Commercial Real Estate Investing From A-Z

In this episode we will learn the story of how a successful retail real estate investor got into real estate, what was his first deal like, what has been the best deal of his career, and we’ll also touch a little bit about a not so talked about topic: how to deal with political risks in the city that you invest in. We are interviewing Michael Flight, an expert retail real estate entrepreneur who has been active in commercial real estate over the past 34 years. Michael has handled more than $500 million worth of real estate transactions. You can read this entire interview here: https://montecarlorei.com/how-to-go-from-0-to-500m-in-retail-real-estate-investments/ Tell us bout your best deal. There are a few best deals. There's one that we're still working on. We started managing it in nineteen ninety and we've redeveloped it three times now. We've expanded or renewed most of the tenants in the shopping center. It's a 300,000 square foot shopping center in suburban Chicago. We've actually torn down and rebuilt forty five percent of the shopping center. We took a Walgreens that was doing phenomenal volume and moved them to an aisle parcel that was just vacant, a parking lot. Over the years, the managing partner that became partners with us on a few different projects that we've done, that's just been a great project for us to expose us to a lot of things, not only with that, but geotechnical problems with soil stability. I'm fairly certain that most of the environmental problems are corrected, but every time we stuck a shovel in the dirt over there a new underground storage tank would come up. The other exciting thing was that it was in two major motion pictures. Wayne's World, and Wanted with Morgan Freeman and Angelina Jolie. They blew up one of the stores that we were replacing anyway since they were going out of business. You briefly mentioned that the city wanted you to have a different tenant, can you elaborate there? We have run into that in a number of different municipalities all over the country. It really depends on how strict their zoning laws are. It really depends on the individual city. That's why if you're buying a shopping center, you're going to have to live with whatever is the political system in there. Even if it's in a good state like Texas, it could be a difficult city. You need to know about that in advance. Now, we've had situations where we were doing a facade renovation on our property in Connecticut, next to New Haven. Most of the guys that were on the zoning board, probably three of them, also taught in the Architectural Department of Yale University. They all thought that they knew way better than the property owner what was needed for the shopping center. We went in with plans and they actually redesigned a large majority of the plans. And that's how much control they have over most of the time with the facade renovation. It doesn't require a zoning permit and you would just go in for a building permit. But some of these municipalities have very strict zoning code, signage code, design code. They're into the minute details. Another thing that triggers some things is if the municipality has traffic planners. So if you decide to change any part of the parking lot, they will tell you that you need to do this and that in the parking lot. You just need to be aware of some of the things that go into it. Slightly different than owning apartment buildings. They're more visible and so cities take a more active interest in it, and a lot of times they generate sales taxes, so cities take a larger interest in it as well. They're kind of your partner, but without putting any money into it. Michael Flight www.concordiarealty.com/contact --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we’re learning what are the top things to watch out for when investing in hotels. We’re interviewing Jerome Yuan, CIO of ASAP Holdings. He has assisted with acquisitions and dispositions of over 33 hotels in the past 9 years. You can read this entire interview here: https://montecarlorei.com/top-3-things-to-know-about-investing-in-hotels/ Why should investors invest in hotels, especially nowadays? I heard that where the economy might end up going, it might be a bit risky. But let's let's see what you have to say on that. They say the hotels are probably the most sensitive to economic cycles. They're probably the first to get any type of effect, but they're also the first to rebound out of any type of recession as well. For us, investing in hotels is both a real estate play and also an operational play. We believe that hotels are like 50% real estate and 50% operations. Location matters a lot too, just like any other commercial real estate deal. But then you also have, depending on the hotel, 50 to 100 employees there that you have to take care of. You have guests checking in and out on a daily basis. The operational side is really where you can make a difference and improve the cash flow of the property. And we believe that improving hotels are are the fastest and easiest way to improve cash flows in commercial real estate just because of the daily transactions that you have with customers and hotel guests. What is a typical management fee? The property manager usually takes a 2.5-3% percent fee off of the of the gross income. It's pretty reasonable. What are some of the top things that investors should keep in mind and watch out for when investing in hotels? 