Commercial Real Estate For Beginners | Step By Step Tutorial
Summary
TLDRIn this informative video, Marco from Whiteboard Finance demystifies commercial real estate for beginners, covering property types, classes, and key metrics like NOI, Cap Rate, and IRR. He discusses strategies for wealth building through portfolio diversification, cash flow, and equity appreciation, while highlighting the importance of understanding the financial aspects and the competitive nature of the market. The video also introduces Fundrise, a platform for investing in private real estate deals, emphasizing the potential for passive income and long-term wealth creation.
Takeaways
- đą Commercial real estate (CRE) includes property used for business activities or living spaces with five or more units.
- đŒ CRE is invested in for income generation through leasing to tenants and includes various types like office spaces, hotels, retail, and industrial properties.
- đ The speaker has experience in commercial leasing, development, analysis, and lending on large-scale projects.
- đŹ Class A properties are the most desirable with the best aesthetics and amenities, while Class B and C properties are older with fewer amenities and may be located in less prime areas.
- đ° Investors are attracted to CRE for portfolio diversification, cash flow and equity appreciation, passivity, long-term wealth building, and as a recession hedge.
- đ Leases in CRE are typically quoted in dollars per square foot per year, with different types including single net, double net, and triple net leases.
- đą Key metrics for evaluating CRE deals include Net Operating Income (NOI), Capitalization Rate (Cap Rate), Cash on Cash Return, and Internal Rate of Return (IRR).
- đ NOI is calculated by subtracting operating expenses from gross income and is a crucial metric for assessing the financial health of a property.
- đïž Value-add strategies in CRE involve making significant upgrades to properties to increase rents and NOI, thereby forcing appreciation in the property's value.
- đŒ The speaker emphasizes the importance of understanding the financial aspects of CRE, as it is a highly competitive market with professional players.
- đ The video concludes with a teaser for a potential commercial real estate analysis course, indicating the depth of knowledge required in this field.
Q & A
What is the main focus of the 'Commercial Real Estate 101' video by Marco?
-The main focus of the video is to provide an introduction to commercial real estate for beginners, covering different types of property classes, strategies for making money through forced appreciation and equity, and key metrics used to evaluate commercial real estate deals.
What are the different types of commercial real estate mentioned in the video?
-The video mentions office space, hotels and resorts, retail, multi-family, industrial, and mixed-use as the main types of commercial real estate, with brief mentions of health care facilities and other types.
What are the three main classes of commercial real estate properties discussed in the video?
-The three main classes of commercial real estate properties discussed are Class A, Class B, and Class C, with Class A being the most desirable and Class C being the least in terms of amenities and location.
What is the purpose of investing in commercial real estate according to the video?
-The purpose of investing in commercial real estate is for income generation through leasing the properties to tenants, as well as for portfolio diversification, cash flow and equity appreciation, passive income, long-term wealth building, and as a hedge against recession.
What is a triple net lease and why is it considered the most passive form of lease for landlords?
-A triple net lease is a lease agreement where the tenant is responsible for property taxes, building insurance, and maintenance costs, in addition to the rent. It is considered the most passive form of lease for landlords because it minimizes the landlord's responsibilities and financial burdens related to property ownership.
What are the key metrics used to measure commercial real estate deals mentioned in the video?
-The key metrics mentioned are Net Operating Income (NOI), Capitalization Rate (Cap Rate), Cash on Cash Return, and Internal Rate of Return (IRR). These metrics help investors evaluate the financial performance and profitability of a property.
How is NOI calculated and why is it important in commercial real estate?
-NOI is calculated by subtracting the operating expenses from the gross income of a property. It is important because it represents the property's net earnings before taxes and interest, serving as a key indicator of the property's financial health and a primary metric for assessing its value.
What is the significance of the Cap Rate in evaluating commercial real estate investments?
-The Cap Rate, or Capitalization Rate, is significant because it measures the return on investment (ROI) relative to the property's cost. It helps investors compare the profitability of different properties and makes informed decisions based on the income-generating potential of the property.
