2 However we will briefly examine the general concept of tax deferral. If the owner exchanges his property for a qualifying like-kind property and complies with the rules of Section 1031, the entire tax may be deferred.

There are three general methods appraisers use to value commercial real estate:

Cost Approach 2. Sales Comparable Approach 3. Income Capitalization Approach

The Cost Approach arrives at a value by determining what it would cost to replace the property being assessed.

The Sales Comparable Approach analyzes recent sales on comparable properties and makes assumptions based on the sale price per foot and then applies that sale price per foot to the subject property in order to arrive at a current market value. The Income Capitalization Approach analyzes the income and expenses generated and incurred on the property and then capitalizes the Net Operating Income (cash flow before debt service) in order to arrive at a current market value. (This assumes of course the property does in fact generate income. Some borrowers feel that the appraised value should be the value underwritten by the lender.

Cap Rate Net Operating Income / Value (or Purchase Price) A cap rate is merely an expression of the unleveraged annual return on one's investment.

Value Net Operating Income / Cap Rate (input)

Commercial property is often used as a source of profit for investors. If you are interested in buying commercial real estate, it is important to determine how much the property is worth in terms of market value.

Commercial Loan Refinance

Cash

10% hard equity (cash down or cash previously contributed) is what most commercial hard money people consider reasonable. For loans against quality commercial property, hard money professionals will usually lend up-to 50% of the value of land, 60% on vacant buildings or buildings with insufficient cash flow and 65% on income producing commercial buildings such as multi-family, office or retail.

Experience

First time investors scare loan officers.

Exit

Hard money lenders are not lend-to-own lenders; they don't want to take back your property. Investment and loan standards have tightened up across the entire commercial real estate finance industry.

Even Hard Money Commercial Mortgage Lenders Have Tightened Lending Standards

The Discounted Cash Flow method is the traditional system used, which essentially compares the existing loan vs. the proposed loan on a Net Present Value basis. How the refinance will affect their monthly cash flow? 2. What the closing costs will be?3. (If increase in cash flow) What the principal pay down (amortization schedule) will be, compared to existing loan.

Cash FlowMost borrowers are obviously interested in improving their cash flow situation when refinancing. On a refinance, the borrower can normally roll most of these’s costs into the loan amount. For example, if the new loan monthly payment is $2,000 lower and the total closing costs are $10,000 it will take 5 months for the borrower to “break even”.Principal Pay DownPrincipal pay down is obviously another important component of any commercial loan.

Commercial Foreclosures - Guide for Investors

Financing Purchase Transactions

First of all, financing purchase transactions for owner occupant (meaning for your business) type loan requests is viable, and much more so than other types of commercial mortgages.

Please keep in mind that other commercial mortgage programs, such a conventional, investor, etc remain difficult. Property values have dropped substantially and 2. Loan to value requirement have also dropped substantially. After the Commercial Mortgage Backed Securities (CMBS) market, for conventional investor deals is fixed, money via Wall Street will rush back into the market allowing for eased underwriting standards and more aggressive funding for all loan requests. In turn, property values will increase.

Now Is The Best Time to Purchase Commercial Real Estate In Decades

Buying commercial foreclosures can make any investor a boat load of money. Any place where business can be conduction is considered a commercial foreclosure.At this point you may be thinking about how investors make money with commercial foreclosures. The real money begins to come in when an investor has a commercial property paid off. No matter what your situation, if you are an investor you should give commercial foreclosures a strong consideration.

Commercial Brokers Price Opinion Form - Even Hard Capital Commercial Mortgage Lenders Have Tightened Lending Standards

Financing Purchase Transactions

First of all, financing purchase transactions for owner occupant (meaning for your business) type loan requests is viable, and much more so than other types of commercial mortgages.

Please keep in mind that other commercial mortgage programs, such a conventional, investor, etc remain difficult. Property values have dropped substantially and 2. Loan to value requirement have also dropped substantially.

Property Values at Historic Lows

After the Commercial Mortgage Backed Securities (CMBS) market, for conventional investor deals is fixed, money via Wall Street will rush back into the market allowing for eased underwriting standards and more aggressive funding for all loan requests. In turn, property values will increase.

Now Is The Best Time to Purchase Commercial Real Estate In Decades

Commercial Brokers Price Opinion Form

Cash

Virtually all lenders, private and conventional, have stopped originating 100% financing.

10% hard equity (cash down or cash previously contributed) is what most commercial hard money people consider reasonable. For loans against quality commercial property, hard money professionals will usually lend up-to 50% of the value of land, 60% on vacant buildings or buildings with insufficient cash flow and 65% on income producing commercial buildings such as multi-family, office or retail.

Experience

First time investors scare loan officers.

Exit

Private loans are short term loans, generally 6-36 month, rarely more. Hard money lenders are not lend-to-own lenders; they don't want to take back your property. Investment and loan standards have tightened up across the entire commercial real estate finance industry.

How to Structure Your Commercial Apartment Deal in 3 Ingenious Methods

There is a solid underwriting formula behind this commercial mortgage.

Market rental rates are thoroughly discussed in the income approach section of the appraisals report.

An interesting distinction here, is that the focus on the appraisal for potential rental income (income approach), often lowers the value on most owner occupied properties.

Stated Income Commercial Mortgage - What Are the Lenders Thinking?

Wrap Around Mortgage: this is the situation where you will take over someone else's mortgage. Your mortgage to them is for $100,000. They get payments based on $100,000 and the mortgage is wrapped around the $80,000 mortgage.

Your general interest payment is $1,000.

