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The commercial real estate market is a dynamic and lucrative field, attracting investors and professionals eager to capitalize on opportunities. However, success in this competitive arena requires more than just enthusiasm; it demands a deep understanding of real estate finance, investment strategies, and market analysis. For this reason, choosing the best online real estate courses is crucial for anyone looking to excel in commercial real estate.

This article delves into the essential elements that make a great commercial real estate investment course, helping you identify the key factors to consider when selecting a program that will set you up for success, all the way from real estate finance for beginners, through to your commercial real estate training and mentorship.

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The Essential Elements of a Great Commercial Real Estate Investment Course

When evaluating online real estate courses, particularly those focused on commercial investments, it's important to look for certain key features. A great course should equip you with both the theoretical knowledge and practical skills needed to navigate the complexities of the real estate market. Below are the critical elements that make a real estate course stand out:

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1. Comprehensive Curriculum Covering Core Topics
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The first thing to look for in a real estate investment course is the breadth and depth of its curriculum. A comprehensive course should cover all the fundamental topics that are essential to mastering commercial real estate. These include:

• Financial Analysis: Understanding the financial underpinnings of real estate investments, including concepts like net operating income (NOI), cap rates, cash-on-cash returns, and the time value of money.
• Property Valuation: Learning how to accurately assess the value of commercial properties using different valuation methods, such as the income approach, the cost approach, and the sales comparison approach.
• Market Analysis: Developing the ability to analyze market trends, understand supply and demand dynamics, and assess economic indicators that affect real estate markets.
• Investment Strategies: Exploring various investment strategies, including value-add, core, and opportunistic strategies, and understanding when and how to apply them.
• Legal and Regulatory Aspects: Gaining knowledge of the legal framework governing commercial real estate, including zoning laws, lease agreements, and regulatory compliance.

A well-rounded curriculum ensures that you are not only knowledgeable in theory but also equipped to apply this knowledge in real-world scenarios.

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2. Practical Application Through Real-World Case Studies
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Theory alone is not enough to succeed in commercial real estate. The best courses incorporate practical applications, often through real-world case studies, simulations, or hands-on projects. These elements allow you to apply what you’ve learned to real investment scenarios, helping you bridge the gap between theory and practice.

For example, a course might include a case study where you analyze a potential investment property, calculate expected returns, and make an investment decision based on your analysis. Such exercises enhance your critical thinking skills and prepare you for the kinds of decisions you'll need to make in the real estate market.

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3. Expert Instruction from Industry Professionals
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The quality of instruction is a critical factor in the effectiveness of a real estate course. Learning from experienced professionals who have a proven track record in commercial real estate can significantly enhance your learning experience. These experts bring invaluable insights, industry connections, and real-world examples that enrich the course content.

When choosing a course, consider the instructor's background. Are they actively involved in the industry? Do they have a history of successful investments or developments? Have they taught at reputable institutions or contributed to significant projects? An instructor with practical experience can offer perspectives and advice that go beyond what you’ll find in textbooks.

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4. Flexible Learning Options
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In today’s fast-paced world, flexibility is a crucial consideration when selecting an online course. The best real estate courses offer flexible learning options that allow you to progress at your own pace. This might include pre-recorded video lectures, downloadable resources, and the ability to revisit material as needed.

Additionally, consider courses that offer a mix of self-paced learning and live sessions. Live webinars or Q&A sessions provide opportunities to interact with instructors and peers, ask questions, and gain deeper insights into complex topics.

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5. Robust Support and Networking Opportunities
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Learning in isolation can be challenging, especially in a field as complex as commercial real estate. The best online real estate courses offer robust support systems, including access to a community of learners, discussion forums, and mentorship opportunities. Engaging with a community of peers can provide moral support, diverse perspectives, and networking opportunities that are invaluable in the real estate industry.

Some courses also offer direct mentorship from industry experts, providing personalized guidance as you navigate your real estate education and career. This level of support can help you stay motivated, clarify difficult concepts, and gain insights into specific areas of interest.

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6. Focused on Real Estate Finance
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Given the critical role that finance plays in real estate investments, a top-tier course must place a strong emphasis on real estate finance. This includes understanding how to structure deals, assess financing options, and use leverage effectively to maximize returns. The ability to perform financial analysis and apply sophisticated financial models is what often distinguishes successful investors from those who struggle.

A course with a strong focus on finance will teach you how to:

• Analyze Investment Opportunities: Evaluate potential investments by understanding their financial metrics and the risks involved.
• Structure Deals: Learn how to structure deals in a way that aligns with your financial goals, whether it's maximizing cash flow, minimizing risk, or achieving a particular return on investment.
• Raise Capital: Understand the various ways to raise capital, including debt and equity financing, and how to optimize your capital stack for the best possible outcomes.

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The Importance of Practical Experience and Learning from Industry Professionals
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While theory and structured learning are important, there is no substitute for practical experience. The best real estate courses integrate hands-on experience with real-world exercises, financial modeling, and simulations that mimic actual industry scenarios. This approach ensures that you are not only learning concepts but also applying them in a way that prepares you for the realities of the commercial real estate market.

A course that emphasizes practical exercises might include:

• Real Industry Exercises: Working on actual deals, analyzing live market data, and making decisions based on current trends and financial models.
• Financial Modeling: Building detailed financial models that reflect real-world investment opportunities, including cash flow analysis, risk assessment, and scenario planning.
• Mentorship from Industry Professionals: Learning from someone who is actively involved in the industry ensures that you receive relevant, up-to-date insights. For example, Trevor Calton, founder of the Real Estate Finance Academy, is not just an educator but a seasoned real estate finance professional who has navigated the complexities of commercial real estate investment for years.

Real estate is a field where practical experience often trumps theoretical knowledge. By learning from professionals who have successfully navigated the industry, you gain insights that textbooks and lectures alone cannot provide.

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Integrating Industry-Specific Training
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In addition to general real estate investment knowledge, a great course should also provide specialized training for those looking to focus on specific areas within the industry. For instance, those aiming to become real estate brokers or agents might look for real estate broker courses that include training on licensing requirements, negotiation skills, and client relationship management.

Similarly, aspiring developers would benefit from real estate development courses that cover land acquisition, zoning, project management, and the financial aspects of development projects. For those starting out, real estate courses for beginners provide a solid foundation, covering the basics of real estate finance, market analysis, and property valuation.

Real estate agent training can also be a critical component of your education, particularly if you plan to work directly with buyers, sellers, and investors. Understanding the legal, financial, and ethical aspects of being an agent is crucial for building a successful career in real estate.

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Why These Elements Matter

Choosing a real estate course that includes these elements is crucial because it ensures you receive a well-rounded, practical education that prepares you for the complexities of the commercial real estate market. Courses that lack these features may leave gaps in your knowledge, limiting your ability to make informed investment decisions and succeed in the industry.

For instance, a course that skimps on financial analysis or skips practical applications might leave you unprepared for the real-world challenges of commercial real estate investing. Conversely, a course that combines a comprehensive curriculum, expert instruction, practical case studies, and hands-on experience will give you the confidence and skills to thrive.

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Selecting the Right Course for Your Needs

In conclusion, choosing the best online real estate courses involves careful consideration of several factors. A great commercial real estate investment course will offer a comprehensive curriculum, practical applications, expert instruction, flexibility, robust support, and a strong focus on real estate finance. Additionally, it should emphasize the importance of practical experience, real industry exercises, and learning from seasoned professionals who are actively involved in the real estate market.

By selecting a course that embodies these qualities, you’ll be well on your way to mastering the art and science of commercial real estate investing. Whether you're just starting or looking to enhance your existing skills, investing in the right education is the first step toward achieving your real estate goals.

As you evaluate your options, remember that the best course is one that not only fits your current knowledge level but also challenges you to grow and develop as a real estate professional. Take the time to research, ask questions, and choose a program that aligns with your career aspirations.

With the right education, you'll be equipped to navigate the complexities of commercial real estate with confidence and make informed decisions that drive success.

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Introduction

Mortgage and loan repayments are critical concepts for any real estate professional, whether you are an agent, lender, broker, or investor. Understanding how payments are structured and calculated can help you make informed decisions and provide better advice to your clients. This article will explore these concepts in detail, providing both basic and advanced insights into mortgage and loan repayments.

Before we get started, remember that these concepts, as well as a wealth of deep knowledge, insider tips and tricks and incredible learning opportunities are available within our Real Estate Finance Academy Membership. Become a member and access all of our commercial real estate classes, courses, workshops and training, to take your real estate investment knowledge from foundational through to professional.

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Difference Between Mortgages and Loans

A mortgage is a type of loan specifically used for purchasing real estate. It is secured by the property being purchased, meaning that if the borrower defaults, the lender can foreclose on the property. On the other hand, a loan can be used for various purposes and may or may not be secured by collateral.

Mortgages typically have longer terms (15-30 years) compared to other loans and often have lower interest rates because they are secured by real estate. The terms and conditions of mortgages are also more complex due to the involvement of property and the need for detailed legal agreements.

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Components of a Mortgage Payment

A typical mortgage payment includes:

• Principal: The portion of the payment that reduces the original loan amount.
• Interest: The cost of borrowing the money, calculated as a percentage of the outstanding principal.
• Taxes and Insurance: Many lenders require borrowers to pay property taxes and homeowners insurance as part of their monthly mortgage payment. Besides the actual mortgage payment, these also factor into the monthly payment on a home.

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How Payment Amounts Are Calculated

Amortization

Amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment covers both interest and principal. Initially, a larger portion of the payment goes toward interest, but over time, more of the payment goes toward reducing the principal.

Principal and Interest Calculations

To understand how principal and interest are applied, let’s use an example from the video.
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Suppose you have a $100,000 loan at 6% interest, amortized over 30 years. Your monthly payment would be $599.55.

