Commercial Real Estate Investing From A-Z

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

Today we are continuing our conversation around commercial financing, we will learn how you can get a commercial real estate loan, ways to partner up with seasoned operators, how to find lenders that can make creative financing available to you, and a few other valuable things. We are interviewing John Pascal, Managing Director of Paramount Capital Advisors (PCA). You can read this interview here: https://montecarlorei.com/8-things-you-should-know-about-real-estate-financing/ Let's start with the basics: is a job needed for first time investors, does the credit score matter, what is the minimum down payment for that type of investor? From a lender standpoint it’s very important that the borrower has experience executing the business plan that they’re proposing. It’s a little bit difficult to get financing for first time investors or developers. Generally, who I deal with are more experienced real estate groups because it’s just very difficult to finance the deal otherwise. But I would encourage anybody who is looking at getting into the business to maybe partner with, or work with a group that has done it once what they’re proposing to do. And it’s also important that the borrower has a good balance sheet. Typically a lender would like to see net worth equal to or above the loan amount, and liquidity, meaning cash or marketable securities equal to at least 10% of the loan amount.  What are typical deal killers when trying to get a loan? The lack of financial capability, i.e. net worth and liquidity. The parameters for that are more stringent with a traditional bank than they are with a private equity lender. The other hurdle is the experience of the borrower. The more experience, the easier it’ll be to find financing because the lender will have comfort that the borrower can execute on their business plan. The strategy itself is also important. If a borrower says “I can sell this property in a 4% cap rate and that’s my way of paying the loan back”. It has to be realistic, and proven in the market. Are 4% cap rates prevalent in the market, and can that be proven out to the lender? Those three things are really critical for getting the loan approved. I heard that you are very creative on getting financing, I would love to hear some examples of your creativity. It all boils down to having a good understanding of the capital markets, and which capital sources are doing what. I spend a lot of my time understanding what different lenders with different equity sources are interested in doing. One example was that there was a developer of a hotel in the Atlanta area whose lenders were looking to foreclose on the asset, and the property was in a good location. It just was at the time completed and about a year or so prior to me getting involved, and it was just ramping up, basically it was under water. The vultures were circling, and the borrower came to me to try to figure out a solution. It was a situation where a traditional lender probably wouldn’t have looked at this deal because the deal was underwater, but I brought in a private equity firm to recognize that there was going to be some value in the deal. There were probably 15 or 16 lenders on the deal, and we negotiated with each of the lenders to take them out. It was like herding cats. The bottom line was that I found a private equity firm who would do the deal. They certainly charged a lot of money to do it, but today the property is doing great. John Pascal www.paramountcapitaladvisors.com john@paramountcapitaladvisors.com (312) 767-3320 --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we're discussing commercial loans: how are they different from residential loans, how to find the best lenders, how to apply to these loans and present them to the lender, and what are some of the terms that we get to choose on these loans. Read the full interview here: https://montecarlorei.com/how-to-apply-for-a-commercial-loan-how-to-find-the-best-lenders/ How should a new investor present a deal to a lender in order to get approved? Run your credit report up front, accumulate the last three years of your tax returns, put together a personal financial statement, and basically be candid with the lender. If you have anything that you think is going to look badly, like a past bankruptcy or past foreclosure, just explain it upfront. What are some different loan terms that we as investors would be able to choose from and decide on for commercial properties? Basically you can choose how much leverage you want. It depends on what the lender's going to offer, but you can get leverage anywhere from 60 to 75 or 80%, we even do 85% of some stuff. Where you have the most flexibility, as a borrower, it's the prepayment. The longer you do your prepayment out, typically the lower your rate is going to be. So whether you do a three year, five year, or ten year prepay, that's really where you have the most flexibility when you're speaking to the lender. Can these loans be transferred to a new buyer if we decide to sell the property before that three, five or 10 year prepay? With most lenders, yes. with some lenders no. In today's market, most lenders would transfer, and there's usually a small transfer fee. How do you recommend people going about finding really good lenders? I see a lot of people posting hard money loans and they really sound like a scam because their rates are so low. How can people make sure that they are really dealing with a legit lender and also a very good one? There's a lot of scammers in this business, so I'm just being very careful. I would say to talk to other investors, see are they used for lenders and or bonkers and I would really do it that way. I wouldn't just, you, you know, if you're a new investor, just going in on your own, talk to other investors and network, you know, go to the networking groups. It pays to network with other investors. You know, I mean this is an information business or whatever one's one. A lot of people say that you need to find a local lender where the property is based out of. Is that true?  