Commercial Real Estate Investing

Transcription

1 Commercial Real Estate Investing FOR DUMmIES by Peter Conti and Peter Harris

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3 Commercial Real Estate Investing FOR DUMmIES

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5 Commercial Real Estate Investing FOR DUMmIES by Peter Conti and Peter Harris

6 Commercial Real Estate Investing For Dummies Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ Copyright 2008 by Wiley Publishing, Inc., Indianapolis, Indiana Published by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, , fax Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing, Inc., Crosspoint Blvd., Indianapolis, IN 46256, , fax , or online at Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book. LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NO REP- RESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CRE- ATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIES CON- TAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZATION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCE OF FUR- THER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSES THE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS IT MAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THIS WORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN AND WHEN IT IS READ. For general information on our other products and services, please contact our Customer Care Department within the U.S. at , outside the U.S. at , or fax For technical support, please visit Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Control Number: ISBN: Manufactured in the United States of America

7 About the Authors Peter Conti and Peter Harris are known as the World s #1 Greatest Commercial Real Estate Mentors. They partnered years ago by combining their existing Mentoring practices. They have both started from modest beginnings, Peter Conti was an auto mechanic, and Peter Harris was an introverted engineer. The portfolio of properties they have purchased nationwide with their Commercial Mentoring Program students continues to grow at an accelerated rate. Peter Conti is the CEO of MentorFinancialGroup.com and lives on the Chesapeake Bay with his wife and kids in Annapolis, Maryland. Peter Harris has purchased and put together commercial and residential real estate deals across the country for years. He has taught, mentored, and instructed many of the most successful investors across the nation. Harris and Donald Trump are coauthors of Three Master Secrets of Real Estate Success. He also sits on the board of advisors on several private and national real estate investment and development companies. Many years ago, Peter Harris received the gift of a great mentor in his career and in his every day life, who guided and encouraged him to always get out of his comfort zone and play a bigger game. Mentoring one-on-one or to hundreds at a time around the nation is Peter s way of giving back and imparting the message of hope and faith in the dynamic and rewarding world of real estate. Even though Peter s first career was a physicist, holding several U.S. patents on outer space simulation, the school of hard knocks was where he got his real education in the business world. Besides his business life, Peter s passions include hanging out with his son PJ, serving at his church, smiley faces, and riding his bike hundreds of miles at a time. Peter Harris lives in the heart of San Francisco with his son, PJ. You can the authors at mentor@mentorfinancialgroup.com, or you can call them at

8 A Free Gift from the Authors: Your Bonus Commercial Quick Start Training Package Here s your chance to join the authors for over six hours of training that just wouldn t fit in the book so that you can hit the ground running with your commercial real estate investing. You ll get to listen in, watch, and respond as they guide you in putting together highly profitable commercial deals. Here s what you get: Over 6 hours of audio and video commercial investing training sessions Special form Addendum A, which gives you up to 90 days to decide if you want a deal or not A Quick Start exclusive: The Money Raising Workshop Audio interviews with leading commercial real estate investing experts You ll discover: The fastest way to get started investing in commercial real estate How to retire in five years or less Insider secrets to finding deals How to buy commercial real estate with no money Three steps to quickly fund even the biggest deal How to explode your net worth with land development You ll also receive this special report: The 3 Best Places to Buy Commercial Property Today Get your Commercial Quick Start Training Package (a $299 value) by registering your copy of this book at Enter code CFD101.

9 Dedication Peter Conti: This book is dedicated to Peter Harris. You are an incredible blessing in my life. Peter Harris: I dedicate this book to God first and foremost. I thank Him for His faithfulness, His love and grace, and for all of the amazing people He blesses me with. I also thank my great mentor, a great man named Nick Tsujimoto. Thank you, Nick, for your wisdom and love, for our many closed door sessions, and for helping me set and achieve awesomely scary goals. Lastly, I want to thank my partner Peter Conti for being the man and friend that he is and always will be. And to everyone else: The best is yet to come!

10 Authors Acknowledgments From both authors: To every one of our Commercial Mentoring Program students. This book, along with all of the fun we ve had and all of the properties we ve bought together, would not be possible without you. Your courage motivates us every day. To Tim Gallan and Mike Lewis at Wiley publishing, we don t know how you do it. Thanks for giving us a little breathing room. From Peter Harris: To PJ, for always hanging in there with Dad. You are the greatest son a father could ever ask for. I love you, dude. To Steve, Gary, Abe, Marge, June, Beck, Lela, Stone, Steph, and wonder boy Kyle, for always cheering for me. To Da Girls, you know who you are! Thanks for being warriors in your lives and mine. I am the wealthiest man on earth because of who and what we share together. The best is yet to come! From Peter Conti: This book wouldn t have happened without the awesome changes I ve seen in my life over the past few years. Thank you, God, for such a great life and especially for surrounding me with so many wonderful people. Joanna, I love you. I miss you girls. You grew up so fast. Son, our time together is precious to me. To everyone at MentorFinancialGroup.com: Marilyn, Angela, and Jeff. Wow! You are the most incredible and fun people I ve ever had the privilege to work with. To Deb, Elizabeth, Kevin, Elaine, and Molly, you are the backbone of the Mentor Family. All of you have proven that nothing is impossible for the man who doesn t have to make it happen. To all of our coaches, Peter Harris, Cheryl, Rob, Stephen, Emily, Juli, Cleve, Jeff, Matt, and David. Your daily support and encouragement for our Mentorship students is changing the world.

