Everyone is well aware of the cyclical nature of commercial real estate, as well as the potential for significant profits to be gleaned by purchasing assets.
Everyone is well aware of the cyclical nature of commercial real estate, as well as the potential for significant profits to be gleaned by purchasing assets before they rise in price. In an article entitled “10 Strategies for Apartment Profits in 2009 and Beyond”, Patrick S. Simons offers specific suggestions on how to make money out of distressed situations in a challenging real estate environment.
1. Analyze markets so that you understand the economic fundamentals that drive them and can anticipate which ones are most likely to rebound first and strongly.
2. Plan by identifying deal parameters (such as targeted geography) and the associated time-lines for staffing and raising necessary capital.
3. Network with those who control or may control in the future the real property that your plan has denoted. This will enable you to generate new deal flow prior to an upturn in the market.
4. Expand by considering entry into areas where you were previously prohibited by price. They are now likely to be more affordable.
5. Hire because this is the time when you are likely to find experienced talent that might not have been available previously and may be open to a variety of working arrangements, such as consulting or temporary assignments.
6. Cash will allow you to make the best acquisition deals in the current slowdown. Strategies for raising capital include tapping existing investors, refinancing or drawing capital from your current portfolio, and seeking new investors, such as those who benefit from current currency exchange advantages.
7. Operations, at both the corporate and operating property levels, should be scrutinized for ways to reduce expenses as well as for areas where income might be enhanced.
8. Negotiate with your service providers by reviewing their fees, delivery schedules, and personnel assigned to your projects.
9. Time Deliveries for renovations of existing apartment properties and for new construction. Ideally, your units will become available when the market recovers.
10. Build, even if you have not considered it in the past, because labor costs are lower and the quality of work has improved.
Mr. Simons summarizes by emphasizing the following: plan for the recovery, rather than focusing on today’s gloomy news; and act upon your market analysis so that you will thrive in the future. Details of his remarks are available at http://www.aoausa.com/.
Where Have all the Commercial Lenders Gone?
Government Agency guaranteed or sponsored transactions, including: SBA 7(a) and 504, HUD construction loans for multifamily projects, Community Reinvestment Act loans, USDA Business and Industry loans, and to a lesser extent, Fannie Mae and Freddie Mac multifamily loans.
Trading Up Using the 1031 Exchange
A powerful method for building real estate holdings is the use of 1031 Exchanges, which lets investors defer capital-gains assessment on investment property.
Segregate Costs for Better Cash Flow
While costs such as office equipment and furniture are easily recognizable as personal property, construction-related costs that are often included as part of real property may also qualify.