What does the video suggest as a way for individual investors to participate in commercial real estate deals without managing the properties themselves?
-The video suggests using platforms like Fundrise, which allows individual investors to invest in private real estate deals through syndications, offering exposure to larger commercial real estate deals without the need to manage the properties directly.
What is a value-add strategy in commercial real estate, and how can it increase a property's value?
-A value-add strategy involves making significant property upgrades or operational improvements to increase the property's income potential. By improving the property's amenities, reducing operating costs, or increasing rental income, the NOI can be increased, which in turn can raise the property's value and cap rate.
What is a 1031 exchange in the context of commercial real estate, and how can it benefit investors?
-A 1031 exchange, also known as a like-kind exchange, allows investors to defer capital gains taxes when they sell an investment property and reinvest the proceeds in a similar property within a specified time frame. This strategy can be used to defer taxes on appreciated properties, allowing investors to compound their returns over time.
Outlines
đą Introduction to Commercial Real Estate Basics
Marco, the host of 'Whiteboard Finance', introduces the topic of commercial real estate for beginners. He outlines the video's content, which includes various property classes, strategies for equity and income generation, and key metrics for evaluating deals. The script emphasizes the educational intent and the speaker's background in commercial leasing and development. The video promises to deliver substantial information concisely, using PowerPoint for visual aid, and encourages viewers to stay tuned for practical insights.
đ Understanding Commercial Real Estate Types and Leases
This paragraph delves into the different types of commercial real estate, such as office spaces, hotels, retail, multi-family, industrial, and mixed-use properties. It also touches on the purpose of these properties for income generation through leasing. The script explains the concept of property classes (A, B, C) and introduces different types of leases, including single net, double net, and triple net leases, highlighting their implications for landlords and tenants. The importance of understanding these lease types is underscored for effective property management and investment.
đ° Key Metrics in Commercial Real Estate Investing
The speaker discusses essential metrics for evaluating commercial real estate investments, such as Net Operating Income (NOI), which represents the property's profitability after operating expenses. The Capitalization Rate (Cap Rate) is introduced as a measure of return on investment, comparing NOI to the property's market value. Cash on Cash Return and Internal Rate of Return (IRR) are also mentioned as critical financial indicators for investors. The script stresses the importance of these metrics in Excel for financial analysis and decision-making.
đ Strategies for Making Money in Commercial Real Estate
This section focuses on strategies to generate income and equity in commercial real estate. The speaker explains how value-added investments can lead to property appreciation by improving the property's net operating income (NOI). Examples of value-add strategies include physical improvements, operational upgrades, and efficient management to increase rents and reduce vacancy rates. The goal is to enhance the property's value and sell it at a higher price or refinance it for tax-free cash-out, leveraging the increased NOI.
đ€ The Competitive Nature of Commercial Real Estate
In the final paragraph, Marco reflects on the competitive landscape of commercial real estate, where investors often face competition from seasoned professionals and large institutions. He emphasizes the importance of understanding financing differences between commercial and residential real estate, such as smaller loan-to-value ratios and balloon payments. The speaker also discusses the benefits of networking and deal-making in this field, including the use of 1031 exchanges to defer capital gains taxes and the potential for significant wealth building over time.
Mindmap
Keywords
đĄCommercial Real Estate
đĄEquity
đĄProperty Classes
đĄNet Operating Income (NOI)
đĄCapitalization Rate (Cap Rate)
đĄCash on Cash Return
đĄInternal Rate of Return (IRR)
đĄLeases
đĄValue Add
đĄ1031 Exchange
đĄSyndications
Highlights
Introduction to commercial real estate for beginners, covering property classes, equity appreciation, and metrics for evaluating deals.
Definition of commercial real estate as property used for business activities or living spaces with five or more units.
Explanation of the purpose of commercial real estate as income-generating properties leased to tenants.
Types of commercial real estate including office space, hotels, retail, multi-family, industrial, and mixed-use.
Discussion on the role of commercial real estate in portfolio diversification and as a hard asset.
Cash flow and equity appreciation as key reasons for investing in commercial real estate.