1. Investors should really look at the brand of the hotel, or if there is a brand, and if you're buying a boutique hotel or independent, those hotels rely on the location. If it's a beachfront property, you won't have any problems. But if you have an unbranded hotel in a suburban area where it's mainly business travelers, you're going to need to be careful and make sure that the brand is the right brand for the hotel. 2. The other thing is really the renovation costs after purchasing the hotel. Every brand requires the new owner to renovate it. They call it a property improvement plan that's issued by the brand. You've to make sure that you cost out every item and avoid any cost overruns because that just eats into your return on your investment. I think those two main things are the bread and butter of what to invest in for hotels. 3. Location. As long as you're in a good location, you might not need a brand. But some brands are stronger than others, so a Marriott would be stronger than a Four Points or something like that. So that's very important. Do you look at Airbnb laws in that particular city? We don't focus on that too much. The way we invest in hotels, they're mainly business travel hotels. We'll have hotels in the suburbs, or near office parks, and things like that. We don't really compete with Airbnb, at least we don't think we do as much. They definitely do affect hotels stay, I do believe that, but the business traveler is there for one night, two nights, and then they're out of the hotel most of the day at business meetings. If we were to start transitioning our investment to resort, luxury, or tourist type of hotels, then we would definitely be looking more at how the local Airbnb laws are changing. Jerome Yuan www.asapholdings.com Subscribe to our newsletter here: https://montecarlorei.com/ --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

In this episode we will learn the pros and cons of investing in a few asset classes: retail, office, self storage, and mobile home parks. We are interviewing Jeremy Roll, a passive real estate investor since 2002. Read this entire interview here: https://montecarlorei.com/passive-investing-retail-vs-office-vs-self-storage-vs-mobile-home-parks/ What are some pros and cons of the following asset classes: retail, mobile home parks, self-storage and office? Retail What I don’t like about retail going forward is what’s going on in the next 10 years, as far as predictability. Some of the challenges that I see, some of them are continuing and some will be in the future include: are people going to continue to go stores or are they actually going to migrate online even more and more? And if the answer is online more or more, what does that mean for the retailers? Mobile Home Parks I love mobile home parks. And the reason why I say that is because if you do your research, you’ll find that it probably has the lowest turnover ratio in terms of tenancy of any asset class I can think of. I believe the national average turnover ratio is about 9%, which is very low. There are certain apartment classes that have 40 to 60% turnover, depending on the type of building and location. I love mobile home parks because of that. And I love the fact that they’re serving lower income people, and that I see a need for lower income housing and affordable housing for a very long time going forward. So there is that predictability that I was talking about. There is predictability of demand. Predictability in lack of turnover in terms of cash flow. And, if you buy the right profile, which is very important, where most of the tenants are owner occupied and not renter occupied. You’re probably going to have more predictability in terms of having less problems. Self Storage That’s another asset class that I really like. When you think about how the US is changing from a demographic profile, we’re aging over the next 10 years. We have a lot of people moving, and projected to move to Florida and to Texas to retire. What I love about self-storage is that when people retire, they typically downsize. And I see that there will be a need for self storage as a result when these people move, or even if they’re living there and they downsize. In certain locations, I think they can be great. One of the challenges with self-storage is that it’s very low cost to build and it can be built relatively quickly. The barriers to entry are low. If you’re going to invest in self-storage, the supply and demand factors in the market you’re looking at at the time are critical, because you may have a competitor pop up in a year or two that you weren’t expecting.   Office I have multiple office investments right now as well. But I have the same challenge with office that I have with retail, for a couple reasons. And we didn’t get into one aspect of retail that’s a little bit of a predictability challenge, which is the same in office, which is tenant improvements. When you have a tenant that leaves, typically there’s some money to be spent to turn the unit around and make it ready for the next tenant. In retail, it can be quite substantial if they’re changing the entire use. Let’s say you have a record store that’s being turned into a restaurant. There’s a lot of money that has to go into that. And often you’re sharing that cost with the tenant upfront. The same thing goes with office. Between the tenant improvement requirements that may come up if you have tenants leave unexpectedly, that may come out of cash flow or reserves. Jeremy Roll jroll@rollinvestments.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

