All Forum Posts by: John McKee

You will have to search my threads to get the details of the good, bad, and the ugly.  In general it's a passive way to own real estate as the tenant takes care of the headaches and cost of repairs in most situations.  PM me for advice, but here are some general guidelines that I live by:

By the location, not the tenant

Read the lease!  There is always an expense somewhere

Diversify your holdings.  Single Tenant, multi tenant, condo, flex space.

Ask yourself this question: is this easy to backfill if the tenant goes Dark?

This is a commercial property in Virginia

Question for the group. I have 1 million dollar property with about 500K left on the loan.  How can I sell it with seller financing if the bank already has a note on the property.  I can't afford to pay off the 500K myself and either can the tenant for a downpayment.  Any solutions on how to structure a deal like this?

@David Charles Edwards

Mortgage note investing can be done as a syndication, but without all the drama of capital calls, bogus fees and risk like traditional MF syndications.  Your investing in people's mortgages where they live, which generally speaking have a very steady rate of return and have payouts from day one.   The syndicator will buy these notes in bulk.  Some of them performing and others non performing at a deep discount.  Their job is to get the non performing ones on a new payment plan.  I'm a big believer that these notes should be a part of everyone's passive income plan because you can't get any more passive than this.  

Since you said you want to be more passive, here are your only options in my opinion:

1) 1031 into A DST

2) Sell and pay capital gains tax and take proceeds to invest in mortgage notes at 12%

3) Keep what you have and hire a property manager.

4) Do a combination of all 3 above for diversification purposes.  Maybe keep those properties that have the most appreciation potential.

Let's break down your equity based on your numbers:

Property 1: 6.5% return on your equity (yearly cash flow/Equity)

Property 2: 6.08%

Property 3: .88%  

Property 4: 2.09% 

Property 3 and 4 are definitely too low of a return.  However your returns are probably even lower if you factor in upcoming major expenses like an hvac or roof replacement.

It really depends on your goals.  Are you trying to create more leverage? Are you done with managing real estate?  Do you want something passive? 

Here are some options:

Option 1) The only way I know to double your cash flow from Day 1 is to sell and reinvest in mortgage notes at 12%.  In a few years your capital gains tax will be offset by the higher returns.

Option 2) Your other options involve risk or work such as MF syndications, flipping houses, 1031 into an undervalued property that you fix up

Option 3). Invest in a DST to avoid capital gains. They have low risk, but also lower returns like 5-6%.

If you decide to keep the properties at least get a HELOC on the properties so that you can access your equity at anytime.

Take the capital gains hit and then put your profits into a mortgage note fund that earns 12%.  You will stay ahead of inflation, have no management, and enjoy significant cash flow.

The tenant is now out!  Tenant is leaning toward a payment plan, but if he doesn't commit to a figure by the end of the week then the lawyer takes over.  I've had this situation before and it can work out well when you and the tenant agree to a payment plan, especially when the funds can come out of their account automatically.  

Look into buying commercial condo's instead.  These are the street level retail/restaurant spaces.  In commercial real estate the tenant pays for everything including those pesky condo fees

Do you typically need a certificate of Occupancy to lease an industrial flex space?  This space is used for a contractor to store his tools, and has a small office and bathroom.  They are not selling anything out of it.  It's just a storage garage.  Let me know if you have any experience with these.