Different types of leases: single net, double net, and triple net, and their implications for landlords and tenants.
Key metrics in commercial real estate: NOI (Net Operating Income), Cap Rate, Cash on Cash Return, and IRR (Internal Rate of Return).
The importance of NOI as a measure of a property's financial health, calculated as gross income minus operating expenses.
Cap Rate as a metric for comparing property returns and assessing investment profitability.
Value-add strategy in commercial real estate, involving significant property upgrades to increase rents and NOI.
Example calculation of how raising rents and reducing expenses can increase a property's value and cap rate.
The competitive nature of commercial real estate and the need for good financing and networking in the industry.
The use of 1031 exchanges in commercial real estate to defer capital gains taxes and build wealth over time.
Sponsorship acknowledgment and the role of Fundrise in providing access to private real estate deals for individual investors.
Final thoughts on the power and risks of commercial real estate investment, and the potential for wealth building.
Transcripts
hey everybody welcome back to whiteboard
finance my name is Marco and I'm here to
help you master your money and build
your wealth in today's video we're going
to be talking about commercial real
estate for beginners so commercial real
estate 101. uh we'll talk about
different types of property classes
we'll talk about how to make a lot of
money by forcing appreciation AKA Equity
uh income cash flow different uh
property types Class A B C D uh and then
we'll talk about different metrics we
use to measure these deals to make sure
we're getting a good deal so it's not
going to be like a two hour long video
or an hour and a half like I do with my
stock market for beginners videos but I
will try to convey a lot of information
in a nutshell just to get you started so
let's get right into it so as always
with my educational type videos I always
love to do them in a PowerPoint if you
don't like the PowerPoint format this
channel probably isn't for you a lot of
free game a lot of free information this
video or you can choose to not watch my
channel wake up 20 years from now in the
same financial position that you're in
and kick yourself in the butt while
looking at yourself in the mirror and
saying hey I probably should cinemarco
yeah you should have so here we go so
what is commercial real estate so
commercial real estate is property used
for business related activities or a
flat five plus unit living space so
anything in residential is considered
one to four units so single family home
up into a quad at least with financing
it is and then five and above is now
considered commercial so what what is
the whole point of these properties why
do people invest or build commercial
real estate uh well it's because it's
leased to tenants for income generation
these are income producing properties so
what are some quick types of commercial
real estate we have office space which a
lot of people have worked in at one
point in their careers or lives we have
hotels and resorts we have retail we
have multi-family we have industrial and
we have mixed use there's definitely
more types but those are the big ones
you have health care facilities you have
things like that but I'm not going to go
too much into the weeds here I have a
background I work many years in
commercial leasing commercial real
estate development analysis and then
also on the lending side of things so
instead of lending on single-family
homes we would lend on you know 30 40 50
100 million dollar projects right so I
can give you some real life perspective
here so what is an office space most of
you already know what this is it's your
typical Class A B C maybe D uh office
space where people are conducting
business serious business
but everyone knows what office space is
well you may not be familiar with is
industrial so this is where you can
think of like warehouses production
facilities
um you know or semi trucks pick stuff up
drop stuff off there's a million
different types of industrial you have
manufacturing that's typically you know
one of the bigger components of
commercial real estate then we have
multi-family a lot of people are going
to be familiar with multi-family it's
exactly what you think it is typically
Apartments you know things like that so
retail here's what we have an example of
Acme they're called an anchor tenant so
retail is typically you know your strip
malls your shopping malls any business
to Consumer component anchor 10 is
basically a big anchor like a Home Depot
or a Walmart or something like that and
then you have small auxiliary businesses
all around it to fill up the rest of the
property
so let's talk about some different
classes of commercial real estate I'm
going to talk about a b and c I'm not
going to get into the war zone
properties like d e f things like that
we're going to stick to the A B and C so
with class A these are going to have
your best Aesthetics for amenities and
this applies to pretty much every aspect
of commercial real estate I'm going to
be using office space for this example
just because most people are familiar
with it so with class A again these are