We will learn what do passive investors look for in an operator as well as in a deal. We are interviewing Jeremy Roll, a passive real estate investor since 2002. Read this entire interview here: https://montecarlorei.com/5-things-passive-investors-look-for-in-a-syndication-operator-and-the-deal-itself/ You are a full time passive investor. That means that you are investing in other people’s deals. How do you evaluate an operator before investing with them? Great question. I want to stress the fact that the operator to me is even more important than the opportunity. I would say that’s number one. Number two is the actual opportunity itself. And I want to be clear, too, that the actual opportunity you’re investing in is very critical, clearly. But who you’re making a bet on when you invest passively is absolutely critical. And the reason is because typically when you’re investing passively in the way that I do it, I invest in what’s called syndications, and what that means is that they’re pulling a number of investors together, it could be several investors into an LLC and we’re typically buying a property. When you do that as an investor, you’re considered a limited partner, or in the LLC or the actual entity you’re investing in. 1. The first thing that I look for is an operator who is conservative, who is looking to under-promise and over-deliver and have longer term relationships with investors. I try to avoid operators who are aggressive with their assumptions and their projections to make the numbers look really good so that they can attract investors based on the projected returns, but that may or may not perform to projections. 2. From there, I ask a lot of questions. It’s very common for me to ask 150 to 200 questions about an opportunity. Some of those questions are going to be purposefully designed and asked. I don’t necessarily care about what the answer is, but more how they answer it and reading between the lines. If someone’s answering me in certain ways and saying “Well, we believe this property is going to do X and Y, but we we use this assumption which is much more conservative because we want to make sure we were conservative for investors. We think it’s going to over perform, but we want to set the right expectations.” That type of an answer to me is very valuable, it tells me their mindset. 3. I do background checks every time on all of the key managers and the opportunity. 4. I don’t usually invest with someone unless I met them in person at least once. And that’s because I am a very firm believer in doing a gut check after doing all your due diligence. Are you 100 percent sure you want invest with someone or there’s this 5 percent question mark, you don’t even know why, but your gut is telling you that it’s not a perfect scenario and maybe you should pass. That’s a very important thing. And I feel like meeting in person is an important part of that process. I know it’s very hard for some passive investors to do, but it’s part of my formula. 5. If you look at the legal documents, which are very important, sometimes they may tell you a little bit if this operator is looking to make this a win win structure for investors, whether it’s preferred return, profit splits. I could tell you some examples of some rules where it’s very obvious that they’re not trying to make anything in favor of investors. They’re working at it to maximize the situation for themselves. When I see an operator not trying to get a balance between the investors and themselves as far as profits, I’m just not aligned with the operator properly from a philosophical perspective. Jeremy Roll jroll@rollinvestments.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we are interviewing an incredible woman, Heather Self, a multi-millionaire real estate investor that literally came from nothing. I am incredibly humbled to interview her, she was a single mother of FOUR when she started her journey into real estate investing. You can read this entire interview here: https://montecarlorei.com/how-a-single-mother-of-four-went-from-food-stamps-to-millionaire-real-estate-investor/ I am so excited that you are here to share with our audience how you started from zero, or maybe negative, why don't we get started with how you got into real estate?  