• First Payment: Interest is calculated on the full loan amount. At 0.5% per month (6% annually), the interest for the first month is $500, leaving $99.55 to reduce the principal.
• Subsequent Payments: As the principal decreases, the interest portion of the payment decreases, and more of the payment goes toward reducing the principal.

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Glossary of Terms
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• Principal: The original amount of money borrowed in a loan. In a mortgage, the amount of money borrowed is called the principal.
• Interest: The cost of borrowing money, expressed as a percentage of the principal.
• Amortization: The process of spreading out a loan into a series of fixed payments over time.
• Principal-only Payment: A payment made on a loan that goes directly towards reducing the principal balance.
• Loan Balance: The remaining amount of money owed on a loan.
• Interest Rate Factor: A figure used to calculate the interest portion of a loan payment.
• P&I Meaning: Principal and Interest, the two components of a mortgage payment.
• Mortgage Lifespan: The total duration over which a mortgage is to be repaid, typically 15-30 years.
• Principal Curtailment: Making additional payments towards the principal, reducing the overall interest and shortening the loan term.
• Outstanding Mortgage Principal: The remaining principal amount that has not yet been repaid.
• Principal Definition Finance: The original sum of money borrowed in a loan or invested.
• Principal Economics Definition: The amount of money that is originally invested or loaned, separate from interest or earnings.
• Principal Payment Definition: A payment towards the original amount of money borrowed.
• Loan Principal Definition: The amount of debt, excluding interest, remaining on a loan.

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In-Depth Analysis of Amortization
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For commercial real estate professionals, understanding amortization is crucial. Amortization tables detail how each payment is divided between principal and interest over the life of the loan. These tables are essential for financial planning and investment analysis.

‍Impact on Loan Repayments Over Time

As shown in our example, the interest portion of the payment decreases over time, while the principal portion increases. This shift allows borrowers to pay off the loan completely by the end of the term. Amortization tables provide a clear view of this process, helping investors plan their cash flow and financing strategies.

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Understanding Interest Rates and Their Impact

Interest rates are a key factor in the cost of borrowing. They are expressed as a percentage of the loan principal and can significantly affect monthly payments and the total cost of a loan. When interest is earned not only on principal but also on previously earned interest, it is referred to as compound interest.

Effect of Interest Rates on Commercial Loans

For commercial real estate loans, interest rates tend to be higher than for residential mortgages due to the increased risk. Small changes in interest rates can have a large impact on the total repayment amount, making it crucial for investors to understand and negotiate favorable rates. Interest rates are expressed as a percentage of the loan principal, impacting the overall cost of borrowing.

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Principal vs. Interest: Detailed Breakdown

Differences Between Principal Balance and Interest

The principal balance is the outstanding amount of the loan, while interest is the cost of borrowing that amount. Payments typically cover both, but the proportion of each changes over time. What is the difference between principal balance and interest? The principal is the original loan amount, while interest is the charge for borrowing that money.

Principal Curtailment and Its Effects

Principal curtailment involves making additional payments toward the principal. This can significantly reduce the total interest paid over the life of the loan and shorten the loan term. What is a principal-only payment? It's an extra payment made directly to reduce the principal balance, not the interest.

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Special Considerations for Commercial Real Estate
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Investing in commercial real estate, particularly multi-family homes, involves unique considerations compared to residential real estate.

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Specifics of Multi-Family Home Investments

Multi-family properties often require larger loans with different terms. Investors must consider factors such as rental income, property management, and market conditions. Understanding mortgage lifespan and amortization schedules is critical for long-term financial planning.

• Rental Income: The potential income generated from tenants is a key factor. Investors need to evaluate the rental market and ensure that the property can generate sufficient income to cover mortgage payments and other expenses.
• Property Management: Managing a multi-family property can be more complex than a single-family home. Consider whether you will manage the property yourself or hire a property management company. Good management can make a significant difference in tenant retention and property maintenance.
• Market Conditions: The local real estate market will influence the property's value and rental rates. Stay informed about market trends and economic conditions that could impact your investment.

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Commercial Loan Terms and Conditions

Commercial loans differ from residential mortgages in several ways. Here are some key points to consider:

• Loan Terms: Commercial loans often have shorter terms, such as 5, 10, or 15 years, compared to the 30-year terms commonly seen in residential mortgages. However, they may include a balloon payment at the end of the term.
• Interest Rates: Interest rates for commercial loans are typically higher due to the increased risk. These rates can be fixed or variable, and understanding how they are determined is crucial.
• Down Payments: Commercial loans usually require larger down payments, often ranging from 20% to 30% of the property's value. This higher initial investment can be a barrier for some investors.
• Personal Guarantees: Many commercial lenders require personal guarantees from the borrower, meaning that your personal assets could be at risk if you default on the loan.

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Understanding mortgage and loan repayments is essential for success in real estate. Whether you're just starting or are a seasoned professional, grasping the basics and advanced concepts of principal, interest, and amortization can help you make better investment decisions. By following this guide and leveraging tools like amortization tables, you can effectively manage your finances and achieve your real estate investment goals.

For further learning and professional guidance, consider enrolling in our Real Estate Finance Fundamentals course. Ready to take the next step in your real estate journey? Explore our courses and real estate mentorship programs at the Real Estate Finance Academy today!

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The commercial real estate sector offers lucrative opportunities for investors, agents, and brokers. Whether you're a novice or a seasoned professional, understanding how to get into commercial real estate can significantly impact your success. This guide will provide you with a step-by-step approach to breaking into the commercial real estate industry and thriving.

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1. Networking: The Cornerstone of Success
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Networking is fundamental to success in commercial real estate. Building relationships with industry professionals, such as real estate agents, mortgage brokers, and investors, can open doors to valuable opportunities. Learning how to get into commercial real estate often starts with who you know.
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Attend Industry Events

Attend local conferences, seminars, and events to grow your network. These gatherings provide a platform to meet like-minded professionals and potential business partners. Engaging with the local entrepreneurial scene can also connect you with high-net-worth individuals interested in investing.
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Engage with Professionals Online

Join online forums and social media groups dedicated to commercial real estate. Platforms like LinkedIn offer numerous groups where industry professionals discuss trends, share insights, and post opportunities.
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Leverage Your Network

As highlighted in the "Four Rules of Investing" video, using other people's money (OPM) can be a game-changer. Networking allows you to find investors willing to take a passive role, enabling you to access bigger deals and better returns on investment. Learning how to buy commercial real estate often involves partnering with investors and using OPM.

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2. Master Finance Fundamentals

Understanding the financial aspects of real estate is crucial. Enrolling in specialized courses, such as our Real Estate Finance Fundamentals, can equip you with the necessary skills to analyze and manage investments effectively. Knowing how to get into commercial real estate involves a strong grasp of financial concepts.

Check out my “Know Your Numbers” finance crash course as a starting point.
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Key Financial Concepts

• Cash Flow Analysis: Understanding the inflows and outflows of cash to determine profitability.
• Cap Rate Calculation: Learning what is a good cap rate for commercial real estate and how it affects investment decisions.
• Financing Options: Exploring different funding sources and their implications on investments.

Knowing how to value commercial real estate is essential in making informed investment decisions. This includes understanding methods like the income approach, sales comparison approach, and cost approach to determine a property's value. Each method considers factors such as location, condition, and market trends.

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3. Gain Experience in a Commercial Real Estate Firm
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Working in a commercial real estate company can provide invaluable insights into the industry's workings. Consider roles in project management, accounting, or internships to build a holistic understanding.

Benefits of Industry Experience

• Networking: Connecting with professionals within the firm and the broader industry.
• Skill Development: Gaining practical skills and knowledge about commercial real estate operations.
• Market Understanding: Learning about different market segments and investment strategies.

Starting with a position in a firm is a common path for those wondering how to become a commercial real estate agent. The experience helps in understanding various aspects of the business, from client interactions to managing properties.

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4. Present Yourself Professionally
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In commercial real estate, your professional image is critical. Presenting yourself as clean-cut, punctual, and knowledgeable can enhance your credibility with corporate partners and clients.

Professional Etiquette

• Dress Appropriately: Maintain a professional appearance that reflects the industry's standards.
• Communication Skills: Learn and use industry-specific terminology to convey competence.
• Reliability: Being timely and dependable can set you apart as a trustworthy professional.
  
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5. Understand Different Property Types
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Commercial real estate encompasses various property types, each with its own dynamics. Gaining a broad understanding of these niches can help you choose an area to specialize in.
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Common Commercial Property Types

• Multifamily Units: A popular starting point for many investors due to their steady cash flow. Understanding how to invest in commercial real estate often begins with these types of properties.
• Office Spaces: Demand is influenced by economic conditions and business growth.
• Industrial Properties: Include warehouses, manufacturing facilities, and distribution centers.
• Retail Spaces: Involve storefronts, shopping centers, and malls.

6. Take Advanced Courses
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Advanced courses can deepen your understanding of commercial real estate investment strategies. These programs cover complex topics, from market analysis to risk management, and can significantly enhance your expertise.
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Benefits of Advanced Learning

• Strategic Insight: Develop a thorough understanding of market dynamics and investment strategies.
• Credibility: Demonstrating advanced knowledge can help you gain the trust of lenders, investors, and brokers.
• Competitive Edge: Stay ahead of industry trends and best practices.

Knowing how to become a commercial real estate broker often involves completing advanced coursework and gaining specialized knowledge in real estate law, finance, and brokerage operations.
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7. Seek One-to-One Mentoring
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Personalized guidance from experienced mentors can accelerate your growth in commercial real estate. Our Commercial Real Estate Mentor Program offers tailored coaching for investors at all levels.
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Advantages of Mentorship

• Personalized Advice: Receive targeted feedback and strategies based on your unique situation.
• Experience Sharing: Learn from mentors' successes and mistakes to avoid common pitfalls.
• Goal Setting: Work with mentors to set and achieve specific career and investment goals.

