My previous blog posting on December 20th 2007 correctly predicted the credit crunch would cause a spiral of redemptions.
Since then Bear Stearns lost most of its value partly due to its clients pulling $25B worth of assets.
UBS today announced a write down of $19B worth of assets. Deutsche Bank AG, Germany's biggest bank announced today that it will write down 2.5 billion euros ($3.9 billion) of loans. In fact the total value of write downs from European Banks along up to 1st April 2008 now tops $68Billion.
I was in the City today at a meeting with a major Fund. The value of this property fund has been written down significantly, by around 30% since last October. The real reason was because it, along with most of all the banks property asset values, have been over valued. Pressure from investors has meant that the property funds value has been pushed up bit by bit over the past five or so years and their value simply did not reflect the true long term market value of the asset considering all factors. In the same way the low rates of interest charged by banks to private individuals for mortgage loans did not reflect the true long term risk of that lending.
The Funds are now desperate for cash. They would never publicly state just how desperate they are, but believe me they are really desperate. They have dropped the value of their funds to attract new investors. They have also been quietly trying to sell off the family silver to free up the cash but guess what? There are no buyers. Well at least at the prices they are quoting for property assets. What does this mean?
It means that there are significant opportunities out there for people or organizations with cash. The banks want this cash and will pay higher rates of interest on deposits to get it. Clearly good news for the cash rich!
Banks will continue to increase the cost of borrowing to all customers across the board. They will also "cherry pick" customers by increasing their lending requirements preferring to do business with clients who have perfect credit ratings and large bank balances. Bad news for Joe Public trying to get a good mortgage deal.
It also means that there are opportunities for cash rich individuals or firms to buy property assests from these "struggling" funds at a discounted rate. The most likely result is an increase in the number of Opportunity Funds set up to take advantage of "fire sale" property assets being offloaded by the banks. Good for the private investor with cash to invest in the new opportunity funds. Bad for most of us i.e. the private investor with his investments currently tied up with a larger property fund or in a pension.
To date the banks and funds have resisted a "fire sale" but they will have to do exactly that very shortly. I believe that it will only be after the effects of the credit crunch are fully played out will we see the true extent of it from our pockets.
Unfortunately I can't see any relief this year for Banks. Mainly because the lack of liquidity has yet to completely filter down the chain to the retailers and manufacturers and small to medium sized companies. Staff at Banks are starting to get laid off but how many in your office? not many yet, I guess, but they will not escape the effects of this market adjustment.
Once it starts to filter down to companies their employees and customers they won't be able to pay their loans rent/mortgage,exacibating the Banks' and individual homeowners current problems and forcing sales of both residential and commercial property.
What can you do? Look for opportunities to purchase residential or commercial property either directly or indirectly (through opportunity funds) in the coming months but only at a significantly discounted rate from current comparables.
Only once the inflated property valuations from last year are assigned to history and true long term market valuations are established on commercial and residential property will we be able to say the crunch is over.
Please remember Steelbee just tells it how he sees it and the blog has no vested interest in any organisation.By the way check out these cheap ebooks
Tuesday, April 1, 2008
Thursday, December 20, 2007
10 Reasons To Hire a Property Manager
1) The Property Manager can be the bad cop when it comes to chasing the rent. This allows the Landlord to ensure swift rent collection while hiding behind the Property Manager. Cash is King in this tight credit market, good cash flow for a landlord can mean the difference between success and failure. If you don't believe me just take a look at the major real estate funds. As at December 20th 2007 they are facing lots of redemptions (people withdrawing their cash from the funds). This is a vicious circle that I predict will continue in a downward spiral over the next 6 months. These funds will have to offload property to free up cash to pay these redemptions. They will in my opinion have to continue to devalue the funds (until confidence is restored) to ensure they do not pay out at the higher price and to discourage people from cashing in. The property manager can assist with your cash flow requirements and you should set the PM tight rent collection benchmarks.You should also incentivize the PM to maximize "additional income generating activities". both of these activities can be undertaken without the landlord spoiling their relationship with the tenants.
2) The experienced professional property manager will have managed dozens of similar properties to those contained in your portfolio. He may be an expert in a particular aspect of property management (such as Health and Safety compliance) and if not he will have access to these experts. These may be colleagues the PM can draw on or individuals he has used before from other firms.
3)The PM will have excellent property law knowledge and could save you $000's by advising you how he (or another clients solicitor) has dealt with historic legal issues that you currently have a problem with. This could be enough comfort for you to resolve your problem without the need for you to pay your solicitor for advice.