To make a long story short, otherwise we'll be here for three weeks, I'll start by saying that I got married directly out of high school. My first husband and I had our daughter and, shortly after that, I found out that my husband was using drugs. I then decided that my kids are not going to be raised like this, that this is not the lifestyle and things that I want them to know and be privy to. At the same time I also got an eviction notice on my apartment door. Keep in mind that I'm 18 years old at the time. My car was repossessed, and found out that my husband had robbed my boss at the time. I ended up losing that job too. Within a 48 hour period I had lost my job, my car, my apartment, and found out that my husband was on drugs and I was pregnant with my second child. Now I look at my calendar, and if it looks crazy for 48 hours, I don't worry about it. If I can handle all of that in 48 hours, I can do anything. Luckily, I had a wonderful, supportive family. And they told me to move back in.  I was able to take that time and rebuild myself and figure out what I wanted out of life. And since I was pregnant, it was really difficult finding a job, and I was in the middle of all this turmoil, so what do you do? I got to the point where I didn't see any other way out but to receive welfare benefits, I had to get on food stamps, and they started offering some classes with the Welfare Reform Act. These were called Fresh Start classes in order to receive the benefit of $185 per month. The positive with that, though, is that they were offering these classes. I couldn't work at the time, so what better way to take time off and go get a different perspective. Maybe get a paradigm shift. I needed to get out of that because I knew that's not how I wanted to raise my family. Did you need a downpayment for that? You do need a down payment. You have to have very reasonable credit, which is also something that I was working to fix. I had already made up my mindset that I don't want to be that person that depends on somebody else for my independence, or for my children's future, or what I'm going be able to offer. That was the first time that I said "This is my responsibility and my responsibility alone to get out here and make this happen". You have to have a job for a good amount of time. You have to have decent credit. You have to have a down payment and you make mortgage payments. It's not a free house. That's a big common misconception. It is something that you have to qualify for, and very few people qualify for that. In the summer of 2001, we started building and we moved in shortly after. Going through that process you start to see that all these choices that I felt were kind of stripped away, I now had control over. And that's what that program is able to do. And that's why I'm a contributor and a donor to it now. It's very important to my life's work and what I want to do. Heather Self www.heatherself.com hlsefl76@gmail.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

In today's episode I go over how you can potentially lose 50% of the value of your property in one economic downturn. You could potentially lose less, you could potentially lose more, the point of this episode is to share with you the key points that make property values go down in a downturn. You can read this entire episode here: https://montecarlorei.com/how-you-can-lose-50-of-your-property-value-in-one-downturn-the-quadruple-whammy/ Let’s take an example of a commercial retail property that you purchased for 10 million dollars at a 5% cap rate. This means that that property is currently making $500,000 in NOI. Let’s say, for example, that this property has 25,000 square feet. You have now have a 10 million dollar property making $500,000 NOI. 1. In this great economy, the rents are higher. Let’s say you were getting $20 per square foot per year across the board on all of your 25,000 sf of property. 2. Your property is 100% leased. 3. The interest rates are low. When property prices are rising, that means that interest rates are decreasing and more people can buy more property. When interest rates are higher, you do not qualify for as big of a loan as when interest rates are low because you have a specific dollar amount to pay every month. 4. And that brings us full circle. When interest rates are low, you can buy more property. More people are buying properties and naturally cap rates compress, they get smaller and smaller. So that’s what brings us to the 5% cap rate that you bought this property for. Quadruple Whammy Gone Wrong – Economic Downturn Let’s say something pops in the economy. Here is what is going to happen to all these four bullet points that I just described. 1. Your rents are going to go down. Instead of leasing for $20 per square foot per year, let’s say that about 25% of the property is now renting at $16 per square foot per year because some leases are going to be long term. Therefore, 75% of your tenants are still going to be on the $20 per square foot per year lease. Now, we dropped to $16 per square foot per year just because people cannot afford the $20, and your neighbors are also charging $16/sf so you cannot charge more. The total net operating income on that property is now $475,000. Again, this is if you are 100% leased. 