No, that’s false, I don’t buy that for a minute. For example, the deal that I shared with you previously that I did in Ohio, it was a retail deal in Cleveland and we got great deal for them, 4.35%, 10 year term. 75% loan to value, with a California lender 2000 miles away. I think there might be a few times where a local lender makes sense, but off of the top of my head, I can’t think of a circumstance. Were you there back in 2008 doing loans? Do you want to share a little bit about what was going on and how we should be prepared for a potential recession coming up? Yes, I was. What was going on? Not a great deal. Nothing really. I was actually working at Marcus and Millichap back then and not much was trading. How do you prepare for that? That’s a good point. A lot of people believe, particularly in some of the biggest cities, particularly in multifamily, they think it’s a little frothy right now. The cap rates are sub five. I think looking at tertiary markets, secondary markets, and value add is kind of a protection for that. Paul Castagna (561) 306-6852 bedfordlending.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

One of the most asked for podcasts has been on the financing side of real estate investing: do we need to be employed in order to get a commercial real estate loan? Does our credit score matter? How long are these loans for? Are the interest rates the same as residential loan rates? What does the downpayment look like? What are the risks, loan options, etc? We will have a series of interviews coming up with commercial lenders to discuss the financing side of things in order to clarify some of these questions for you. Before that, I thought it would be appropriate to discuss personal finances first, in order to make sure we are all starting this journey together on the right foot. You can read this podcast and get all the links we discussed here: https://montecarlorei.com/8-tips-to-improve-your-personal-finances/ Top 8 Tips for Improving Your Personal Finances If you have credit card debt, and you have an interest rate that is anything higher than 0%, fear not, you are not alone as we just found out! Call your credit card company and ask for a 0% interest rate. They will likely say no, and then you just open a credit card with Citi Double Cash, and transfer this debt to that new card, you will get 0% interest for 1.5 yrs, that will give you enough time to pay off your existing debt without it growing every month. On that same note, if you have, let’s say $5,000 in credit card debt, and you are paying 20% interest in that debt, and you have $10,000 in your savings account, you should pay off that debt with your savings, so your credit card balance stops increasing by $1,000 per year. After you pay off your credit card debt, another benefit of this “Citi Double Cash” card is that you get 2% cash back on all of your purchases. If you have a student loan, make sure you are getting the lowest interest rate as possible. If you have multiple loans, make sure to consolidate all of them into one very low interest rate loan: https://studentloanhero.com/featured/5-banks-to-refinance-your-student-loans/ If you have a checking account that is paying you 1 penny per month, you can open an account with Wealthfront, they are a company that is paying the highest rat that I could find, 2.32% today and they offer up to $1M in FDIC insurance (unlike the other banks that offer a maximum of 250k FDIC insurance).  I know someone that works there and they told me that they’re able to give $1M FDIC insurance because they break the balance down with different institutions, for example, they’ll put $250k with Bank of America, $250k with Wells Fargo, etc. Watch out your expenses! If you buy Starbucks everyday, you might want to buy a coffee machine and do it at home, I never understood why people pay $3-5 for coffee every day when they can make coffee at home. It was only after I had a really good job after my 30’s, that I started buying myself lattes, and on the weekends only! You can get in touch with me here: https://montecarlorei.com/contact-us/ --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we are reviewing where is retail going, how should a retail investor think and approach their investments in today's world, what are tenants looking for in a retail center, and what are major items that national tenants and landlords want to see in their lease. Read the full interview here: https://montecarlorei.com/where-is-retail-going-lease-negotiation-national-tenants/ Where do you think retail is going based on your experience? I'm sure a lot of folks that have come on your podcast talked about the retail evolution, the apocalypse, and that retail is dying. And when you look at the history of retail, it has always evolved based on consumer demands and convenience. From a macro view, we are seeing a slowing in the development pipeline, slightly higher cap rates compared to other sectors, and I'd argue we're a little overbuilt in the United States when it comes to retail. However, there is a tremendous amount of product that is obsolete, a lot of C lass C malls and Class C shopping centers across the US need to be repurposed and rezoned. We're starting to see this happening now, I go back to this idea that Sears completely disrupted retail back when they came out with their catalog, and then, the next flavor of the month was "It's more convenient to go to the mall." And then in the 90's power centers just ballooned, you had these huge giant anchors, and they were fulfillment stores. Now you have online shopping, and we're seeing all of these things shift out. How should a retail investor think