Mentorship can also be pivotal if you're exploring how to become a commercial real estate broker. The guidance from seasoned brokers can provide insights into the more advanced aspects of the field.
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8. Continuous Learning and Adaptation
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The commercial real estate market is dynamic, with trends and regulations constantly evolving. Staying informed about the latest developments is crucial for long-term success.
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Stay Updated with Market Trends

Subscribe to industry publications, follow market news, and participate in webinars to stay abreast of current trends. Understanding shifts in the market can help you make informed investment decisions.
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Regulatory Changes

Keep an eye on changes in local, state, and federal regulations that could impact commercial real estate. Compliance with these regulations is essential to avoid legal issues and maintain a good reputation.
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Technology in Real Estate

Embrace technological advancements in the industry. Tools like property management software, financial modeling applications, and virtual tour technology can streamline operations and improve efficiency.

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9. Develop a Business Plan
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A well-thought-out business plan can guide your actions and help secure funding from investors and lenders. Your plan should outline your goals, strategies, market analysis, and financial projections.
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Components of a Business Plan

• Executive Summary: Brief overview of your business and objectives.
• Market Analysis: Detailed analysis of the market, including competitors and target audience.
• Marketing Strategy: How you plan to attract and retain clients.
• Operational Plan: Day-to-day operations and management structure.
• Financial Projections: Revenue, expenses, and profitability forecasts.
  
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Earnings in Commercial Real Estate
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Understanding how much commercial real estate agents make can also guide your career choices. Earnings vary based on location, experience, and market conditions. On average, commercial real estate agents can earn well over $100,000 annually, with potential for higher income through commissions.

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Breaking into Different Roles in Commercial Real Estate

Understanding how to get into commercial real estate involves recognizing the various roles within the industry. Each role requires a unique set of skills and knowledge. Here are some common paths:
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Real Estate Agent

Becoming a commercial real estate agent involves obtaining the necessary education and licensing. The journey often starts with residential real estate before moving into the commercial sector. Networking and gaining industry experience are crucial steps in this process.
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Real Estate Broker

To become a commercial real estate broker, additional education and licensing are required. Brokers manage agents and handle more complex transactions. Advanced courses in real estate law, finance, and brokerage operations are essential.
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Real Estate Investor

Investing in commercial real estate requires a deep understanding of market trends, property valuation, and investment strategies. Building a network of professionals, such as brokers and financial advisors, can help identify lucrative investment opportunities.
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Property Manager

Property managers oversee the operations of commercial properties. This role involves handling tenant relations, maintenance, and financial management. A background in business administration or real estate management is beneficial.
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Additional Tips for Success

Success in commercial real estate involves more than just knowing how to get into the industry. Here are additional tips to thrive:

• Stay Educated: Continuously update your knowledge through courses, seminars, and industry publications.
• Build a Strong Online Presence: Use social media and professional networks to market your services and connect with potential clients.
• Develop Negotiation Skills: Effective negotiation can make a significant difference in closing deals and securing favorable terms.
• Understand Market Dynamics: Keep an eye on economic indicators, local market conditions, and real estate trends to make informed decisions.

By following these steps and continuously improving your skills, you can build a successful career in commercial real estate.
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Getting into commercial real estate requires a combination of education, networking, practical experience, and professional presentation. By following these steps, you can build a solid foundation for a successful career in the industry. Start by networking, mastering finance fundamentals, gaining industry experience, and continuously improving your knowledge through advanced courses and mentorship.

Ready to take the next step? Enroll in our courses and mentorship programs to start your journey in commercial real estate today.

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Most real estate investors recognize their broker as a trusted advisor and a source of valuable information, while others view them simply as transaction facilitators. Often, the disparity between the two stems from each individual’s past experience. Top brokers distinguish themselves from the paper-pushers in several ways. Here are a few of them:

‍Market Knowledge

One of the most important qualities in a commercial broker is their depth of market knowledge. Questions like, "Why did that building sell for a premium?" or "How many jobs have been created in this submarket in the past year?" are just a few examples of common questions that clients may ask when evaluating their next purchase or sale. 

Good brokers know the ‘stock and velocity’ of the market, or at least have it readily available. The best brokers have deep market knowledge, and the ability to use it. They are constantly in touch with the market movers, not just when they’re trying to get a listing. So they often know when a property is going to sell long before the rest of the market does.

Market knowledge isn't just about numbers and statistics. It's also about understanding emerging trends, the key players, and the factors that influence property values. This is the kind of knowledge that gives a client a strategic advantage in a competitive market.

Responsiveness

There's nothing worse than hiring a broker and then having them go AWOL. Successful brokers return calls in a timely manner, and they provide regular marketing reports on their clients’ listings. In a hot market, being first in line with an offer can sometimes be more important than the best price and terms. Clients without responsive brokers end up watching deals happen from the sidelines, and they never become repeat clients. 

In a fast-paced market, being the first to make an offer can often be more critical than offering the best price and terms. Responsive brokers demonstrate their commitment to being proactive by keeping their clients informed.

Specialization

Commercial real estate is broad and complex, and no broker can be an expert in everything. Some brokers may choose to focus on multiple product types, but they are often the master of none, and a millionaire real estate investor isn’t going to trust their money with someone who’s just dabbling.

Top brokers typically specialize in a specific real estate segment, whether it's office, industrial, retail, or multifamily. They possess in-depth knowledge and insights into their chosen niche. A specialized broker is also more likely to have a robust network in their area of expertise and can offer tailored advice that aligns with their clients’ investment goals. They can help identify opportunities that others may overlook. 

Experience

Experience is often a testament to a broker's competence. Knowing how long a broker has been in the industry, and how many transactions they've closed, can provide valuable insights that are available anywhere else.

For investors, that could even mean finding an investment sales broker who also owns similar properties. They can offer a unique perspective and share firsthand experiences that may benefit their clients’ investment strategy. 

Oscar Wilde said, "Experience is the name we give our mistakes." A broker who has witnessed and learned from others' mistakes can help their client avoid costly errors in their real estate journey.

Analytical Skills

There’s a reason many top brokerage firms have a new agent work as an analyst before becoming a broker. I was a real estate investment analyst for many years before going into brokerage. Then, in my first year as a broker, I finished as the top-producer out of dozens of agents. I attribute that success largely to the fact that I was able to underwrite deals for my clients without having to rely on someone else's analysis. 

Understanding the fundamental mechanics of real estate and investments isn’t just a competitive advantage, it’s a necessary skill to serve a client properly. Newer brokers who don’t have those skills should take commercial real estate classes, or figure out how to find a real estate mentor. Because a broker with strong analytical skills can help their clients make informed decisions, which is the cornerstone of any successful investment strategy.

Off-Market Opportunities

If you ask most clients what they want from an investment sales broker, they’ll often say “access to off-market deals.” Many clients believe that once a property hits CoStar, LoopNet, Crexi, or any other multiple listing service, it's not a good deal. 

Clients want great service. One way to go above-and-beyond to demonstrate good service is to show them opportunities the rest of the world has not seen. So while some brokers call just to "check in", other brokers work hard to show their clients interesting off-market deals. It’s pretty easy to tell which one is going to help their client make more money. A broker who provides access to off-market opportunities is worth their weight in gold.

Honesty and Professionalism

One might think this would be a no-brainer. But unfortunately, stories of brokers behaving unethically or unprofessionally are not unheard of. Good brokers recognize that the client values the truth above all else.

In investment real estate, overvaluing a property in order to secure a client relationship is called "buying a listing".  If a broker tells a client their property will sell for substantially more than what another broker says, then either one of them has bad information, or one of them is lying. 

Savvy clients know better than to let this happen. They ask the difficult questions, and they make the broker justify their information. They know that if they don't trust the broker, then neither does the rest of the real estate community, because integrity is paramount.

Summary - TL;DR

Commercial real estate brokers can profoundly impact their clients’ success. The best brokers have a deep understanding of the market, exceptional responsiveness,  specialization and experience in a particular segment, strong analytical skills, access to off-market opportunities, and a commitment to honesty and professionalism.

High-value clients prioritize these qualities, ensuring they're not just hiring a broker, but forging a partnership that will guide them toward long-term success. Because in the world of commercial real estate, the right broker is an incredibly valuable asset.

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About the author: Trevor Calton is the founder of Real Estate Finance Academy and President of Evergreen Capital Advisors. He was a licensed investment sales broker for over 15 years, and began his brokerage career by earning both Rookie of the Year and #1 Top Producer in the same year, a rarity for the industry. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

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Investing in Multifamily Real Estate: Strategies, Pitfalls, and Insights

Watch on YouTube or Listen on Spotify, Amazon Music, or Castos

Host Steve Seymour interviews Trevor Calton, a real estate veteran with over 18 years of experience in training real estate brokers in the multifamily and commercial real estate investing world.

Introduction

In the world of commercial real estate, knowledge is power. Each transaction can contain a web of complexities, with financial decisions at every turn that can greatly impact the profitability and success of an investment. To shed some light on these intricacies, Steve sat down with Trevor Calton, an expert in commercial real estate financing and the creator of Real Estate Finance Academy, an online resource for investors, agents, and lenders.

The Multifamily Magic: Why Scale Up Sooner

During the conversation, Trevor touched on the importance of transitioning to multifamily and commercial real estate investments as quickly as possible. While single-family residences can provide a steady income, scaling to larger properties provides more predictable cash flows, economies of scale, greater returns, and often less risk. The transition, however, can be complicated by the increase in the number of properties you own. Trevor emphasized that the sooner you start that transition, the easier it will be as every single-family property you acquire makes the shift more difficult.

Delegation and Surrounding Yourself with the Right People

According to Trevor, delegation and surrounding oneself with experienced partners and teams is crucial. Looking back, he would have chosen fewer partners with more experience. This way, he could lean on their shared insights when navigating tricky situations. Also, hiring professionals to handle specific tasks can free up valuable time for investors.