2. Vacancies are higher. You are going to get some vacancies in that property, and is going to take longer to get them filled. Let’s be conservative and have a 15% vacancy rate at that $475,000 that you are now making because you’re charging a little bit less rent. You’re now making $403,000 in NOI. Now that your property just lost almost $100,000 in that operating income, unfortunately everyone is selling, because nobody can afford their mortgage, because they bought at a super high price, and they don’t have enough rent income to pay for the mortgage. 3. Interest rates are up, and buyers can afford less “property”. 4. Cap rates are higher because it’s a buyer’s market. Let’s say that from a 5% cap rate, the market is now selling properties at an 8% cap rate. So that $403,000 net operating income divided by an 8% cap brings the value of your property to $5,037,500. You just lost five million dollars of property value. Let’s just let that sink in for a bit. Another important side of this coin is the potential lost income of not making an investment. Let’s say that you found a great deal back in 2016 that was bringing you 20% cash on cash return. At a $1,000,000 cash investment, you’d have lost $600,000 so far in three years (we’re currently in 2019)  if you had not made the investment at that time. Subscribe to our newsletter here: https://montecarlorei.com/ --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

In this episode we learn about mobile home parks: why are they a good asset class to invest in, how do you go about analyzing a mobile home park, how do you get rent comps when there are no parks near you, and how to find these deals? We are interviewing Todd Sulzinger, founder of Blue Elm Investments. You can read this interview here: https://montecarlorei.com/how-to-invest-in-mobile-home-parks/ Why mobile home parks? I had always been intrigued by mobile homes, for one the returns are better than most other real estate assets. They’re very recession resistant. There’s definitely concerns now with what’s going to be happening in the economy in the future. And the mobile home park business is very resistant through any kind of recession movements in the economy. If you own your own mobile home, then you can often rent the pads themselves. In the markets that I look in, you get between one hundred and fifty and three hundred fifty dollars a month. If you don’t own your own home, but you’re renting a mobile home from a park owner like myself, you might be able to rent it for between $450 to $750-800 dollars. If somebody is looking for a place to live, that’s potentially less than an apartment or a single family home, then mobile home parks are one of the best choices they have. How do you go about finding deals in a market that is shrinking like the mobile home park market? My primary source has been through brokers. There are a few brokers out there that specialize in the mobile home park space, as well as other commercial brokers who periodically get listings for parks. I recently closed on a park in Georgia, and I found that one through a broker who specializes in mobile home parks. The mobile home park consultants that I work with have quite a bit of deal flow that crosses their desk. So I see a fair amount through them as well that have the potential to purchase. And recently I’ve also started to see more activity on the partnering front where I’ve seen quite a few other people putting deals together who are looking for people to partner with. They may have a park under contract and they’re looking for people to partner with to put deals together, and sometimes things come across my desk from that angle as well. How do you analyze a mobile home park? It’s a multi-step process. When I’m looking at potential acquisitions and bringing them through my funnel, I’ve a simple spreadsheet that I have created where when something looks like it might work. I plug it into the spreadsheet and take a look at the numbers to get a quick sense of whether it’s even worth pursuing further.  If it looks like it is, I have a more detailed model that I put numbers into. You look at the amount of income that it’s generating. You then look at the last 12 months of income statement. What is the history of vacancies? What have the operating expenses been? Go through the due diligence process of visiting the park and seeing if there are any other infrastructure issues that might need to be taken care of. From there you take a look at the net operating income and the purchase price to see if this is something that will make sense for your investors. Can there be enough safety, in return and potential upside, that it’ll be attractive for me to bring to my investor group? Todd Sulzinger todd@blueelminvestments.com www.blueelminvestments.com Subscribe to our newsletter: http://montecarlorei.