and approach their investments in today's world? I think that regardless of the asset, you have to take a longterm vision on real estate based on strong fundamentals. We can't control what the Fed is going to do tomorrow, we can't control what cap rates are, and where they're going to trend, so I don't want to spend a lot of time worrying about those things. Commercial real estate is so cyclical, and it's always in either one of four phases. At the end of the day you want to find well located assets with really strong demographics, one, three and five mile radius, understand how many households, what's the average household income, what's the population, how's it growing, how's the job market? Just going back to the basics. And then we want to look for attractive opportunities. When you're in a rising cap rate market, you have to find ways to grow your NOI. The only way to do that is to really dig into the market dynamics and understand where the value is. There’s an art to underwriting shopping centers, it’s not the broker's job because they will say that you can just lease up this vacancy in three to six months, and this is the market rate they’re going to pay. There are so many more nuances to getting leases done, you have to find ways to lease and attract the right tenants. As you work with a lot of tenants, what are they looking for in a retail center nowadays? It has always been about market share, finding sales, and finding the desirable tenant mix. Retailers are getting so sophisticated when it comes to understanding what the market analytics, trends, and where they need to be in the marketplace. Demographics play a huge role in this: understanding traffic counts, traffic patterns, visibility, the amount of parking that they will need, and they want to partner with well-respected landlords that are going to take care of the asset. Jason Ricks www.concordiarealty.com jason@concordiarealty.com Blog post: http://www.concordiarealty.com/resources/crc020-online-sales-vs-brick-and-mortar-retail/ --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we are covering what is the difference between Cash on Cash and IRR, what are REIT's, and what are the pros and cons from an investor's perspective. Read this interview here: http://montecarlorei.com/episode-23-what-is-cash-on-cash-irr-and-reits/ We're interviewing Jason Ricks, a professional real estate investor focusing on acquisitions, leasing, construction, and development. He has a background in retail leasing and asset management working on premier properties worth hundreds of millions across the country. He also oversaw a 2.2 million square foot value add retail portfolio throughout Texas and Oklahoma, and most recently he was featured in the number one Amazon best selling book Desire, Discipline and Determination. What is the difference between cash on cash and IRR? These are both really common metrics that a lot of investors use when evaluating real estate. One of the beauties of commercial real estate, or income producing real estate, is the cashflow. Cash on cash is a snapshot of the percentage return of your cash invested. Imagine that you invested $100,000 into a shopping center. In year one you got a cash flow check of $10,000, so what type of return is that on your investment? That's going to be a 10% cash on cash return and this is usually quoted on a before tax basis. What that does is that it gives you a nice snapshot of the initial return that you're going to get on your investment, which a lot of investors are curious about, especially when you evaluate this against, for example, a stock dividend or a coupon. That's one of the exciting things about commercial real estate - that cash on cash income producing, and cash on cash gives you a nice snapshot of the IRR. Internal rate of return gives you the full picture, the comprehensive picture. And the way that's done is if you own, let's say a shopping center over a period of five years, you're going to have very different cash flows. And whenever you decide to sell the building, you're going to have a big chunk of sales proceeds. How do you evaluate a return on your investment over a five year period, taking into account the time value of money? That's what the IRR does. It gives you a nice picture of your yield. A lot of times investors will look at IRR before making an investment, and it's primarily a proforma. So it will say, here's my crystal ball and here's where I think cash flows are going to be, here's where I think we're going to end up going on an exit cap, and this is going to be the sales proceeds. And what's nice about it is that it gives you an opportunity to evaluate it against other investment vehicles. What are REIT's and what are the pros and cons of investing in a REIT from an investor's perspective? REIT's came about in the 60's and at that point only accredited investors were really engaged in commercial real estate, REIT's then allowed non-accredited investors to invest in commercial real estate. This can be done in either debt or equity REIT's, and these can either be private or public. To qualify for a REIT there are a lot of requirements, and a ton of reporting. 90% of its taxable income has to be in the form of shareholder dividends, and you have to invest 75% of your assets in real estate cash or US Treasuries. As an individual investor that's unaccredited, what's fantastic about REIT's is that gives you broad based diversification and exposure to commercial real estate, plus just like any other publicly traded stock, it's liquid, meaning that you can get in and get out very quickly. Unfortunately, REIT’s don’t offer much in the form of capital appreciation. They’re very dividend heavy focused. And those dividend checks that you do get from REIT’s are going to be taxed as regular income. Jason Ricks jason@concordiarealty.com --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support