula, we get Total Value = Income / Rate of Return

and with our example the total value increase, assuming we want a 10% rate of return = $1 / 10% = $10.

If you need a primer on commercial real estate, you may want to pick up a copy of Trump University Commercial Real Estate Investing 101, which is written by David Lindahl with a forward by Donald Trump.  It's a very good beginner's book and a great reference for the more seasoned professional that I highly recommend.  Check it out below.

Low Interest Rates Got You Down? How Does 10%-17% Annualized Sound?

It seems as though low interest rates will be with us for some time yet.  So how can we obtain higher returns and minimize risk?  Stock market?  Speculation in other areas?  Both of these options can produce tremendous returns, however the element of risk is substantial also.  For those people who don't have a stomach for high risk or the ups and downs of the daily markets, let's consider a viable, comparatively low risk option:  VALUE-ADD REAL ESTATE.  

Let me explain in layman's terms:  Value-add real estate is real estate that we can increase the value over a relatively short period of time by executing a viable business plan to extract that value as profit.  

What kind of returns, you may ask?  

Our track record shows 10%-17% annualized returns over the past several years, which we pay our investors.  Don't take my word for it at all!  These numbers can be checked through the public records.  We have never lost money on any deal we have done.  Are we lucky?  No.  We carefully pour over hundreds and hundreds of deals to find the diamond that makes economic sense and minimizes any possible downside.  By this approach, it's almost improbable to lose once we get into a deal.  As I mentioned before, we have never lost on any deal we have done.  It's a winner before we start, not by some appreciation due to market action.  We control the appreciation because we know what it is worth now and what it will be worth at the time we sell it within a small margin for error.  Additionally, our investor's money never passes directly to us and is protected by multiple layer's of insurance.  It is always handled through escrow through their chosen attorney! 

If you are looking for a viable option to generate a healthy 10% - 17% annualized return, then why not take a moment now and send us a quick email?  We can discuss your objectives and see if they coincide with ours.  If they do, great!  If they don't, no problem at all!  Let's start a dialogue today.... 

You may contact us at: info@almavesta.com or toll free at 1-888-799-7740 ext. 129 at your convenience for further information.

Until next time....

US Banks Reporting Healthy 4th Quarter

The FDIC reported on February 26, 2014 that U.S. commercial banks and savings institutions that the agency insures stated that aggregate net income was $40.3 billion in 4th quarter 2013.  This is up approximately 17% compared with 4th quarter 2012.  Bank earnings have enjoyed a year-over-year increase for 17 of the last 18 quarters, which is good general news.

53% of reporting banks had year-over-year growth in quarterly earnings.  Unprofitable banks now comprise just 12.2% of the total as of the 4th quarter 2013, down from 15% in the 4th quarter of 2012. The FDIC also stated that the number of unprofitable banks was reduced in number from 515 to 467 during the 4th quarter of 2013.  This is just about half of the high of 888 at the end of the 1st quarter of 2011. Two FDIC-insured institutions failed in the 4th quarter of 2013, which is down from eight in the 4th quarter of 2012. For all of 2013, there were 24 bank failures, compared to 51 in 2012.  

The value of 1-4 unit residential REOs held by banks declined from $6.79 billion in the 3rd quarter of 2013 to $6.64 billion in the 4th quarter, which is a reduction of 2.2%. This is the lowest level of REOs since the 3rd quarter of 2007. Even in good times, the FDIC insured institutions have about $2.5 billion in residential REO on their books.

Enjoy your day!

Economic Reality vs Typical Media Driven Misleading Information

Now, don't let me bore you if you're not Canadian, since this first paragraph is really only for Canadians, but if you're American, go straight to the chart below and read on.  You may find this information refreshing, positive and contrary to popular media and public opinion on the state of the United States economy. For some time, I have been telling Canadians that investing in United States real estate is a prudent, and profitable approach, and with the near par level of the Canadian dollar vs the US dollar, that the time to take advantage of low market prices, and a high relative dollar value was now.  Well, "now" was best just about a year ago.  It's still a great investment opportunity in general for Canadians to invest in US real estate now, however we have seen prices on the rise, as well as the US dollar rising significantly against the Canadian dollar recently which will likely trend in the same direction towards long term historical norms.  The biggest additional factor that will influence the exchange rate is interest rates.  The US dollar is rising and interest rates have not begun to creep up yet.  They will definitely go higher, the only question is how soon, as the US Federal Government moves towards paying down the national debt with cheaper dollars with higher interest rates.  The exchange rate as of today is 0.938 US$/CAD$.  Just a few months ago it was above par on the flipside.  I believe what we are seeing is the beginning of a consistent and long term drop of the Canadian dollar vs the US dollar as we have seen in the past.  I recall working in Troy, Michigan from 1997-2000 and the exchange rate was as low as 0.6311.  Now, let's take a look at a very interesting chart and how it relates to what I mentioned above.