going to be your best Aesthetics or
amenities they're going to be newer
construction they're going to have high
quality infrastructure and they're going
to be in a great location so think of a
Class A like this it's going to be like
a you know a skyscraper or a really nice
building in a downtown location so have
a lot of amenities it's gonna have a
nice open Lobby things like that so with
class B you're going to be looking at
typically older construction smaller
statues so maybe a mid-rise for example
average common areas maybe just you know
not even a security guard but maybe just
the lobby with some elevators things
like that and then you're going to have
average rents for the area okay these
may or may not be located in downtown
these maybe in suburbs as well so with
class C these are going to be your lower
or lowest rents available they're gonna
have little to no amenities they're
going to have older construction and
then that location itself may be kind of
close to Industrial maybe kind of off
the beaten path the location is probably
going to be most likely than average to
below average location so think of Class
A as this right here think of Class B
over here think of Class C over here
where they just Jam pack you in a room
and work you to death and I'm just
kidding so why do people invest in
commercials I know it's a lot of words I
know you may get bored with this but
it's important so pay attention so
portfolio diversification number one
this is a hard asset asset backed by
something tangible it is real it's not
tied 100 to the market even though
commercial real estate typically lags
the market or the economy by one to two
years and these properties can be unique
not everything has to be you know cookie
cutter single family home these
properties can serve many different
purposes the next reason is because of
cash flow and Equity appreciation
ongoing rents or cash flow more income
means more Equity forcing appreciation
I'll give you examples I'll give you
math examples of this later in the video
so stay till the end it can be passive
so we have syndications that you can be
a partner of the sponsor of this video
is actually fundrise I'll be talking to
them syndications can be powerful you
can be a limited partner it gets you a
control of a high quality asset with
high quality management and you can
actually be very passive through
different types of leases which we'll
talk about soon here this is a triple
net lease and then the last two points
we have long-term wealth building and we
have it being a recession hedge so
here's a quick story I worked in
commercial real estate for many years
every single successful person that had
a huge business exit like hundreds of
millions of dollars they all have
commercial real estate as part of their
portfolio the reason for that is because
I'm telling you this it's a long-term
wealth Builder commercial real estate is
a long game most projects are over
two-year holds some can be 10 some are
generational okay this is when you have
the lucky Sun that inherits his dad's
portfolio gives it to his kids so on and
so forth that's how you build wealth in
this country so it allows you to write
economic waves and it can also be a
double-edged sword if you can't sell it
so commercial real estate is also
illiquid
um a recession head so commercial real
estate is less correlated with the
market depending on the location and the
tenants so a McDonald's as a tenant is
going to be very different than you know
a mortgage company flying by night like
Boiler Room you know just smiling and
dialing interest rates go up now they
don't have money for rent right so it
just depends on the strength the
location and the tenants so
um with the types of leases so leases
are usually quoted in dollars per square
foot per year some places that are more
expensive do it per month but most of
the country does it per year so quick
example 25 a square foot for the space
times a 10 000 10 000 square foot space
gives you 250 000 divided by 12 months
your rent is going to be just under 21
000 per month for this ten thousand
square foot space uh these types of uh
prices are going to be like nicer office
spaces you know b-class maybe even a
class in some cities but you have
different types of leases okay so these
These are more for office leases gross
modified gross I know I'm jumping around
here but it's important grow some modify
gross it depends on the property type
this is mostly office and Industrial uh
when it comes to bigger buildings when
it comes to retail like a Starbucks or a
Burger King or you know uh some random
restaurant franchise you're probably
going to be looking more into triple net
leases but I'm getting ahead of myself
let me explain these very quickly so for
a single net lease the tenant is most
likely going to be responsible for rent
and taxes a double net lease this the
tenant is responsible for taxes and
insurance and then with the triple net
lease this is your most passive form of
um lease if you are the landlord is
going to be triple net the tenant is
responsible for pretty much everything
and then obviously it also depends on
what you negotiate in the lease itself
so uh let's talk about key commercial
real estate metrics here so number one
is noi this is going to be your most