Negotiating on Commercial Loans

In traditional commercial real estate, everything is negotiable. From prepayment penalties and interest rates to loan duration, the borrower can tailor their loan to align with their strategy. Commercial loan brokers, like Trevor and his team at Evergreen Capital Advisors, with their consistent engagement with lenders, know the market programs and trends. At little or no extra cost for the investor but provide an invaluable service in making sure the investor gets the most favorable terms in line with their goals.

Be Ready for Downturns

Even the best strategies can falter during economic downturns. Trevor advises investors to align themselves with advisors and peers who can offer insight and encouragement during challenging times. It's not about avoiding hard times—it's about being prepared for them and having a support system in place to help you weather the storm.

Conclusion

Being armed with the right team, tactics, and tools can make a significant impact on the success of your commercial real estate journey. As Trevor suggests, the rate of scaling up, the ability to delegate, prepare and react to downturns, and always remembering to negotiate your terms are all crucial to thriving in the dynamic world of commercial real estate investing. From multifamily units to commercial spaces, every investment offers its unique blend of challenges and opportunities. By equipping yourself with the right knowledge and team, you can navigate these complexities with confidence.

Chapters

00:00 Introduction and Guest Introduction
00:24 Guest's Journey into Real Estate
02:23 Transition from Analyst to Broker
03:38 Importance of Finance in Real Estate
05:08 Common Mistakes in Real Estate Investing
07:25 Understanding Loan Sizing and Debt Service Coverage
16:17 Challenges in Scaling Real Estate Portfolio
19:51 Exploring Real Estate Syndication
29:53 Tips for Evaluating Syndications as an Investor
37:12 Sharing Functions and Roles in Acquisitions
37:32 The Importance of Outsourcing and Delegation
38:13 Shifting Focus to Current Market Trends
38:29 The Buzz Around Multifamily Space
38:54 Understanding the Risks and Rewards of Value-Add Investments
40:07 The Impact of Rising Rates on Investment Strategies
40:31 Insights from Industry Experts and Conferences
41:00 The Relationship Between Cap Rates and Interest Rates
42:13 The Challenges of Multifamily Investments in the Current Market
42:24 The Return of Retail Deals and Market Predictions
44:30 The Importance of Proper Analysis and Due Diligence
45:29 Negotiating Commercial Financing
46:03 The Flexibility and Negotiability of Commercial Loans
48:26 Understanding Prepayment Penalties in Commercial Loans
49:35 The Role of Commercial Mortgage Brokers
01:01:08 Final Thoughts and Advice for Aspiring Investors
01:04:57 The Importance of Delegation and Work-Life Balance
01:06:20 Closing Remarks and Contact Information

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Real Estate Finance Academy provides real estate finance and investments training for anyone wanting to learn how to become a multifamily or commercial real estate investor, especially for those wanting to learn how to invest in commercial real estate and multifamily properties.

- Commercial Real Estate Courses

- Real Estate Investor Training

- Real Estate Finance Training

- Commercial Real Estate Agent & Broker Training

- Commercial Lender Training

Trevor Calton is a longtime industry professional and former Professor of Real Estate Finance, teaching real estate investment workshops and classes since 2005. His commercial real estate classes and real estate finance development program helps people at all levels develop a successful real estate investment strategy, even with no experience. If you need commercial real estate education, a commercial real estate coach, or a real estate investment mentor, you’ve come to the right place.

Check out the Real Estate Investment Masterclass here.

‍Inheriting Real Estate: Tips for Success

If you are inheriting real estate, you will be faced with a number of decisions on a path forward. In this article, we discuss those decisions and offer guidance for those needing direction in order to minimize risk and build wealth.

‍First, Assess Your Goals

Real estate can be an excellent investment, but only if it aligns with your goals. Contrary to popular belief, you CAN lose money in real estate if you are not careful. 

Ask yourself these questions:

1. If you were going to invest in real estate without inheriting it, what type of property would you buy? 
2. How does that compare to the property you are inheriting?

Real estate generates wealth in four distinct ways (I also have a video on this here):

• Cash flow
• Appreciation 
• Principal Paydown (on debt) 
• Tax Benefits

And every real estate investment is unique, and each one creates wealth for the owner in its own unique ways. 

• For instance, a property valued at the top of the market may not appreciate much, but it may provide excellent cash flow.
• A property with below-market rents may not cash flow very well, but it may create a great opportunity for appreciation.
• Properties with mortgage loans may offer better tax advantages than one which is owned free-clear.

Look at the historical financials.

If you need help with this part, talk to your accountant or other trusted advisors. Also, recognize that the financials will change going forward. The property taxes may increase. Loans may be coming due soon, and if so, interest rates may be higher when you refinance. The property may have deferred maintenance that will need to be addressed.

Be sure there is enough money in capital reserves to address the property’s physical needs. Preservation of the asset is paramount in real estate. Not properly maintaining the asset could trigger a technical default if the property has a mortgage on it. Be sure to understand what the property will need in the future.

Next, determine if you have the time, energy, and resources to own the property

Each property is also unique in its management requirements. Properties that were self-managed by the previous owner may take a lot of time & effort. Larger assets, with professional management in place, may not take as much of your time.

Regardless, owning real estate will still require some work. Even if it’s professionally managed , someone still must act as the asset manager. The asset manager oversees the property management and the real estate business. They also handle the financing, deal with any legal issues or insurance claims, and the sale of the property when that time comes. Most often, the owner of the property is the asset manager.

Understand that different property types have different responsibilities

Determine what your property will require from you. Most people can step right in to owning a rental house, and figure things out as they go. But an apartment complex might be overwhelming with turnover, maintenance, tenant issues, etc.

Commercial properties, such as shopping centers or office properties, can be very challenging to own. They are much more complex than residential assets. Operations, maintenance, and lease negotiations usually require a trained professional.

They can also be capital intensive. Tenant improvements can easily cost as much as $50-100 per square foot, or more, depending on the type of property and where it’s located. For example, if the tenant improvements on a small, 2000 square-foot space cost $50 per square foot, then it would cost $100,000 for that space alone. 

Be sure you have the capital reserves to own and properly manage the type of property you are inheriting.

Consult with key experts…

If you’re not sure how your inherited real estate will create wealth for you, then talk to your advisors.

Attorney/estate planner - If an estate plan was involved, speak to whomever helped draft it. You want to understand if there are any restrictions or limitations on what you can do with the property.

Accountant - Both keeping and selling the property can have tax consequences. Be sure you understand them. Understand how the asset has a step up in basis and whether any estate taxes will be owed, as well as how much the property taxes will be moving forward

… But BEWARE of conflicts of interest

Determine your strategy based on your goals. Be wary of advice from people who stand to benefit from one particular strategy. It’s difficult for them to be objective. 

A good real estate agent/broker can give you a “Broker Opinion of Value”, typically free of charge. They do this in the hopes of getting the listing, if you decide to sell. But remember, a real estate broker is motivated to get you to sell. So keep that in mind, and don’t let the broker determine your strategy. 

Also be wary of your “Financial Advisor” which is just a fancy name for “bank salesperson”. They rarely know more than you do, and they will almost always encourage you to sell the property and move the money into assets that they manage. They do this because they get to take a slice of the money each year (often as much as 3%), regardless of how well they perform.

If you say you want to keep your money in real estate, many Financial Advisors will suggest moving your money into REIT stocks. But again, this may or may not be the best strategy for you, depending on your goals. 

Always speak to your accountant and attorney and make a decision on your strategy before you deal with a Real Estate Broker or a Financial Advisor.

Next, determine how much the property is worth

Even if an appraisal was conducted as part of the valuation of the estate, you should still get a broker’s opinion of its current market value. Appraisals often undervalue the real estate, especially if they are more than 90 days old.

Explain to the real estate broker that you need to know the value of the property in order to make your final decision as to whether or not you will sell. Good brokers do this all the time. 

Decide whether to sell or hold, then make a plan

You will have decisions to make, either way. If owning real estate doesn’t align with your investment goals, then consider selling it and investing in something else. If the property aligns with your goals, consider holding on to it after you make a few other decisions.

If you decide to sell…

You’ll likely want to put the money into something else. Talk to your accountant to determine what you will do with the money? How will you reinvest it? What will the tax consequences be? 

If your accountant doesn’t specialize in real estate, consider hiring one that does. It will pay for itself in the long run.

If you decide to keep the property…

Determine the property’s management needs and decide 1) who will be the property manager and 2) who will be the asset manager? 

The property manager handles the day-to-day operations. This includes leasing, maintenance, collecting rents, paying bills, etc. 

The asset manager handles the business. This includes overseeing the property manager, managing the mortgage loan(s) (such as when the loan needs refinancing), preparation of financial statements & tax documents, and the buying & selling of the property.

Determine your capital needs going forward

Does the property have capital reserves set aside for major systems. (Ex: new roof, siding, etc.) If not, this could be a major issue, depending on the condition of the property. Check out our real estate investment training to learn more about assessing your capital needs and setting yourself up for success at Real Estate Finance Academy.

FAQ - Frequently Asked Questions 

“Do I need to notify the current residents if we are planning on selling?”

No. It’s not necessary to inform tenants the building is up for sale. This is an example of the difference between asset management and property management. The tenants deal with the property manager. They should never be impacted if the building transfers ownership. Good investment brokers can market the property without making the tenants aware of any potential sale.

“How do I know if the property is undercharging on rent?”

If a real estate broker gives you their opinion of value, ask for a “rent survey” or “rent comparables”. These show how the current rents compare to rents at similar properties in the market. 

If the property was owner-managed (as opposed to managed by a 3rd party) then the rents might be below market. Many owner-managers try to avoid frequent turnover by keeping rents low. In this case, there may be an opportunity to increase cash flow and boost the value of the property.

“Which experts should I consult with about keeping the property and managing it?”