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we cover self storage lending, how long should you stabilize a property before refinancing, and the best kept secret is out: who is the best commercial lender in the world? We are interviewing Billy Brown, the Vice President of Business Development for Alternative Capital Solutions. You can read this full interview here: https://montecarlorei.com/loans-the-good-the-bad-and-the-ugly-self-storage-and-what-is-the-absolute-best-commercial-lender-part-2/ Self Storage Loans Did you know that SBA will lend on self storage? SBA has a lot of options for self storage if it's the right size. Even for ground up investments. What would be a typical loan size? Probably over a million. If you're going to do anything ground up on the self-storage, it's going to be over a million because the price of steel right now and the price of land. But you can get up to four years interest only. This is one where you come in and do some fun stuff where you go build it, lease it up, let it season a few years. Then once you have a couple of years tax returns, the property becomes more valuable because the NOI goes up and then you can do a cash out refinance. For how long should we stabilize the property until we do the refinance? I would start on the front end because sometimes I can even help you give me some tips on negotiating the financing because I love seller financing. The triplex we bought, as well as the office complex that we're buying is under land contract, also called seller financing. You can do some fun stuff with the seller financing. There are many strategies when you have seller financing, for the triplex that we bought, I negotiated a low interest rate of 4% and I negotiated 90 days before my first payment. And you'll justify by saying "I want to give you your price, but my term, and my terms are this: lower interest rate, 90 days before my first payment because I have to stabilize the property. I've to get tenants in there, I've to put a lot of money into this I don't have more money into it for somebody to back out. And I want a longer loan with a couple extensions built in. And they did it for me. You can also negotiate a limited recourse or non recourse. How long was the loan for? It really just depends on the terms that you’re negotiating. If you get decent terms, why would you want refinance? Most sellers want an in and out in six to twelve months. As a lender, we want to see 12 months of financials from the owner. The story also helps, and we can help with that as well. Many sellers, especially the mom and pop deals on self-storage, or multifamily, or smaller multifamily don’t have very good financials. They mix their personal expenses in with the deal, therefore, they can’t get the prices they want. So you can come in and say “I’ll give you your price, but under my terms”. But because you don’t have proper bookkeeping, I need at least a year, 18 months, two years, to go run the property professionally so I can go get a proper loan. I usually start at two years and negotiate down to one if needed. Typically you can get a decent lending after one year. Who is the absolute best commercial lender in the market? The seller. Why would a commercial lender like myself, and an investor, want to tell you “Go get seller financing”? Here’s a little secret: commercial lenders are much better at refinances than they are at purchases. Billy Brown www.billybrown.me www.altcapsolutions.com Subscribe to our newsletter here: http://montecarlorei.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we are learning what are the pros and cons of each asset class and their loans. In this post we are covering office, retail, and warehouses. You will also learn some strategies for selling your property, as well as how long you should account for getting a commercial loan. We are interviewing Billy Brown, the Vice President of Business Development for Alternative Capital Solutions. You can read this interview here: https://montecarlorei.com/commercial-lending-the-good-the-bad-and-the-ugly-office-retail-warehouse-part-1/ Let's go over three or four different types of loan options and the pros and cons of each one of them, it's important to know what the cons are so that all the investors can decide what is best for them and their business plan when they're purchasing a property. The first one is if you have a bunch of rentals, four, five, six of them, they've Fannie Mae, Freddie Mac lending on them and they're getting a little frustrated with how more difficult is becoming to go get that sixth or seventh one. And they're about to be what we call "Fannie and Freddie out". They may see that the cash flows are good. There's some equity in there that's lazy, and they want to access that. And there's a way to go do that. It's called cross-collateralization. What we then do is we take that into one loan and we can go up to 75% of the appraised value. And if it's big enough, then we can do what's called "non recourse lending". If it's not big enough, then we can go recourse lending. How many years are there for prepayment penalties, are they for the entirety of the loan? No, it's not like multifamily, the prepayments are usually limited to the first three or five years. Usually the first two are pretty heavy in the 5% range, and then it drops down significantly after that. So by year three or four, you're down to 1 or 2%. Office and Retail Loans This one is one of those asset classes that's under the radar and most people shy away from it, because