4) The PM will have access to the best real estate professionals, leasing agents, solicitors, architects structural engineers to name just a few in his geographic location for your property type and will be able to give you an impartial and independent opinion on who he thinks can solve your problem or shift your vacant space the fastest.
5) The PM's firm will have professional liability Insurance. There may be times when a claim will be referred to his insurer instead or yours thus keeping your Insurance costs down.
6) Let the PM's firm pay for the paper,photocopier,fax,phone envelopes postage,stationery etc etc for invoicing and dealing with tenants instead of you paying for it. On a large portfolio this can be a significant cost saving.
7) Make the PM's firm responsible for vetting your vendors/ suppliers. Failure to properly vet vendors can be a costly mistake. Many Landlords overlook this duty because either they do not know how to do it or because it is a time consuming and laborious process. One service charge firm which is hot on this is www.mcneilcommercial.co.uk
8) A PM should only be charging around $1500 per tenancy per year.Consider your legal costs and compare and contrast the value for money!
9) Make the PM responsible for preparing frequent written inspection reports for each property. Faults in property that are found quickly can be resolved before they become expensive items of disrepair.
10) Free up your time for doing deals that make money..I mean serious money. Read more at www.pricemole.com
2) The experienced professional property manager will have managed dozens of similar properties to those contained in your portfolio. He may be an expert in a particular aspect of property management (such as Health and Safety compliance) and if not he will have access to these experts. These may be colleagues the PM can draw on or individuals he has used before from other firms.
3)The PM will have excellent property law knowledge and could save you $000's by advising you how he (or another clients solicitor) has dealt with historic legal issues that you currently have a problem with. This could be enough comfort for you to resolve your problem without the need for you to pay your solicitor for advice.
4) The PM will have access to the best real estate professionals, leasing agents, solicitors, architects structural engineers to name just a few in his geographic location for your property type and will be able to give you an impartial and independent opinion on who he thinks can solve your problem or shift your vacant space the fastest.
5) The PM's firm will have professional liability Insurance. There may be times when a claim will be referred to his insurer instead or yours thus keeping your Insurance costs down.
6) Let the PM's firm pay for the paper,photocopier,fax,phone envelopes postage,stationery etc etc for invoicing and dealing with tenants instead of you paying for it. On a large portfolio this can be a significant cost saving.
7) Make the PM's firm responsible for vetting your vendors/ suppliers. Failure to properly vet vendors can be a costly mistake. Many Landlords overlook this duty because either they do not know how to do it or because it is a time consuming and laborious process. One service charge firm which is hot on this is www.mcneilcommercial.co.uk
8) A PM should only be charging around $1500 per tenancy per year.Consider your legal costs and compare and contrast the value for money!
9) Make the PM responsible for preparing frequent written inspection reports for each property. Faults in property that are found quickly can be resolved before they become expensive items of disrepair.
10) Free up your time for doing deals that make money..I mean serious money. Read more at www.pricemole.com
Sunday, September 9, 2007
Top 3 Ways to Purchase Commercial Property With None of You Own Money!
Commercial real estate investment is an industry of abundance. There is literally an unlimited amount of money available to people who want to borrow it. So much, in fact, that you can literally purchase millions of dollars worth of commercial property without using one dollar of your own money!
Unless you already have millions of dollars at your personal disposal to invest, or are fortunate enough to have come from a family of wealth, borrowing money is the only way to become a commercial real estate investor. It is a great way to purchase commercial property, even if you have your own millions already, because you don't have to worry about losing your personal money. In fact, that is how many multi-millionaire commercial real estate investors make their money- by not using their own! If you don't use it, then you never lose it.
One of the reasons you can borrow money to purchase property is because of something called leverage. You simply borrow money against the property, as it is the property that actually holds the value. This will play a major role in our discussion of purchasing property without using any of your own money.
The first way to purchase property with none of your own money is subordination. Many people consider this way of purchasing property as creative financing. In this situation, the current owner actually takes out a second mortgage on the property to cover the difference of what the purchaser (you, the investor) can get loaned from a bank or private lender. If you are lucky enough to have an owner who will sell the property with no money down, and he or she subordinates a second mortgage for the difference you owe, then you just purchased a property with none of your own money!
When using this tool, it is a good idea to have the owner only subordinate for a short amount of time, like one to two years, just until you can take the money generated from the commercial property and pay off the second mortgage, leaving the owner free of the property. At this point, payment for the property can take place because you will have generated cash through the commercial property. The owner will actually wait to get paid his money for the property! It happens all the time, and everyone comes out happy in the end. You purchase your money generating property with none of your own money, and the owner gets paid for the property. This situation may seem backwards at first, but it works rather well, if you find an owner who is very motivated to sell, and he or she understands this way of investing.
