All Forum Posts by: Cody J Leivas

Look into cost segregation!

Cost segregation is a tool used in real estate to accelerate depreciation deductions and reduce income tax liability.

It involves reclassifying building components or improvements into shorter recovery periods for depreciation purposes.

Cost segregations are powerful because they increase cash flow, reduce tax liability, and improve return on investment.

By accelerating depreciation deductions, cost segregation increases cash flow in the earlier years of ownership, allowing property owners to reinvest the cash or pay down debt.

By taking larger deductions in the earlier years of ownership, cost segregation reduces the owner's tax liability, resulting in significant tax savings over the life of the property.

Cost segregation can improve the return on investment for commercial real estate properties by reducing tax liability and increasing cash flow.

Cost segregation is a legal and accepted method of reducing tax liability in commercial real estate and helps property owners comply with tax laws and regulations.

If you have an existing relationship with a bank in your market, they may be willing to lend out of their market. If not, local banks and credit unions will be your best bet. 

Mortgage brokers could be good to use for your first deal in a new market. That way, they will introduce you to the banks in the market. You will have to use them on the first one, which will cost .50% - 1.00% of the loan amount. This is on top of the bank's commission of .25% - 1.00%. (on loan amount)

Most Loan Stabilized Loan Quotes:

Rate: around 2.50% + 5 year treasury 

Term: 5 years (if lease term is shorter than it will be shorter)

Amo: 25 years

LTV: 60% - 75% (DSCR 1.25 - 1.50 will determine the LTV)

I agree with everyone comments above and wanted to add Buyer beware:

Make sure the rent that is negotiated is not too high. It is common for the seller to push up the rent to sell the building for more than it should be worth. 

Three numbers that need to make sense based on comps:

- Cap Rate = NOI / Property Price

- Price / PSF

- Rent PSF NNN

 Hello Nolan, 

When the property is priced for sale you can sell the building at the market value and give a credit back for the roof. The credit will come from the proceeds of the sale. The credit can be negotiated and doesn't need to be $800k but the buyer will want the roof to be accounted for in the price or a credit. 

This is a good alternative so that the seller doesn't have to come up with cash to pay for a new roof before the sale of the property. 

We do this all the time. We are currently negotiating on a two-building portfolio and have a price of $6.4M and a credit for the roofs of $500k. 

I've helped purchase one data center. 

Typically, large institutions that need data centers will build to suites (build to own). They want to own the real estate because of all the improvements added to the building. 

The building we purchased had other tenants, but the major of the building was the data center. When we did the tenant interview, we learned that it would be almost impossible for them to vacate the building because of the cost of improvements they added to the building and moving those improvements to a new building. The servers produce a significant amount of heat, so the ac systems in these buildings are very large and expensive. 

The biggest risk is if the tenant is bought by a larger institution that doesn't care about moving costs.

I heard a good rule of thumb that keeps your exit conservative. 

Add five bps for each year you expect to hold the property. 

Ex: Buy a 6.00% cap. Hold five years. Exit 6.25% cap. 

Just a rule of thumb. There are many situations where this does not work or shouldn't be used. 

Wall street prep for real estate is what you are looking for. 20 hours of online material. 

I think it was around $400. 

Real estate PE firms have their analyst take this course. 

Doom and gloom seems to be high right now. Looks like a good market to get into. 

Banks are still giving money out, lots of borrowers have reserves, and banks have financial instruments to lock in their cost of borrowing over a certain amount of time. During the free money era, many banks borrowed funds with extended maturities. Banks calling loans are unlikely. 

Don't over pay but find properties with good basis and ability to raise NOI.

I would say 1-2 months before the 180 day notice would be standard. 

In the lease, does the rent continue at a specified rate or is it fair market value?

If its fair market value, I would begin gathering comps before you have a discussion on renewing the tenant. 

@Tania Leung