If you want to manage the property yourself, but have never managed real estate before, don’t. I strongly suggest that you hire a professional manager for at least 90 days and shadow them. This will give you the opportunity to learn and avoid costly mistakes. 

Don’t wait and try to learn as you go. Things can go south very quickly. Tenants can tell when a manager doesn’t know what they are doing and will often take advantage of the new manager’s inexperience.

“Can I sell and do a 1031 exchange?”

Yes. Although depending on your basis, you may not need the 1031 exchange. Talk to your accountant to determine the best path in your particular situation.

“I want to own real estate, but I don’t want to manage it. What are my options?”

For most properties it’s possible to find a professional property manager to oversee the day-to-day operations. They manage tenants, collect rents, pay bills, coordinate maintenance, provide monthly reporting, and more.

Property managers will typically charge a percentage of the income as a fee, plus any salaries for people on staff. It’s very important to hire a reputable, competent property manager who has experience and also manages other properties.”

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Trevor T. Calton is the President of Evergreen Capital Advisors and the founder of Real Estate Finance Academy. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

Real estate sitting on the market can cost you time, money, and opportunity. There are only four reasons why an investment property doesn’t sell, and understanding them will help you control the process with potential buyers. Today we are going to discuss which of those you can control, and how to best position yourself for the one you can't.

Price

Yes, the most obvious factor is the price. But how did you establish your asking price? Did you grab it out of thin air when you “heard the property down the street sold for "X-dollars per unit”? Or did you take an analytical approach? You want to get top-dollar for your property, but if you price it too high, you’ll get nothing until you are ready to meet the market.

When determining the selling price for your property, look at it from a buyer’s perspective. Would you buy it at that price in today’s market? Be realistic. This becomes especially important during market cycles with rising interest rates. If you bought the property when cap rates were higher than they are today, then you may be in for a reality check about its value in today's market.

Also, be sure to find out how much financing a typical buyer can get on your property before you put it on the market. Cash buyers are rare, and stupid buyers are even more scarce.

Knowing how much debt financing your property will support in today’s market will help you determine its appeal to active buyers. Most buyers focus on cash-on-cash return, rather than cap rate. So understanding the potential financing on your property is critical. If the difference between your asking price and the loan amount is too great, most buyers will take their money elsewhere. A good mortgage broker can give you an estimated potential loan amount fairly easily.

Income & Expenses

Now take off your “landlord hat” and start thinking like an investor. Have you been managing “for occupancy” rather than value? In other words, if you have been more concerned with minimizing vacancy and turnover, rather than with maximizing income, your property may underperforming relative to other similar properties in the area.

Your property’s value is equal to its NOI divided by the current market Cap Rate. (Remember the formula “V=I/R” or Value=Income/Rate). If you want buyers to pay your asking price, the income needs to be there.

Look for areas to improve income in both your revenue and your expenses. Ask your real estate agent for a rent survey to find out how your property compares to others in the area. Pay attention to deposits, utility reimbursements, and other income. Then see if you can identify areas of inefficiency for opportunities to reduce costs.

Once you’ve looked at your current income and expenses, start thinking outside the box. What can you do differently? If you’re looking for ideas, check out my 27 Ways to Add Value to Your Investment Property.

Physical Condition

I’m surprised by how often sellers are oblivious to the actual condition of the property they’re selling. Don’t wait to learn about an issue from a prospective buyer in due diligence.

Did you personally conduct a thorough inspection of your property? Before you put a property on the market, see it with your own eyes. Take a look at unit interiors, exterior, landscaping, roof, and structure. Pay attention to everything, from structural deficiencies, mold, pests, leaking windows, safety hazards, to old appliances, paint, carpet, and floors.

Identify any items that may need attention in the next five years. A buyer will do the same thing, and having this information beforehand can work to your advantage. If you spot a glaring problem, consider taking care of it instead of leaving it for the buyer. If you would rather not deal with it, then don’t be if a buyer requests a credit at closing for the amount of the repair. Either way, if you know about it in advance, you can choose how to handle it in any negotiations down the road.

Marketing

Finally, a successful sales strategy is all about exposure to the market. When it’s time to sell, don’t underestimate the value of a good investment sales broker, and be willing to pay for it. About 80% of investment properties are sold by the top 20% of agents for a reason: Marketing to the right buyers.

And unless you are trying to sell FSBO (you shouldn’t) then you can’t really control this part. But you can find the best broker for the job, if you look for the right things.

Only a very small subset of the population buys investment properties. Selling your property requires getting complete and accurate information in front of qualified buyers.

Look for experienced agents who have a strong track record of selling similar properties, a large network of clients, and a robust marketin platform. The best agents also utilize “push” marketing tactics such as email, direct mail, and good old-fashioned phone calls. Ask your agent to provide weekly marketing reports, and have them add you to their mailing list so you. This will enable you to observe their efforts from the market’s perspective.

Insider Tip: Some brokers will wait to list your property on the various MLS services (such as LoopNet or Crexi) until after they have already marketed it to their own database, in an attempt to keep both sides of the commission in-house. Although this may benefit you in some ways, be sure to ask your broker how and your property will be advertised to the public so you can ensure that the most competitive offers come in together.

Conclusion

Once you’ve examined these four factors – price, income, physical condition, and marketing – you’ll certainly find the reason your property hasn’t sold. In the most tumultuous market, there is still no shortage of buyers out there looking for fair deals. Make the appropriate adjustments, and you should start seeing offers immediately.

Do you want to become a master at real estate investments? Check out our Real Estate Investor Masterclass program or see our list of individual courses here.

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Trevor T. Calton is the founder of Real Estate Finance Academy and President of Evergreen Capital Advisors. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

It's not all about the rent. Savvy investors look for ways to add value by delivering services that will save residents time and money, and help the climate. If you’re not, you could end up losing over time as expenses continue to climb, competition heats up, and vacancies increase.

Assess Your Current Revenue Streams

First, take a look at your existing revenue streams. Are you getting the most out of them, or can you identify ways to generate more income?

Meet The Market on Turnover

Conduct a rent survey or ask your broker for rent comps to see how your rents compare to your competitors. Don’t inflict payment shock on your current residents, as that can backfire severely, especially in a tight economy. Deliver great value and charge a fair market rent on new leases.

Assess Fees & Deposits

When was the last time you compared your deposit & fee schedule to your actual costs, as well as other properties? Do you know the actual expenses associated with related items? If not, you may be unknowingly leaking value.

Add Amenities Renters Want

Don’t underestimate the value of time-saving appliances and creature comforts. Many renters won’t even consider renting an apartment without a dishwasher or washer and dryer in the unit. And most apartments have the space to accommodate an air conditioning unit. If space allows, the investment is well worth the extra potential rent. Even upgrading older appliances can increase the attractiveness of a property.

On-site Laundry

Some properties are still charging the same for laundry that I was paying back in college in the ‘90s. Laundry prices need to be enough to cover your cost of the equipment, maintenance, and utility usage. And some properties don’t have enough machines to cover the number of residents in the building. This will leave residents using another service such as a laundromat or cleaning delivery. If you don’t want to deal with managing your on-site laundry, consider outsourcing to a third-party.

Research New Revenue Streams

Next, look at creating new sources of income.

Utility Reimbursement

The Ratio Utility Billing System (RUBS) is the pass-through of water and sewer charges to tenants. This is the most common new revenue stream for apartment properties. Sometimes called a ‘net lease’, it is now becoming the norm in multifamily housing. It incentivizes residents to conserve resources and take ownership of cost-saving measures.

Pet Premium

People love their pets. Consider treating pets as tenants. Like their owners, they create ongoing wear and tear on a property. Consider charging an ongoing pet rent rather than charging a one-time pet deposit. With so many properties not allowing pets at all, most renters are willing to pay the extra rent.

Storage

How many of your tenants are paying for storage off-site? You might be surprised. If space allows, consider adding storage units on-site. Once in place, they need very little management.

Parking

Apartment development continues to trend toward higher density buildings. This trend has lead to a decrease in the average number of parking spaces per unit. Renters hate the inconvenience --and dangers--of on-street parking. And many of them are willing to pay a parking rent to secure a dedicated parking spot.

Bike Rack Rental

If you own property in a bike-friendly city, it’s quite possible you have tenants who commute by bike. Secure and covered bike storage could be quite valuable to those tenants. It saves them the storage space, and prevents muddy tire tracks on their (your) walls. Add in a bike-wash and maintenance area, and you may have tenants for life.

Furnished & Short-term Rentals

The market for furnished apartments may not be huge, but it will never go away. Consider charging a premium for furnished units. And of course, the growing trend of short-term rentals doesn’t look to be going away anytime soon.

Appliance Rental (Vacuums, Carpet Cleaners, Etc.)

It's shocking how many residents take advantage of this amenity. The benefit for you, of course, is that your residents are helping to clean and maintain the property.

Clubhouse Rental

Many properties with clubhouses offer them to residents for no charge. But quite often, tenants are willing to pay for their use.

Cell Tower/Antenna Lease

If you have a property in the right location, a cell tower lease can produce great passive income.

Billboard/Sign Lease

Great for urban or high-traffic properties, these are an easy source of passive income. They are often managed by third-parties.

Tanning Bed Rental

Would your residents drive to the nearest tanning salon if one were already on-site? Probably not, and the revenue per square foot might surprise you.

Install Vending Machines

Today’s vending machine technology is pretty impressive. With new features such as bank cards and automatic reordering, it’s only getting better. Save your residents a trip to the store, and they will pay a premium for convenience items.