Splitting Off the Property: let's say you own a 10-unit apartment building that you bought on 3 1/2 acres.

Option: you can get an option on an apartment.

Wrap around mortgages, splitting the property and options are just three more great ways to structure a multifamily property deal.

Understanding The Varieties Of Equity Capital Involved In A Commercial Real Estate Transaction

2 However we will briefly examine the general concept of tax deferral. Assume a sale nets the owner $100,000, creating a tax liability of $20,000. Cost Approach 2. Sales Comparable Approach 3. Income Capitalization Approach

The Income Capitalization Approach analyzes the income and expenses generated and incurred on the property and then capitalizes the Net Operating Income (cash flow before debt service) in order to arrive at a current market value. Some borrowers feel that the appraised value should be the value underwritten by the lender.

Cap Rate Net Operating Income / Value (or Purchase Price) A cap rate is merely an expression of the unleveraged annual return on one's investment.

Value Net Operating Income / Cap Rate (input)

Sponsor Equity: This is the cash investment contributed by owners of a project.Preferred Equity: Preferred equity is similar in structure to a mezzanine loan; however, many of the complexities involving mezzanine debt are avoided. Institutional Joint Venture Equity: Institutional investors have a strong appetite for joint ventures with experienced owner-operators or developers. In many instances, institutional equity partners seek to limit overall property leverage to between 50% and 60%, thus lowering the internal rate of return to the sponsor.Institutional joint venture equity transactions generally are structured so that the institutional investor contributes between 80 percent and 90 percent of the required equity, with the sponsor investing the remainder. Sponsor Equity2. Preferred Equity3. Mezzanine Debt4. Senior Debt

Introduction to Commercial Leases - Part two

If the value is still there I'll go in and check the place out. Problems cost money, updates make money. Watch the show "Income Property" on HGTV. The yard was scaring people off because the house was in a nice neighborhood where people took care of their yards. Now lets discuss selling the property.

If you are just starting out with commercial property you are going to need capital and large cash flows. If you are listing your commercial property for $100,000, this means the agent would get up to $6,000. So if you're profiting $20,000 per home you could make $20,000 on 1 home selling it by yourself, or $28,000 selling 2 homes through and agent. If times are slow, use an agent.

What if this is your 10th commercial property investment?

If you are making $ 20,000 profit per flip, you should have roughly $200,000 cash to work with plus your initial working capital. If you can flip each commercial property investment in 3 months, making $20,000 each, you could have $184,000 at the end of the year.

Now buy and finance 4 homes again. A lot depends on your tenant.

If you are renting out another part of your home to offset your mortgage, do not rely on the payments coming from your tenant.

If you are renting a vacation home, congratulations!

If I do this, I can pay my payments on the house, pay my rental agency, and I have a cool place to hang out 35 weeks out of the year! This is an ideal vacation rental home.

Then decide if you can afford an agency or if you have to do it all yourself.

A Complete Guide to Investing in Commercial Property

As we move on in this article, we'll discuss additional lease types and become familiar with lease additional clause, strategies and identify common terms used in commercial leases.

Ground Lease

A ground lease is as lease for land alone, and is typically a long-term net lease. Following the end of the lease term of a ground lease, title to the land and improvements reverts to the lessor/property owner.

Step Leases

While the lease payments vary over time and the term of the lease, the actual payments are calculated and disclosed prior to the signing of the lease agreement.

Indexed Leases

Additional lease clauses

Lease Renewal Options

Commercial leases often grant a tenant the ability to renew a lease for a pre-specified period of time following the initial lease expiration. However, the rate at which the lease may be renewed is specified in the initial lease contract. Even though the tenant is not obligated to renew the lease, hence the term 'option', the tenant is not bound by the lease to remain and may decide to find another location for the business if either the business requires it or the tenant so desires.

If additional contiguous space cannot be provided in a reasonable time frame for the tenant, an owner may agree to relocate the tenant within the building or shopping center within a specified time period.

Financial impact of lease clauses

After a decision has been made to lease commercial space a commercial real estate specialist may be enlisted to prepare a financial report which quantifies the potential tenant's lease costs and which compares and contrasts alternative leases.

Base (contract) rent: This is the specified, pre-defined contract dollar amount for periodic rent (monthly payments).

Total effective rate: This is simply the total effective rent divided by the square footage.

Average annual effective rent: This is the total effective rent divided by the total years of the lease term.

In many commercial leases, the base rent does not necessarily equal the effective rent.

Here then is a basic formula for calculating a tenant's effective rent:

The base (contract) rent + (Additional Costs - Concessions and/or allowances) = The Total effective rent paid which will be paid by the tenant.

From the owner's perspective

Here then is a basic formula for calculating effective rent from the owner's perspective:

Base (contract) rent - (Net additional costs - Concessions and/or allowances) = The owner's Total effective rent as income.

A sublease is a separate lease in which the tenant may lease all or part of the leasehold interest to another tenant while retaining liability for the property and primary lease to the owner.

Rental rate risk: It may be necessary to sublease at below-contract rent.

Tenant quality risk: It may not be possible to find a high-quality tenant.

Lease-term risk: A sub-lessee may want a shorter or longer lease than that of the primary lease.

Lease agreement risk: A sub-lessee may want concessions, allowances, and other features that are not provided in the primary lease.

An assignment of lease is where all of a tenant's leasehold interests in a property are transferred to a third party.

There are many different ways to structure lease transactions, clauses and financial implications in commercial real estate leasing.

An important item to remember is that many lease clauses will be applied to a cost to either the prospective tenant or the owner.