important metric this is basically your
net operating income it is your gross
income minus your operating expenses and
don't worry I'll go into depth and noi
in the next couple slides but just know
it's basically income minus expenses it
doesn't count your uh interest or your
um your mortgage on the property think
of this as your ebitda your earnings
before interest taxes depreciation
amortization uh your capitalization rate
AKA cap rate this is going to be your
net operating income which we just
talked about divided by the market value
of the property or what you think the
property is worth at the time then you
have cash on cash return this is
basically your annual pre-tax cash flow
so how much money you're making before
taxes divided by the total amount of
money you have in the deal and then
finally you have your internal rate of
return if you want to play with the big
boys and then all this stuff gets done
in Excel guys the the whole financial
world runs in Excel just so you know so
I can show you examples of that later so
irr is your internal rate of return this
is basically estimating the amount of
Interest you'll earn on each dollar
invested in a rental property over its
holding period okay so it's almost like
a very Advanced version of like noi and
also cash and cash return so in the next
slide I'm going to show you how to start
calculating this stuff but here's a
quick word from today's sponsor fundrise
real estate syndications can be a great
way for individual investors to
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as mentioned in this video if you don't
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exposure I personally use a company
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money with them since 2019 and continue
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fundrise at the time of this recording
they have over 371 000 active investors
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with fundrise okay so how do you make
money with commercial real estate let's
talk about some of the metrics we use so
there are two biggest things that you're
going to make money with in commercial
real estate is your income aka the cash
flow that the property brings in or
doesn't bring in there's a lot of
properties that don't cash flow or
underwater but mostly a lot of people
that aren't holding these things for
generational wealth they are most likely
holding these for two to ten years most
likely three to five and they are
forcing the appreciation and cashing out
with Equity okay either a cash out refi
which is tax-free or they just sell the
property you know 1031 exchange and into
another property they forego their taxes
for that transaction but that's outside
the scope of this slide let's talk about
net operating income so net operating
income is your gross income minus your
operating expenses uh this is before
your income taxes and interest which I
talked about in the previous slide this
is essentially your ebitda as I
mentioned your earnings before interest
taxes depreciation amortization this is
the best metric to assess the Financial
Health of a property so let's go through
a quick example here so uh in this
example we have Revenue so I just made
these up okay so if it doesn't make
sense just think of this from a
principal standpoint okay don't get lost
in the math even though the math is very
easy so let's pretend the property
brings in a hundred thousand dollars in
rental income let's just pretend this is
a you know multi-family building right
you know 10 11 units something like that
I'm just making this up so say you're
getting you're making 25 Grand a year
from parking you're charging you know
parking and then you have laundry making
you five grand so the total um gross
income for the property for this year is
130 000 but then you also have expenses
to maintain a property let's say five
grand management fees 25 Grand in
property taxes uh 15 grand in repairs
and maintenance a thousand dollars a
year in insurance I'm just making this
up uh for a total of forty six thousand
so your noi for all the smart people in
the audience it's 130 Grand minus 46
Grand which gives you an noi of eighty
four thousand dollars pretty simple
right it is and I'll show you why
because we're going to calculate a cap
rate and then I'll calculate the price
of a building so let's talk about cap
rate this is your capitalization rate
this is essentially your return on the
investment AKA Roi so this is a measure
of profitability of a property relative
to its cost okay so if a property made
you a million dollars a year and it cost
a dollar that's a ridiculous cap rate
right but if it made you a million
dollars a year and cost 17 billion
dollars that's not that great of a cap
rate right so you have to make a apple
samples comparison so investors use this
to make to compare properties returns
lenders use this metric as well as
others in order to see if you're credit
worthy or loan worthy right uh let me
hammer this home I should have Hammer
this home way earlier in the video
commercial real estate does not gain its
worth uh based on like a single family
home oh you have three bedrooms two s
and then 10 other properties around you
have those same amenities okay this is
what your property's worth you know 200