Concierge Services

A hot new trend in modern apartments is a dedicated concierge to cater to residents. Once limited to only luxury apartments, this is becoming more common every day. Imagine the value to your tenants--and how much they would pay--if they had someone to handle:

• Pickup and delivery of postal and overnight services

• Pet feeding while they’re away

• Plant watering while they’re away

• Hanging wall decorations

• Taking out the garbage

• Waiting for cable and internet installation or repair

• Accepting deliveries

• Help with move in and move out

Evaluate Your Current Expenses

Faster Turns = Lower Vacancy

This is a big one, and easy to quantify. How long do your units sit empty before they are ready for the next tenant? Multiply days vacant times lost rent. How much income do you lose? This amount adds up! Creating a system for turning units quickly can cut your vacancy expense down:

• Set a protocol for exit walk-throughs with vacating tenants

• Schedule vendors in advance and keep them accountable

• Encourage new residents to move in early with pro-rated rent

Reduce Water and Sewer Usage

A major expense each month is water and sewer. Reduce water consumption by more than 30% by:

• Installing low-flow or dual-flush toilets

• Switch out to water-saving shower heads

• Adding in low-flow sink aerators

• Installing high efficiency dishwashers and washing machines

Also consider looking for water leaks as part of your routine maintenance. A small drip from a worn faucet washer can waste 20 gallons of water per day.

Simplify Your Landscaping

Install native plants that need less water, or remove plants altogether. Also, analyze your irrigation, timing, and usage. If your sprinklers turn on when it’s raining, it’s time to invest in a sensor.

Install A Recycling Center

A designated place for recycling can reduce garbage pickups by 50%. It also encourages residents to keep the property clean and green.

Common Area Lighting And Electricity

LED lighting has finally reached the point of affordability. LEDs consume a fraction of the power of traditional light bulbs, and they last for decades. Automate them with sensors or timers, and watch your electric bill drop. Also, consider installing solar panels to offset your electricity costs.

Have Your Property Taxes Reassessed

Concerned that your property taxes are too high? Contact a local real estate or tax attorney to find out if your property is a candidate for reassessment.

Have Your Insurance Re-Quoted

Have you taken steps to improve your property, such as installing a security system? You may have insurance discounts available to you.

Cable/Internet/Telecom Agreements

Most residents pay for a cable or satellite bundle. Contact your local providers about what wholesale packages you can offer as an amenity. The cost you pass-through to your tenants should be less than what they pay. You will make a profit and your tenants save money. It’s a win-win for everyone.

Marketing Matters

Finally, remember that most renters make decisions on a base-rent to base-rent comparison. Your marketing must broadcast what features and amenities are included. In higher-end luxury buildings, tenants are less price-sensitive and prefer amenities over discounts.

Do you have any creative ideas to add value? Please feel free to share them.

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Trevor T. Calton, MBA is the founder of Real Estate Finance Academy and President of Evergreen Capital Advisors in Portland, Oregon. Throughout his career, he has analyzed or acquired more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

Let’s talk about the most important tool in your toolbox: The Financial Calculator. If you are serious about learning real estate investments, particularly as a CRE investor, a real estate agent, a mortgage lender, or any other role as a professional, you need to know how to use a financial calculator. If not, you will be at a disadvantage compared to those who do, because you’ll be reliant on spreadsheets or software to give you answers that you cannot calculate yourself, such as IRR, cash-on-cash return, or loan payments.

I’m not saying that spreadsheets are bad, because they’re absolutely necessary, but even if you are primarily working on spreadsheets, the only way to know if the information you’re getting out of your spreadsheet is correct is by being able to analyze numbers manually, and that requires knowing how to use a financial calculator.

If you are getting into commercial real estate, you will likely look at hundreds of deals, if not thousands, over the coming years. And each one will have its information presented in a different and unique way. So in order to really know what you’re doing, you need to understand the concepts behind the numbers, and be able to analyze those numbers without being dependent on a spreadsheet or some proprietary company software program.

 Financial calculators are those that specifically have the five Time Value of Money functions:

• N - Number of Periods

• I - Interest Rate or Rate of Growth

• PV - Present Value

• PMT - Payment or Cash Flows

• FV - Future Value

Another thing I strongly recommend is getting a financial calculator that uses RPN (Reverse Polish Notation.) You might hate it, at first, because it’s a slightly different type of input it takes a few minutes to get used to, but once you understand it, you’ll never want to go back to the old way because RPN calculators allow you to do algebra without having to stop in the middle of an equation to record your answer.

My personal favorite financial calculator is the Hewlett-Packard HP 12c. (No, I’m not paid to promote this. I’ve just been using it for over 20 years.) The HP12c is readily available as a traditional handheld unit, or you can download a FREE app on most smartphones. If you prefer to use a physical calculator instead of an app on your phone, they're pretty easy to find online or at most office supply retail stores. And if you don’t want to pay full retail price for a new one, many of my students have found them used online for as little as $5 or $10.

Do you want to build your skills and learn to use a Financial Calculator? Check out our HP12c Financial Calculator and Analysis Crash Course for just $197 Pay What You Want, check out our Real Estate Investor Masterclass program, or see our list of individual courses here.

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Trevor T. Calton, MBA is the founder of Real Estate Finance Academy and President of Evergreen Capital Advisors. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

If you care about the impact your properties have on the environment, you are in good company. Studies show that in addition to being climate-friendly, sustainability upgrades can often return over 10x the investment to the owner. Below are 32 ways to make your existing apartment property more ‘green’ while also increasing your overall ROI.

Identify Your Property's Needs

What are the priorities? Consider pressing issues, long-term impact, resident comfort, amenities, and owner liability.

Look For The Low-Hanging Fruit

Few owners have unlimited resources. Evaluate your needs and priorities, then examine your available capital. See where you get the most bang for your buck and start there. Use an integrated approach and look for synergies:

• Low-cost

• Short payback periods

• Increase the attractiveness of the asset to potential tenants

• Easy to implement

Start there, and work your way down the list.

Make a plan

Owners should include the entire asset management team when undertaking sustainability projects. Invite maintenance personnel, property managers, site managers, contractors, and architects where applicable. It’s also not a bad idea to inform your tenants of your plans. They are more likely to be accommodating of any inconveniences when they have the opportunity to ‘buy in’ from the beginning.

Install Energy-Efficient Lighting

Replace incandescent lights with LED bulbs. LED bulbs and ballasts can last over 10 years, use hardly any power, are safer, and increase efficiency. Start with common area lights and upgrade residents’ units on turnover. Install motion sensors in laundry rooms, community areas, and parking lots to further reduce costs.

Upgrade Appliances

By now, everyone should know about Energy Star appliances. If your appliances are still avocado-green and look like a 1980’s-era cable box, it’s time to upgrade. Energy Star appliances use significantly less resources and are often eligible for rebates. For example, many newer clothes washers use less water, and dryers have moisture sensors that turn the machine off when clothes are dry.

Insulate Hot Water Heaters

Insulate water heaters to prevent heat loss and increase their performance. This will increase hot-water life and reduce utility bills. If possible, insulate pipes to reduce the amount of energy needed to keep hot water flowing throughout the building.

Replace Central Boilers with Heat Pumps

Anyone who has ever lived in a building with an old boiler knows how inefficient and wasteful they can be. Units are either too hot or too cold, and resident complaints can be rampant. Install heat pumps for massive gains in efficiency. If heat pumps are not an option, then at the very least, reset/cutout controls so that the boiler operates as needed. Your utility costs will drop, and your tenants will thank you.

Weatherize The Building

Keep your building envelope tight and reduce energy loss by utilizing or updating:

• Insulation

• Caulking

• Weather-stripping

• Window seals

• Door-sweeps

Upgrade Windows

New, energy-efficient, double-paned windows reduce heating and cooling costs significantly. They work by mitigating the temperature difference between the indoors and outside. New windows also better protect the structure from leaks, pests, and other harmful elements.

Create Window Shade

For southern-facing windows, provide some form of awning, overhang, or landscaping for shade. This can reduce cooling needs, save energy, and increase interior comfort during summer.

Install Solar Power

If you’re not already thinking about solar energy, you should be. Solar is getting cheaper and more accessible to everyone. Costs associated with solar panels, installation, battery storage, and financing continue to fall. Savings on electricity for both you and your tenants can be significant. Residents will love saving money on their utility bills, increasing your property's value. Combine that with available tax credits, and you have a win-win for everyone.

Install Solar Water Heaters

Solar water heaters reduce the energy costs for swimming pools, water heaters, and laundry facilities. They also extend the length of the swimming season, adding value to the property. Solar water heaters don’t use photovoltaics like solar panels. Instead, they use the sun’s energy to preheat the water. This reduces the amount of energy needed to bring the water up to the desired temperature.

Install Ceiling Fans

Ceiling fans contribute to resident comfort and reduce energy costs year-round. During the winter, operate the ceiling fan clockwise at low speed to produce an updraft of warm air. This results in less heat needed to maintain the same comfort level. In the summer, switch the fan counter-clockwise. It will produce a downward draft, creating a wind-chill effect without air conditioning. Be sure to find Energy-Star ceiling fans for optimal efficiency.

Install Bathroom Fans And Timers

To reduce mold and rot, bathroom fans should vent outside and control the exhaust automatically. Install fans with timers connected to the light switch that run for a pre-set time after being turned on. Or use humidistat sensors that automatically run when moisture is present.

Install Low Water-Use Fixtures

Low-flow shower heads, sink aerators, and high-efficiency toilets save water, energy, and money. They usually pay for themselves in less than one year.

Test Drainage And Storm Water Retention

When water flows over pavement to storm drains and into the watershed, it carries with it harmful elements such as oil, pesticides, fertilizers, pet waste, and other chemicals. Ground soil acts as nature’s water filter, using microbial life and earth to break down these chemicals and clean the water. Disconnect downspouts and redirect water runoff to stay on the property and out of the watershed.

Improve Irrigation Systems And Controllers

High-efficiency irrigation systems can reduce water usage, evaporation, and runoff by a lot. Smart controllers sense weather, rain, and soil moisture levels. These systems also help prevent plant disease and weed growth.