the lending isn't as great as the multi-family world. And that's because the tenant determines what type of lending you can do, as well as the size of the loan. And the size of the loan matters, a $500,000 loan is actually harder to go get than a $5M loan. That's a little flip on the the idea of starting small and moving up. It's actually easier to get the bigger stuff. On the office, your tenants and the length of the lease will determine what type of loan you can get. Warehousing Loans Warehouses are the next best tenant because they typically stick around once they put in their $100,000-$200,000 equipment and they bolt it to the floor. Most of time they don't leave. They'll sign leases and they just keep on staying there because these guys like to work their hands, they're typically not business people so much and they just don't want to move. It's a pain in the rear to go get these things off the ground, bolted, and go find another place, especially warehouses. You can bundle the office, warehouse and retail, in general, in the same bucket as far as your lending options. Because it's all determined by the strength of the tenant. For newer investors, they're going to be a lot more conservative, and have a lower loan to value, versus the NNN larger corporate tenants. If you get a good deal, it's all on the buy. The lending becomes much easier. Billy Brown www.billybrown.me www.altcapsolutions.com Subscribe to our newsletter here: http://montecarlorei.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

As we continue our conversation around commercial financing, will learn: how you can get a commercial loan as a first time buyer and operator, what is debt service coverage ratio, what counts as assets when you are getting a loan, what are deal killers when getting a commercial loan, and what are some things that you should keep in mind about your loans in case our economy takes a turn. We are interviewing Blake Janover, the founder and CEO of Janover Ventures, a commercial real estate and multifamily capital markets advisor focused on providing senior debt for commercial real estate. You can read this interview here: https://montecarlorei.com/commercial-loans-debt-service-ratio/ Can first time buyers and operators get a loan? Do they need to have a job, does the credit score matter as much as residential, what's the minimum down payment? The answer is yes. It's considered a credit factor, a risk factor, when an underwriter that analyzes credit looks at a deal and says "This is your first piece of commercial real estate" this is higher risk, but there are ways to mitigate it. One way to mitigate the risk is to add a partner that's highly experienced, I think it's great advice. It's not just great advice because it's what the lender wants, but generally speaking there's a reason the lender wants it, and it's imprudent to enter into a new industry without experience and not think that there are a lot of things that could go wrong that you don't know about and that's what having an experienced partner is about. In some cases you can offset experience with having an experienced third party property manager that has a demonstrated track record of managing similar properties in a similar sub market, and lenders will look at other things in order to offset certain risks such as a larger down payment, for example. What is debt service coverage ratio? From a net worth and liquidity perspective, lenders generally want to see that you have a net worth greater than the loan amount. That's all your assets minus all your liabilities. So if you're borrowing a million dollars, they want to see that you have a better than a million dollar cumulative net worth among all the guarantors or carve guarantors. And this isn't a hard and fast number. Liquidity is generally 10% but I'll talk about a deal a little later where we went way below that. So these are not hard metrics. Debt service coverage ratio is a hard metric. A good example is if your monthly debt payments to your lender are $10,000 a month, your lender will want to see that you have net operating income no less than $12,000 a month. That 12,000 representing 1.2 multiple of the 10,000 debt payments. What are some typical deal killers for loan applications? One of our biggest deal killers prior to an application is unrealistic expectations. We get inquiries that are not based in reality: "I'm buying a property for $5 million, I want to borrow $6 million". Okay, me too, let me know when you find that loan. Sometimes folks are looking for equity and we're really focused on senior debt. A big pre-application and post application deal killer is nondisclosure, principals that are not telling us all of their dirty little secrets and then it comes out later and it hurts everybody. I'm a big believer in just tell us everything upfront and we will either figure out a way to make it work or put a bullet in it early, but everything comes out in the wash. Other deal killers are net worth, liquidity, experience. Blake Janover capital@janover.ventures (800) 567-9631 Join our newsletter here: http://montecarlorei.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support