Grand right no commercial real estate
it's derived from its income for its
ability to produce an income stream for
its net operating income that is how
these properties uh make money so I can
have a one bedroom uh let's just that's
a bad example I can have a 5 000 square
foot uh office space and if someone's
paying me 10 million dollars a month in
rent that property is going to be a
ridiculous amount of money because the
noi is going to be very high that's just
an outlandish example just to understand
where I'm coming from but let me give
you a quick real life example so to
calculate cap rate you take your noi
which we figured out in the last slide
which was eighty four thousand dollars
you divide it by the market value of the
property or what the property is being
sold for uh let's just pretend that the
cap rate or sorry the property cost is
1.4 million for our building with a
eighty four thousand dollar noi your cap
rate is going to be six percent now you
can also do this in reverse okay this is
middle school math so if you take your
noi divided by your cap rate so if I
took eighty four thousand dollars
divided by .06 AKA six percent you'll
know what is a fair price for the
property because of its income stream
make sense okay glad that made sense now
let's continue so how do you make money
with commercial real estate well here's
one of the biggest ways it's value add
okay it's adding value it's forcing the
appreciation of the property you can
only fix up a single family home so much
it's still going to be worth relative to
what the other houses around it are
worth remember you buy the cheapest
house the nicest neighborhood okay
that's how you make the most money but
with commercial real estate again it
goes back to its uh income stream it's
net operating income so what is a value
add to start with so I try to give a
quick example here you kind of have a
before and after picture you have you
know laminate dishwasher you know floors
paint whatever fix it up hey I can now
raise the rents right so investors buy
this to make lights to significant
property upgrades so what kind of
upgrades are we talking about well
there's a million but generally you have
physical which could be Landscaping it
could be improving the units like
multi-family similar to this picture
right here you can have operational
upgrades such as cutting costs changing
management billing tenants differently
you know when it comes select utilities
raising your rents things like that but
mostly It's a combination of both it's
just making a business more efficient
and a better value for your renters okay
your tenants so uh what are some goals
of adding value why do people take on
these deals so these are typically you
know distressed properties it could be a
you know a C-Class property and a
b-class neighborhood that can be raised
to the level of a b-class property with
some changes right and then you can
command higher rents increase the noi
which I'll show you uh in the next slide
so your goals are typically to increase
rent you know increase your income
decrease vacancy okay improve management
maybe being more efficient and then
increasing your noi AKA forcing that
appreciation which we talked about so
moving on let's give a quick example
let's pretend that property that we just
talked about in the last two slides is
an 11 unit building okay I'm just making
this up so we already went over these
numbers let's pretend our 11 unit throws
off
um is worth 1.4 million dollars it
throws off 84 4 000 a year before the
mortgage and the cap rate for the
neighborhood or the cap rate for that
area for this product type is six
percent right but now we're gonna do a
value add okay where the nice uh where
the where the real estate developer that
knows how to raise the rents by let's
just say a hundred dollars per month per
unit because we know how to improve it
for what that Marketplace wants okay uh
say for example uh people want granite
countertops or you know nicer amenities
or you know a doggy park or a pool or
whatever a gym all these things can be
used to increase the rents okay so I'm
just using 100 per month typically
typically if you're a developer and
you're actually doing one of these deals
you want to shoot for a lot more than
this uh typically in the three to five
hundred dollar per month range per unit
but I'm just using 100 freezy numbers so
uh not only did we raise the rents but
we also uh fired the old mom and pop
running the place that were super
inefficient and we hired a nice
management team but it ends up reducing
our operating cost by two hundred fifty
dollars a month month by how efficient
they are so if we take a hundred dollars
per month raising the rents by 11 units
times 12 months we just created an
additional thirteen thousand two hundred
dollars in additional Revenue per year
now we also reduced our annual expenses
by three grand because we're now saving
250 a month times uh 12 months which is
three grand okay so now our income used
to be 130 we're adding thirteen two
which gives us a new income of one
hundred and forty three thousand two
hundred dollars our expenses used to be
forty six thousand a year we reduced
them by three grand a year 250 a month
times twelve and now we have forty three