United States Federal Debt as a % of Gross Domestic Product (GDP)

1940 to 2012

Chart taken from Wikipedia : http://en.wikipedia.org/wiki/File:FederalDebt1940to2012.svg

The great recession took its toll, but it seems that we can safely say that the worst is behind us.  Regardless of what the naysayers and pundits are saying, we must look at facts rather than conjecture AND SELF-INTEREST, which is a predominant difficulty with listening to the media and the hoards of "experts" that they put on television and radio and print.  

Take a moment and look at the attached chart and make your own judgement...Real numbers do not lie.  Clearly the debt / GDP ratio was significantly higher at the end of the second world war in 1945-1947 than it is today.  It was significantly higher, so where the media tends to put "experts" on telling the world how bad the fiscal situation is in the United States, the real story is told by this simple chart.  The absolute value of debt is irrelevant.  What is relevant is the GDP compared to it as it shows the ability to repay this debt.  Since the United States paid down debt significantly after 1945, then it most certainly can do it again since the levels are significantly lower now in comparison when we look at GDP and not total dollars.  Now, don't misconstrue what I'm writing here.  The national debt of the United States is very high in a vacuum, however we do not live in a vacuum.  The fact remains that this chart tells the truth more than anything that I have seen anywhere else.  There are clearly economic complexities that will drive the general economy, however, when we look at how the situation is now compared to the past, it's much more positive than we have been led to believe.  As interest rates rise and the debt is paid down, and more foreign investment of "scared money" goes into the United States, look to have that impact the Canadian dollar in a negative way.  An additional factor that will certainly influence exodus of money from Canada into the United States at least in real estate is that prices are sky-high in Canada compared to the United States in a relative way.  Looking at all of these factors, we can certainly expect that the Canadian dollar valuation relative to the US dollar will tend to trend downwards.

I hope this information has been of help to clarify reality in a rather easy to understand manner.

Until next time.....

The Real Deal: How to Exceed 12% Annualized Return With Low Risk

For those that have an interest in low risk and high returns on investment (third party verifiable), I will detail below what we do:

As we move forward with our business, we steadily provide our investor partners with very strong (and notably very low risk) returns, never offering less than 12% annualized ROI.  Now, this level of return may appeal to some of you, but let me explain that these returns are based on very carefully selected acquisitions that limit risk to a very low level for our partners.  Contrary to the high risk stock market, where you can immediately lose money and the risk profile is very high in comparison, our focus is to only acquire assets at very low prices relative to current value to offer a risk profile that is very low.  We achieve this through a multi-pronged proprietary approach with our entire focus to minimize risk for our investor partners, while maximizing their returns.  There is absolutely no risk comparison between the general markets and what Almavesta Group Inc. does.  We offer a stronger, better investment solution because of our years of investment in systems that produce bona fide results.

We prove our results with 3rd party reports.  We are different and are transparent to sharing this information with our partners.  Integrity, transparency and a desire to exceed our partner's goals are of paramount concern.

Should you have an interest in learning more about how we can help you exceed your financial goals, you may contact me personally (Alek Musulin) at:

info@almavesta.com or by dialing +1.888.799.7740 ext. 129.

Until next time...........

Can You Show a Real Track Record?

There are many people who claim to have a successful track record in real estate, but when the question is asked for some examples of their success, there is no substance provided, but rather a change of subject matter tends to be the norm.

I find it also very interesting that there are many people attempting to sell courses, seminars, training, and that's perfectly fine, but are those people really doers rather than theory pushers?  My advice in this regard is to vet anyone you intend to pay for their knowledge.  Just because someone wrote a published book or two, doesn't mean that what they are giving you is useful, practical knowledge.  It may just be pure theory.  How will you know the difference?  I'm sorry to say that you just have to do more deals.  There is no secret to the business, but if there is a "secret sauce", it is simply doing more deals.  It's as straight forward as that.

Just make sure you are getting your information from someone who has actually walked the walk and not just talked the talk.  These days it seems with social media there are far too many talkers and not enough experienced people sharing their knowledge of real-life deals.

So, for those of you out there that want to be in the Real Estate education business, I believe it's important that you have had a fair share of success in real estate and can demonstrate it with HUD-1's etc. if someone asks the question.  Being transparent only solidifies your authority and helps those who want to do business with you to have confidence and trust in you.  

Conversely, for those newer people who feel they need more knowledge or education in the business, let me just say again, that the best education is actually doing deals.  If you're not doing deals, you're not in the business.  Don't over-analyze.  Just make sure you buy low enough to ensure you can make a tidy profit.  If you buy too high for the neighborhood you're in, then you won't make much, or worse, you could be in a loss situation.  Remember, you make money when you buy, not when you sell.

Until next time.......

Can You Trust Sellers and/or Buyers?

Hello everyone and hopefully your year has been fantastic so far and you are looking forward to finishing 2013 on a strong note!  As always, I never throw theory at you, but rather the realities of real estate.