11 To Mr. X in one of the southern states. Your passion for helping all of our students to profit from every single deal they do with us is the keystone of the Mentor System. You deserve the credit even though you wish to remain anonymous. To my friends in Christ: Brett, Rob, Peter, Baden, Tom, Thomas, Stephen, and Robb. Thank you for your leadership and guidance. And Rob, that praying over your wife thing you taught me is awesome! To Mom, Dad, Lisa, Debbie, Linda, John, Paul, and Matthew, I love you.

12 Publisher s Acknowledgments We re proud of this book; please send us your comments through our Dummies online registration form located at Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Media Development Senior Project Editor: Tim Gallan Acquisitions Editor: Michael Lewis Copy Editor: Jessica Smith Editorial Manager: Michelle Hacker Editorial Assistants: Joe Niesen, Leeann Harney, David Lutton Cartoons: Rich Tennant ( Composition Services Project Coordinator: Kristie Rees Layout and Graphics: Reuben W. Davis, Alissa D. Ellet, Brooke Graczyk, Christine Williams Anniversary Logo Design: Richard Pacifico Proofreaders: Cynthia Fields, John Greenough, Bonnie Mikkelson Indexer: Steve Rath Special Help Elizabeth Kuball Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Joyce Pepple, Acquisitions Director, Consumer Dummies Kristin A. Cocks, Product Development Director, Consumer Dummies Michael Spring, Vice President and Publisher, Travel Kelly Regan, Editorial Director, Travel Publishing for Technology Dummies Andy Cummings, Vice President and Publisher, Dummies Technology/General User Composition Services Gerry Fahey, Vice President of Production Services Debbie Stailey, Director of Composition Services

13 Contents at a Glance Introduction...1 Part I: Getting to Know Commercial Real Estate Investing...7 Chapter 1: Just Imagine... Commercial Real Estate and You!...9 Chapter 2: A Crash Course in Commercial Real Estate Investing...19 Chapter 3: Evaluating Commercial Real Estate...33 Part II: Getting Started Making Deals...57 Chapter 4: On Your Mark, Get Set, Go Find Deals...59 Chapter 5: Strategies for Making Offers and Negotiating...75 Chapter 6: Due Diligence: Doing Your Homework...97 Chapter 7: Closing Your Deal Part III: Funding Your Deals: Financing and Lending Chapter 8: Conventional Financing Options Chapter 9: Getting Creative with Financing Chapter 10: Raising Capital and Forming Partnerships Part IV: Day-to-Day Ownership and Operations Chapter 11: Property Management: Who s Minding Your Ship? Chapter 12: Protecting Your Assets Chapter 13: Why Properties Fail Part V: Kicking Your Investing into High Gear Chapter 14: Making a Success Out of Commercial Fixer-Uppers Chapter 15: Land Development: The Heart of Commercial Real Estate Chapter 16: Expert Tax Advantages and Strategies Chapter 17: Leaping into a Commercial Real Estate Career Part VI: The Part of Tens Chapter 18: Ten Ways to Increase Your Property Value Chapter 19: Ten or So Easy Ways to Network Index...341

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15 Table of Contents Introduction...1 About This Book...1 Conventions Used in This Book...2 What You re Not to Read...2 Foolish Assumptions...2 How This Book Is Organized...3 Part I: Getting to Know Commercial Real Estate Investing...3 Part II: Getting Started Making Deals...3 Part III: Funding Your Deals: Financing and Lending...4 Part IV: Day-to-Day Ownership and Operations...4 Part V: Kicking Your Investing into High Gear...4 Part VI: The Part of Tens...5 Icons Used in This Book...5 Where to Go from Here...5 Part I: Getting to Know Commercial Real Estate Investing...7 Chapter 1: Just Imagine... Commercial Real Estate and You! What Is Commercial Real Estate?...10 What to Think About As You Get Started...11 Can I make money at commercial real estate investing?...11 What type of investor am I?...12 Do I have to be a genius to crunch the numbers?...13 What investing opportunities are available?...14 How does financing work?...15 Understanding the Risks of Commercial Real Estate...15 Avoiding lawsuits, the most feared risk...16 Risk-proofing your investment plan...17 Chapter 2: A Crash Course in Commercial Real Estate Investing How Is Commercial Real Estate Different from Residential Real Estate?...20 Why Invest in Commercial Real Estate?...21 What Types of Investments Are Available?...22 Apartment buildings (also known as residential properties)...22 Offices and warehouses...22 Retail centers...24 Hotels and resorts...24 Land development...25