You must always be sure that the property can support the debt, as you do not want the owner getting into financial trouble with the second mortgage. Some owners are weary of this type of investing, as some purchasers do not do as they say, and problems occur. You want to be an investor of integrity and have a reputation of making things happen in the way in which you and the seller agreed.
Another way to purchase property with none of your own money is through the owner releasing some acreage that is free and clear which you, in turn, use to borrow enough money to cover a down payment on the entire piece. This strategy works especially well with raw land. You are basically using a piece of the property to purchase the entire property. Owners may not even be aware of this option, so be sure to mention it or address it in a letter of intent, especially when dealing with many acres of land!
A third way to purchase commercial property without using your own money is using partners. There are experienced investors, builders and developers who will find the financing for you, and basically get the deal ready to go, if you are willing to do the work. The agreements can greatly differ, but the partner(s) will basically finance the deal and take a piece of the return that you create through, either turning a distressed property around, or overseeing the development or building of a specific type of property and making it profitable. Partners can offer great experience and insight so that you can learn more about a specific type of property or the actual industry itself.
When it comes to commercial real estate, there are so many options; don't ever limit yourself! Be creative and find resources. There is a wealth of information and money available to anyone who is willing to take some time and make some contacts. This industry is not one of limitations, but one of abundance.
Tony Seruga, Yolanda Seruga and Yolanda Bishop of http://www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
Article Source: http://EzineArticles.com/?expert=Yolanda_Bishop
Unless you already have millions of dollars at your personal disposal to invest, or are fortunate enough to have come from a family of wealth, borrowing money is the only way to become a commercial real estate investor. It is a great way to purchase commercial property, even if you have your own millions already, because you don't have to worry about losing your personal money. In fact, that is how many multi-millionaire commercial real estate investors make their money- by not using their own! If you don't use it, then you never lose it.
One of the reasons you can borrow money to purchase property is because of something called leverage. You simply borrow money against the property, as it is the property that actually holds the value. This will play a major role in our discussion of purchasing property without using any of your own money.
The first way to purchase property with none of your own money is subordination. Many people consider this way of purchasing property as creative financing. In this situation, the current owner actually takes out a second mortgage on the property to cover the difference of what the purchaser (you, the investor) can get loaned from a bank or private lender. If you are lucky enough to have an owner who will sell the property with no money down, and he or she subordinates a second mortgage for the difference you owe, then you just purchased a property with none of your own money!
When using this tool, it is a good idea to have the owner only subordinate for a short amount of time, like one to two years, just until you can take the money generated from the commercial property and pay off the second mortgage, leaving the owner free of the property. At this point, payment for the property can take place because you will have generated cash through the commercial property. The owner will actually wait to get paid his money for the property! It happens all the time, and everyone comes out happy in the end. You purchase your money generating property with none of your own money, and the owner gets paid for the property. This situation may seem backwards at first, but it works rather well, if you find an owner who is very motivated to sell, and he or she understands this way of investing.
You must always be sure that the property can support the debt, as you do not want the owner getting into financial trouble with the second mortgage. Some owners are weary of this type of investing, as some purchasers do not do as they say, and problems occur. You want to be an investor of integrity and have a reputation of making things happen in the way in which you and the seller agreed.
Another way to purchase property with none of your own money is through the owner releasing some acreage that is free and clear which you, in turn, use to borrow enough money to cover a down payment on the entire piece. This strategy works especially well with raw land. You are basically using a piece of the property to purchase the entire property. Owners may not even be aware of this option, so be sure to mention it or address it in a letter of intent, especially when dealing with many acres of land!
A third way to purchase commercial property without using your own money is using partners. There are experienced investors, builders and developers who will find the financing for you, and basically get the deal ready to go, if you are willing to do the work. The agreements can greatly differ, but the partner(s) will basically finance the deal and take a piece of the return that you create through, either turning a distressed property around, or overseeing the development or building of a specific type of property and making it profitable. Partners can offer great experience and insight so that you can learn more about a specific type of property or the actual industry itself.
When it comes to commercial real estate, there are so many options; don't ever limit yourself! Be creative and find resources. There is a wealth of information and money available to anyone who is willing to take some time and make some contacts. This industry is not one of limitations, but one of abundance.
Tony Seruga, Yolanda Seruga and Yolanda Bishop of http://www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
Article Source: http://EzineArticles.com/?expert=Yolanda_Bishop
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