Optimize Swimming Pool Pumps and Heaters

Be sure to replace pumps and motors with energy-efficient models that use no more than 3/4 horsepower. Slower pumps are as effective as higher powered pumps, and this can reduce costs while extending the life of the motor.

Use Recycled Paint

For exterior repainting, specify at least 50% post-industrial or post-consumer recycled-content paint. Using recycled paint reduces the amount of paint that ends up in landfills. Recycled paint isn’t recommended for interior use.

Replace Siding

Explore environmentally friendly exterior siding options such as fiber cement, stucco, metal, brick or stone. These products tend to be durable and easy to maintain. FSC-certified wood siding is made with sustainably harvested wood.

Improve Building Insulation

If a renovation or rehab project has you taking down drywall, this is a good time to take a look at your insulation. But even if you’re not going ‘down to the studs’ you can still opt for blown-in insulation. Cellulose insulation works well to reduce noise between units and improve thermal performance. It's mostly made from recycled newspaper.

Roofing Materials

The roof is the most important aspect of a building’s envelope. Invest in durable roofing materials, as failure can cause serious damage to the rest of the structure. Look for sustainable options such as solar, tile, slate, or sheet metal. Install with a radiant barrier for best performance. I predict solar panel roof shingles will be ubiquitous someday.

Build A Green Roof

For flat roofs, green roofs are a great use of the space. These rooftop gardens combine vegetation and soil, planted on a waterproof membrane. They reduce roof temperature, cooling costs, storm water runoff, and outdoor noise transfer. They also reduce sewage system loads, protect roofing material from UV rays, and absorb carbon dioxide. A green roof can also provide a space for a community garden, a popular amenity among residents.

Explore C-PACE Funding

If you haven't heard of PACE Funding yet, you will soon. It's a national funding program for climate-friendly energy initiatives that is rolling out state-by-state. You can watch a video and learn more about C-PACE in our separate blog post here.

From non-traditional financing options like C-PACE to the numerous tax incentives and other initiatives  created by the Inflation Reduction Act, sustainability initiatives have never been more financially feasible, not to mention critical in the face of unprecedented climate change. The time to act is now.

For more info about C-PACE and other sustainability options available for your property, contact us Evergreen Capital Advisors at 877.325.4001 or email them here for a no-obligation consultation.

Do you want to become a master at real estate investments? Check out our Real Estate Investor Masterclass program or see our list of individual courses here.

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Trevor T. Calton, MBA is the founder of Real Estate Finance Academy and President of Evergreen Capital Advisors. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

Most people know that real estate creates wealth. But what makes real estate different from other investments is that it happens in four distinct ways. Today we are going to discuss the four different ways real estate generates wealth for the investor.

Cash Flow

The first wealth generator from real estate is cash flow. Cash flow, or more specifically net cash flow after debt service, is the cash flow from operations that is left when all revenues have been collected and all operating expenses have been paid, and all debt service has been made. Whatever's left over, the net cash flow to the investor is the first generator of wealth.

Appreciation

The second wealth generator from real estate is appreciation. Appreciation is the amount that the asset has gone up in value, which is determined by, of course, the sale price minus the original purchase price. Appreciation can be significant in many cases, and is often the greatest driver of wealth out of the four.

Principal Paydown

The third generator of wealth in real estate is principal paydown from leverage. Principal paydown is when the loan that is used by the borrower to acquire the real estate balance is paid down by the cash flow from operations. Effectively, the investor receives more money at the beginning than they owe at the end, and the difference adds to the investor's wealth.

Tax Benefits

Finally, the fourth generator of wealth in real estate, which can be quite significant, are the tax benefits. Deductions for interest expense, non-cash expenses such as depreciation and amortization can be extremely beneficial; especially to investors who are looking for ways to offset other income. When all four of these wealth generators from real estate are combined, it's not uncommon to see internal rates of return well over 20-30% in real estate.

Do you want to become a master at real estate investments? Check out our Real Estate Investor Masterclass program or see our list of individual courses here.

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Trevor T. Calton, MBA is the founder of Real Estate Finance Academy and President of Evergreen Capital Advisors. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

Leverage is the concept of using other people's money. Specifically, in real estate, leverage means using bank debt, thereby reducing the amount of capital or equity that the investor needs to come up with in order to do the acquisition.

Today I'm going to show you three different examples of investing in the same $1,000,000 asset at an 8% cap rate - one with no leverage, one with 50% leverage, and one with 75% leverage, to highlight the impact on the investor's returns.

A good way to demonstrate this is to think of the cash that is generated by the property, in this case the $80,000 of NOI, as going into a bucket.

No Leverage

With the investor using no leverage, they get to keep all of the cash in the bucket. In this case, they invested $1,000,000 and are getting a cash return of $80,000 each year, for an 8% cash on cash return.

50% Leverage

So when we think about leverage, think about it as partnering with the bank, but at a lower cost. In this case, with the 50% leverage the investor is effectively partnering with the lender, but the lender's cost of funds is lower.

The debt service on a $500,000 loan at 4.5% percent amortized over 30 years would be $30,000 per year. The $30,000 debt service divided by the $500,000 outlay in the form of a loan that the bank made equals a 6% cash return, or the lender's loan constant.

If the lender's portion is only $30,000 out of the $80,000, then the remainder goes to the investor in the form of net cash flow. The investor keeps $50,000 of the $80,000. And since they invested $500,000 of their own cash, that yields a 10% cash on cash return.

75% Leverage

At 75% leverage, the lender is putting up $750,000 of the capital in the form of debt, and the investor puts up $250,000 in cash.

At that same rate, in terms 4.5% amortized over 30 years, the debt service on that $750,000 is $45,000 per year. Once again, that $45,000 divided by the $750,000 is a 6% cash return to the lender, the lender's loan constant.

That leaves $35,000 in the form of net cash flow left over for the investor. The investor only puts up, in this case, $250,000 of their own cash; $35,000 divided by a $250,000 investment is a 14% cash-on-cash return.

In this case, the investor is only putting up 1/4 of the amount of capital and they're making a significantly higher return on that capital. This is called positive leverage.

Positive Leverage

Positive leverage occurs when the cap rate is greater than the loan constant, so the return to the lender is lower than the cap rate, allowing the investor to capture some of that net cash flow to increase their return.

The loan constant can change, depending on the interest rate and the amortization. But whenever you have a spread between the cap rate and the loan constant, where the cap rate is higher, it's typically optimal to increase leverage in order to increase the investor's cash on cash return.

Neutral Leverage

Neutral leverage is where the lender's loan constant is the same as the cap rate, therefore not providing any additional benefit to the investor for leveraging, other than reducing the amount of capital they need to invest to acquire the asset.

Negative Leverage

And then of course, we have what's called negative leverage, and that's when the loan constant is higher than the cap rate. In that case, the investor needs to forfeit additional cash flow to service the debt where the lender is making a higher return.

In order to analyze the optimal amount of leverage to use, simply compare the loan constant and the cap rate. If the cap rate is higher than the loan constant, then use more leverage to increase the cash on cash return. If the loan constant is higher than the cap rate, then less leverage is better in order to optimize cash on cash.

Do you want to become a master at real estate investments? Check out our Real Estate Investor Masterclass program or see our list of individual courses here.

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Trevor T. Calton, MBA is the founder of Real Estate Finance Academy and President of Evergreen Capital Advisors. Since 1997, he has analyzed, acquired, or sold more than $5 billion of commercial real estate assets, financed over 500 commercial investment properties, and overseen the asset management of over 6000 units of multifamily housing.

There are two different kinds of debt: recourse and non-recourse.

Recourse debt is when the borrower is personally liable for the entire debt amount, regardless of the collateral or the security that's being offered on the loan.

Non-recourse debt just means that the borrower is not personally liable, and the the lender's only security is the collateral itself.

But for most loans, recourse or non-recourse doesn't matter. The only time the difference between the two comes into play is in the event of foreclosure.

When a lender forecloses, they take the property back and they liquidate or sell it to recoup the money that they loaned to the borrower. For example, imagine a property is worth $1 million and the borrower  owes the bank $800,000. When the bank forecloses and they sell the property, they have enough to cover the money that they loaned out plus other expenses and costs.

But sometimes the property does hold its value. This can happen for a variety of reasons, such as mismanagement of the property or the borrower not having enough funds to maintain it properly. There are many different reasons why a property could lose value.

But let's say, in another example, that a property was originally worth $1 million, and the lender is owed $800,000. But over time, for whatever reason, the property decreased in value and is now worth $600,000. This difference here between what the property is worth and what the lender is owed is called a deficiency.

Important to note is that the deficiency isn't just the difference between the loan balance and the property's new value. In addition to the principle the bank is trying to recover, they are also owed accrued interest. Legal fees, late fees, and other expenses related to the foreclosure process. So in an example like this, that deficiency could very easily be three or $400,000 instead of just $200,000.

In the case of a recourse loan, the lender is able to sue the borrower for recovery of the deficiency amount. They can go after other assets, or other find other ways to get a judgment in court, to recover whatever the collateral did not cover.

In a non-recourse loan, the lender is not able to go back to the borrower and sue them for the deficiency. The lender has no recourse against the borrower. Obviously, most borrowers would prefer to have a non-recourse loan, but not all lenders offer them.

If you are interested in finding the best loan option for your project, contact our friends at Evergreen Capital Advisors for a no-obligation consultation.

Today we're talking about value-add investing, specifically in multifamily properties.

Value-add is looking for opportunities to add value. You're going after appreciation. It's a strategy for investors that are in the growth phase that are looking to invest, time, resources, energy, capital, blood, sweat, and tears, to increase the value of a piece of real estate to a point that's higher.

Value-add real estate is my favorite, because if you do it right, and if you're diligent and you're patient and you pick the right assets, you can get returns that are well above 20% to 25% IRR. I have clients that I have helped make 50% to 100% annually on their money in value-add deals.