Let me give you a real example that happened not too long ago but it is not unique at all.  This happens time and time again when you attempt to facilitate a deal.  This is why I don't bother with these types of deal structures further.  The funny and serious side of this is that this type of scenario is captured time and time again in various books on the topic and the writer is clearly only writing based on theory and not on real experience.  The books make it sound so simple to facilitate as an intermediary and walk away with a huge profit with little to no effort.  The truth to the matter is no matter how you try to facilitate (and please remember, that there is plenty of effort here because you have to time the deal so that two contracts consummate at the same time, and not just one), the end Buyer and the Seller do not want you to make any more money than what they deem is reasonable.  This amount depends on the individual, but remember, ultimately, you have to satisfy two parties, and not just one in your negotiations.  This is a large and complicated task with many moving parts.  I write this not to dissuade you, but to make it clear that the books on this topic sugar-coat the reality of these situations and do not include the psychological factor that the Buyer and Seller are feeling, which ultimately influences their decisions.

Real Life Example:

I set up a deal where I knew the Seller was motivated.  I negotiated the Purchase Price at $2.5 million and at the same time I had an LOI from a Buyer for $2.75 million.  I then heard that the Buyer wanted to use their own Closing Agent, which would have created problems because my intention was to double close and get the deal done within 5 weeks of contract.  Why would this create problems?  Because "their" Closing Agent would note that my company did not own the properties that they were buying and that I was an intermediary that was double closing.  Don't ask me why this matters, but Buyers get frazzled in this kind of deal because when they find out you don't own the properties that you are flipping to them, until the day of Closing, they get upset.  Don't kid yourself in the vast quantities of trash written on the subject.  Buyers absolutely care about this point.  This is psychology and not anything real to do with the deal.  If we used our own Closing Agent, the situation would have been exactly the same but since they are representing my company, they would not highlight the point that we didn't own the properties until the day of Closing before we flipped them to the end Buyer.  This is the same information exactly, however, it's a question of what is highlighted and what is not.

Instead, we decided to skip the double closing and just show our fees on the contract to avoid any negative reaction from the end Buyer.  From past experience, I knew that neither the Seller or Buyer would accept us making $250,000 on this deal, so to attempt to make this deal work, I offered the Seller $37,500 more and the Buyer a $37,500 price reduction which effectively changed our fee from $250,000 to $175,000, so this is roughly 6% of sales price which I thought would be acceptable to both parties.  I was wrong.

The Buyer requested a phone call with Seller and I was hesitant to allow this before a contract was signed and I did not allow this.  I was led to believe that the Buyer just wanted to ask some basic general questions.  I knew better and waited until a signed contract was provided (it never came).  What happened instead was that the fellow who claimed to be representing the Seller was in fact an intermediary and there was actually a real estate broker representing the Seller!!  All this time I was led to believe this was an off-market deal with no licensed broker representation.  This was a blatant lie fed in my direction.  The individual who claimed to represent the Seller, once he learned the company that was interested in buying the package, looked up in the public records and found the name and phone number of the end Buyer and set up a phone call directly between Buyer and Seller without our involvement or our permission.  Now of course, once the end Buyer and Seller talked and we didn't have a signed contract, we had absolutely no control anymore.  We also learned that the Seller did not want to agree to pay our fees and actually he didn't want to pay ANY fees.  It's interesting to note that until the end Buyer and Seller talked, the Seller made no comment on our fees.  Once they got what they wanted (talking to the Buyer directly), they didn't need us any more and then told us exactly what they thought.  Funny isn't it?  No, it's not funny.  We spent several months on this deal and several potential Buyers fell through the cracks.

The moral of the story is don't trust any Buyer or Seller to do anything that represents honesty or integrity.  Sellers will LIE.  Buyers will LIE.  These people don't care about you or the number of hours you have put into any deal to work to a successful Closing.  They are concerned only about themselves and the outcome for themselves, just as you are focused on what's in it for you.  Cordially, and professionally, never forget these axioms.

Here's a simple addendum to a contract that you can put in your purchase contracts to protect yourself:

"Vesting to be determined at Closing."  Simply put, this means you reserve the right to determine the Buying entity at Closing.  This way if you are doing a double closing you don't advise anyone of the final Buying entity until the very last minute.  This protects yourself and it motivates the Seller to sign closing documents because by the time they learn the Buyer's name, the money for the purchase is already in escrow.  When you are asked why you are putting this clause, just tell them that you are consulting with your accountant and tax attorneys to determine the best way to buy the property(ies).  This puts the concern off of you and onto a professional third party and this should suffice to answer the query.

Contrary to popular belief and written Guru documentation, Sellers and Buyers always worry about how much money you will make in a deal.  They are very focused and concerned to maximize their gains and to minimize yours.  DON'T EVER FORGET THIS!!  This is the truth based on personal experience over and over again.  Don't believe the mounds of b.s. written on the topic.  If you don't heed my advice, you will learn the hard way that Mr. Alex was in fact telling the truth about this.

Until next time....Enjoy the rest of the Summer as Fall will be with us officially in about three weeks.