thousand dollars in expenses which for
all the math Wizards who graduated
Elementary School uh
sorry that guy's kind of mean
um it's basically simple math you guys
your our noi is one hundred thousand two
hundred dollars uh we know that these
types of properties with these types of
amenities go for a six percent cap rate
so our a hundred thousand two hundred
dollars divided by point zero six or cap
rate now gives us a property value of
1.67 million so this property before all
these improvements used to be worth 1.4
now it's worth over a quarter million
dollars more uh just by getting new
management in place and also by raising
the rents by 100 bucks a month on 11
units so um that's just an example I
came up with just for the sake of
Simplicity uh but on huge deals we have
hundreds of units you're raising them
three four five hundred bucks a unit and
you're really get dialing these things
in over the period of three to five
years where you're getting old tenants
out getting new tenants in at a higher
price point you can really reposition
these properties to make literally
millions of dollars okay so moving on
with my thoughts so as always I could
have gotten into way more metrics I
could have gotten to way more
um examples especially real life
examples but just to keep this video you
know not ridiculously long
um I'll just give you my thoughts at the
end here so commercial real estate is
very powerful but you're also competing
against people that do this for a living
this is not your hobbyist you know guy
working eight to five job you know 40
hours a week he's got a rental property
on the side this is not that game this
is literally big boys and big girls that
insurance companies uh huge insurance
companies buy these deals
um you know Wall Street reads all that
stuff right so anyway my point is is
that it's a highly financialized product
and you need to get good financing
financing is different on Commercial
Real Estate than it is with residential
you typically have
um smaller loan to values and you also
have balloon payments you have different
amortization schedules you know I can
make a separate video on that it's not
not it's not good enough for or it's not
it's too in-depth for a quick snippet uh
in the my thoughts portion of this video
is what I'm trying to say so not only
that
um you're playing with the big boys and
big girls but the nice thing is is if
you if you really find a coupon Clipper
the developer that I worked for like I
said we had over a million square feet
of office uh residential or multi-family
excuse me
um and then industrial so a million
square feet of office and Industrial uh
300 units of Class A
um multi-family in a college town so
basically I was part of all those deals
from the ground up to disposition to
acquisition I can tell you this if you
have a nose for a deal and if you know
how to lease these things up if you know
if you're seeing fifteen twenty thirty
percent vacancy you're you're a I don't
want to say schmoozer but you work with
good Brokers and you're highly networked
in the area you can get a lot of tenants
to these buildings increase the noi you
know sell the thing in five years and
you can actually go through what's
called a 1031 exchange so when you have
a capital gains and a house let's just
say you have a house for 100 grand
um you sell it for 200 you have capital
gains of a hundred thousand dollars you
can 1031 that you can do that also do
that with commercial real estate as well
so if I have a building that cost me a
million dollars I increase the noi so
much with good tenants that I get the
value of four to five million dollars I
can defer that with a 1031 exchange by
buying a like or similar property within
a certain time frame and I can forego
you know the capital gains of four
million dollars in this example okay and
what what sophisticated investors do is
they keep 10 30 running they defer they
defer they defer all the way until they
die and then their heirs or their
inheritance
um they they get that property at that
step up basis level so instead of paying
taxes or the capital gains all
throughout those years like the 4
million that I just talked about they
would get the property stepped up at
that five Bill uh five million dollar
tax basis and that way you know they're
starting at zero as opposed to four
million
um of taxable income when they inherit
the property this is what rich people do
okay that was a very long-winded way of
saying uh rich people invest in
commercial real estate but you know you
can also get burned as well it just
increases the stakes by that much more
so I hope you learned something from
this video if you want to go deeper
maybe I'll create like a commercial real
estate analysis course this is what I
used to do for a living I literally
lived in a Microsoft Excel so I've been
rambling way too much thanks for
fundrise for sponsoring the video thanks
for sitting through these uh sponsored
videos they helped me pay the bills and
I don't charge you a dime for any of
this stuff I've been on YouTube for five
years haven't charged you for a single
penny of anything and I hope I've given
you a lot of knowledge for free thank
you so much share the video have a
prosperous day
thank you
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