All Forum Posts by: Michael Jones

Hi Sam!

Did you graduate from Baylor?

If you haven't yet, you need to read The Richest Man in Babylon. That will help guide your overall investing journey. Another great resource is The Millionaire Real Estate Investor. 

Have you identified what you're trying to achieve through real estate? Is it asset appreciation to gain wealth? Cash flow to fund a life style? etc?

What reason does the bank state as to why they won't finance this?

Hi Kelly - the terms look pretty good and standard. 

I'm wrapping up a development where I'll have a 15 year amortization with a 4.25% fixed rate paying a point to the bank. That's pretty standard. 

I'd be very careful about fronting money which looks to be an application fee. You should only pay the fee if the loan closes. You might be able to structure it where you only pay the fee if you back out vs. them not approving you. It does NOT cost that much money to underwrite a deal.

Talk to a local bank and credit union and get a quote from them.

@Jonathan Navarrete

What city in Texas? I'm outside of Austin. HEB is a strong draw.

Definitely check with planning and zoning and see what has been permitted recently for retail space. There could be a flood about to hit the marker which could make it tough to lease your space.

Talk to the local economic development corporation and ask them what they're missing out on from a retail space. It could be that specialty medical or something more unique than just straight up retail space is in demand. Google other HEBs and see what tends to go in around them.

Get with an architect and have them draft some basic renderings based on what you have.

Draft up a proforma of rent, debt service, etc so you can show the property cash flowing. They will likely lend to you on a speculative basis with a 20% to 30% down payment. Terms can change as you get commitments. Its safe to assume three to five year leases and NNN to pass through the utilities, maintenance, and taxes.

Go talk to your local chamber of commerce AND economic development corporation. If you're unfamiliar with the latter, go search that term.

They will tell you want the demand is and you can basically build what's in demand. You might also talk to local commercial brokers and ask them what their prospects are looking for, but can't find.

When you do those two things, it's like shooting fish in a barrel.

Mike - commercial can encompass a few different asset types. Can you please clarify? Multifamily is just one of several that fall into the commercial category: storage, office, retail, medical, etc.

Always, always, always do NNN. It's a major advantage to commercial real estate and protects your return and cash flow. Hire a good COMMERCIAL Realtor with a proven track record to secure the type of tenant you want for the building. Trust me, hiring a good COMMERCIAL Realtor will allow you to receive maximum market rents, concede as little as possible, and have a stronger offering.

@Ronald Rohde - it's located in Leander which is just west of Georgetown near Cedar Park and Liberty Hill.

@Martin Nowak

Your best bet may be a private debt investor who likes the idea and is willing to give you a note on the project. This typically requires a high degree of trust, but I've done it before. Banks rarely ask where the equity came from in a project because they're going to take a first lien position. That can help you get a leg up. The last deal I worked on I got a 5 year note at 8% to limit the amount of cash I needed in the deal.

You should pitch your idea to banks though. They see many deals each month and quarter and they can provide you some valuable insight into what they like and dont like on your deal. Bankers are not in business to lose money, so their feedback can be very helpful. They are also risk averse, but listen to what they have to say.

@Mark I Muhn

I'm a retail/medical/office investor and I absolutely love the asset. I'm just completing a 10,000 sq ft space outside of Austin and will have 1 tenant for 7 years with renewal options and 1 tenant for 10 years with renewal options. I developed this space to hold long-term.

There are some businesses that tend to be recession proof, but you really just want to focus on your tenant. There's money to be made in tougher cycles and if your tenant has been in business for a long period of time, they likely have staying power, although you should get to know their business. Publicly traded companies are great if you can secure them because there's a significantly decreased rent of rent default given their size and balance sheet. However, they sometimes want higher TI allowances or other steep provisions because they know their position in the market.

If the property is in a solid area and you've got a strong tenant, you're likely in a good spot. You'll just need to decide if you want cash flow, appreciation, or debt pay down. Because cities can change and new space is developed all the time, I try to focus on debt pay down so that I can be as flexible as needed in the market if gross rent prices change. Just depends on your market.