A great thing about value-add, and the reason that I like it is because you're cash flowing from day one. Value-add properties typically, not always, but typically are occupied.

I consider value-add to be different than a renovation. Renovation typically means an empty or vacant property. Value-add is just an opportunity to increase the income.

Where does value come from?

Value comes from the NOI - Net Operating Income.

The NOI divided by the Cap Rate is how we determine value.

Well, of those two factors, only one of them is within our control. And that's the NOI, it's not the Cap Rate.

So the whole concept of value-add is increasing the NOI.

How is Value Created?

How do you increase the NOI? There's two ways. You either increase the revenue or you decrease the expenses. We'll talk about both of these.

And I actually have a blog post: "27 Ways to Add Value to Your Multifamily Property" and it's all about value-add tactics, even little incremental ones.

So let's take a look at how the math works just from a high level. We're not going to we're not going to do any calculations, but I think it's important to understand how the value-add is achieved.

Here's where it gets fun.

In a 6% cap market, every unit that you bump $50 a month in their net operating income is $10,000 in value. Doesn't seem like that big of a deal, right? It's only $50. $50/month x 12 is $600 per year.

Imagine now you have a 30 unit building. $50 a month equals $300,000 in value.

Increasing Revenue

When we talk about opportunities to add value, what we're trying to do is we're trying to either increase the revenue or decrease expenses.

What are some opportunities for increasing revenue? Obviously the easiest way to increase our revenue is to raise rents.

What are some other ways that we can increase revenue? We can have the residents pay for a portion of the expenses. We can do utility pass throughs or RUBS, ratio, utility billing systems.

We can create new sources of revenue: pet rent, parking rent, vending machines, appliance rental, laundry facilities on site.

Decreasing Expenses

But then another opportunity to boost our NOI is to decrease our expenses. We could have our property taxes reassessed if we think the property's overvalued. We could have insurance re-quoted. We can have a really good maintenance plan in place. We can get better management. We can change out the landscaping. We can reduce our utility expenses by installing low flow showers, sinks, and toilets to reduce the water bill. We can install LED lights in all of the common areas to reduce the electric bill. We could potentially even put it on a solar package. Value-add opportunities can come in many, many forms.

But one of the things that I really like about value-add is most of the time, there are at least some value-add opportunities that are management issues.

I'll give you an example: vacancy. Imagine you have this property, and your vacancy is 10% twice what the market is. And then you go in and you look at why. If you could cut the turnover time in half, you cut your vacancy in half. Because vacancy is an economic number. It's how many days did the property sit not collecting any rent? That's value-add.

Below market rents are just one attractive quality of an acquisition. They don't necessarily imply that there's a lot of value-add.

Indicators of Value-Add Opportunities

Let's talk about signs that a property is a candidate for value-add strategy.

• Below market rents.
• Below market occupancy.
• Outdated interiors or amenities.
• Deferred maintenance. And that would imply a need for capital improvements.
• And the last one is poor management.
• For instance, I really like owner-managed apartments. Because if an owner is an owner operator, they're not typically incentivized to drive rents.

Owner operators are frequently doing a lot of the work themselves, and that means that every time a unit turns over, it creates more work for them. Owner operators usually don't want a lot of turnover, so they will often keep their rents low.

Consequently, their tenants will stay because as market rents go up, their rents have stayed the same. And they will stay there for a long time. A lot of the work and maintenance that's done on interiors is done during turnover.

It's a compounding effect. You have an owner who's often friends with their tenants, which is a huge mistake, and they don't want to raise the rents because they don't wanna have to take on the effort and expense of having to turn the unit.

So they keep their rents low. And then over time, the building still incurs wear and tear. But because the property has not been bringing in enough cash, because the rents are below market, the expenses still will climb. And so over time, these expenses that are needed start to add up.

But the owner, because they've been keeping the rents low they haven't stockpiled enough reserves to do those improvements or to make those repairs.

Have a Plan in Place Prior to Sourcing Debt

The lender's going to look and say what's the plan? What are some of the things that you can do? And so if a client is going to go after a value-add deal, they should have a plan in place and every plan is going to have costs associated with it.

Let's just go through and talk about some of the really common ways to show the lender that you have a plan in place to achieve that.

If you really want to put your best foot forward, you will do all of this before you talk to the lender, or you'll at least have some of these things quantified, analyzed or eliminated as a possibility before you submit your package to the lender.

The first thing is a market rent survey, right? And then doing any necessary rent increases.

Improving the marketing and, sometimes that might involve rebranding the property. A lot of my clients will go in and if they're doing a heavy value-add they'll change the name of the building, especially if it's in maybe a class C area that might have a lot of crime or other issues, sometimes properties will get a bad reputation.

My very first acquisition was a 35-unit deal, and this was in a high crime neighborhood. It was a great value-add opportunity on paper. But this property had a terrible reputation. And the street that it was on was the border between two cities.

And our first weekend that we owned the property, we had a homicide in one of the units. And then when they called the police said, "That's not our jurisdiction. You need to call the other city."

We called the other city. They said, "Nope. That's their jurisdiction."

Neither police department wanted to deal with this property. Bad reputation. And so rebranding can sometimes be very effective.

Improving the interiors. You can take a property that has old carpet and you couldn't put in vinyl plank flooring.

Appliances. Some of the biggest bang for your buck can come from appliances. A lot of times, properties that have room for a dishwasher, but don't have a dishwasher immediately can get a hundred dollar rent increase. A lot of people just won't even consider renting an apartment that doesn't have a dishwasher

Putting in air conditioning. That can be a big one.

We had a property that was perfect for a stackable washer and dryer. There was an extra closet. We were able to run some plumbing. We put in stackable washer and dryer. And at the same time we're implementing the RUBS the utility pass-thoughs, and we were able to boost our NOI by $150 a month per unit for something that cost us about $5,000 a unit to do.

Exterior upgrades. Just making the building look nicer.

Changing vendors. I always recommend owners look at the vendors that they're using their contracts, the pricing. And it's always important to keep vendors competing against each other.

Purging the property of bad tenants. As much as I always go out of my way to do everything I can to avoid evicting someone. There are some tenants that need to go. And It is important. Bad tenants can poison the entire property. They can turn other residents against the management unnecessarily. They can create disturbances. They can obviously cause damage. Bad tenants need to be dealt with. And a lot of times, owner-managers will frequently make a mistake of being too tolerant of bad tenants. And what that does is it sets an example to the rest of the residents that they can behave poorly as well.

The best value-add deal that I ever did was a property we bought for about $35,000 a unit. And it wasn't in terrible shape. But it was an owner-manager.

I was well versed in the area and I knew that the rents were way below market. The rents were almost 50% below market. I gave the seller everything they wanted and he just wanted out, he just wanted to retire. We went in, we put in new appliances and we put in decks outside. They had these tiny little, they weren't even real decks. They were just little landings. And we went and put on full on patio decks out there.

Most of our residents, they knew that their rents were absurdly cheap. We actually kept most of them. And they were very excited because we didn't just go in and try and raise rents without giving them any value in return. That wouldn't be fair. But this is just an example of lot of different ways that you can create value.

Financing for Value-Add Properties

How do lenders look at value add deals? The first thing is they want to know where the value-add opportunities are. And what are the causes of the NOI being substandard?

They don't have enough debt service coverage. One of the drawbacks of investing in value-add is typically the sponsor or the investor has to come up with much more capital to put down and to implement those improvements so that they can raise the income.

Most of the time the financing on a value-add deal is still going to be based on the net operating income.

You might though get what's called an affordability discount. Some lenders offer an affordability discount if the rents are below market. They'll shave a quarter point or a half a point off the interest rate to allow the owner to capture a little bit more cash flow and implement whatever their plan is.

Also a great way to approach a value-add deal is with interest-only terms.

Frequently, my value-add investors will say, "Okay, I'm going to get a five year loan. I'm going to get one, two or three years of interest-only payments." So that their payments are going to be significantly lower during that interest only period than they would be if the loan was amortizing.

They're not necessarily concerned about principal paydown because they're solely focused on raising the income.

Realize the Value You Have Created

Another thing to think about when one is growing their portfolio, the most important thing is, after the NOI has been brought up, you've created appreciation, you can't actually benefit from that appreciation until you sell that property, take that appreciation and all of your equity back out and then redeploy it.

You buy the property, you implement the value-add strategy, you sell the property, you calculate how much wealth you built, and you reinvest that.

Most of the time value-add is going to have a shorter holding period. Not always, but most of the time. You're frequently going to see newer investors pursuing a value-add strategy because they're the ones that are trying to build wealth and grow, more so than somebody who's already grown.

But people who really love value-add like me, I'll take on a value-add property most of the time over like a core property because I think it's fun.

I think it's really interesting to take a building and make it better.

I want the influence that I had as an investor to be better for the residents and to be better for the community. And it's not all about just raising rents. That's not the goal. The goal is not to burden the residents.

A lot of savvy investors will do their value-add incrementally. So If they're doing any sort of work on an interior that's going to be disruptive to the tenants, like replacing the flooring or adding amenities, they'll do that on turnover.

So while the unit is vacant, they'll get the whole crew in there and they'll do all the improvements, and then they'll remarket that unit at the higher rent. So you haven't actually negatively impacted somebody who lives there.

Typically the loan is very straightforward. Just like any other loan. They're going to say, what's your NOI? What's our debt service coverage ratio. And they plug it in. And the difference between your financing and your sales price is how much you have to put down.

And then you have to also have the money to do your value-add.

That's frequently where you will find people come up with a bridge loan or a mezz piece, or some sort of secondary financing, or they'll bring on a partner. They might have the seller carry a portion back. It's not as complicated as you might think.

Get Financing with Evergreen Capital

If you're looking for financing for a real estate investment you are working on check out our website at Evergreen.LLC.

And thanks for tuning in. Good luck out there and have a great day.

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