Financial Tips | Debt Management

Cashspeak! Financial Tips | Debt Management
Custom Search

9/3/06

COMMERCIAL REAL ESTATE…WHAT A MONSTER TO PERCEIVE!

by C. Clifford

Commercial real estate is a monster. However, it is a monster that can be a lot of fun with huge benefits. The question one needs to ask himself/herself when entering the field is, “am I going to tame the monster or am I going to be the one on the sideline watching and hoping I can control the beast?”

You might be asking, why the hell is this guy acting like he knows something? The answer: I am that guy that works at one of the largest Real Estate Investment Brokerage Companies (REIBC) in the U.S. that interacts and is involved in annual transactions totaling over 60 billion dollars. That’s right, I said BILLION with a “B.” I know some people!

But, if there is one thing I have learned in commercial real estate, it is the fact that it has two types of investors; the type of investor that has his/her shit together and knows what they are doing, and the type of investor that just has absolutely no clue. The saddest part of it all is the fact that so many investors have absolutely no clue what they are doing and yet think they know how to do it all. Since these two types of investors exist, there tends to be two types of “monster-tamers.” The two types of monster-tamers are the “sophisticate” and “not so sophisticate.”

Many people believe what they know or do is exactly the right move to make or the right investment to pursue. Unfortunately, most of the time these “not so sophisticate” investors are not making the right “move.” Fortunately, I am not here to judge, I AM HERE TO TEACH.

The primary concern an investor of commercial real estate should have is whether he/she will play a critically role in his/her investment or if he/she just wants to be a “coupon clipper.” Being a “coupon clipper” means you want to own a Taco Bell, Autozone, Best Buy, or anything that has a set 20-30 year lease with a corporate guarantee and a tenant that is NOT planning to go anywhere for a very long time. If this is the case you are happy with a measly 5.5-8.5 percent return annually. You want no management and you want to be guaranteed that in 3-5 years you can walk from the property and buy a bigger and better one. When you buy this bigger property, you then create a typical “return on investment” of about 7 percent annually. After 3 years or so you have another 21+/- percent of equity that is due for leveraging.

The previously stated paragraph represents about 75 percent of your typical investors. These investors are SOMETIMS “sophisticated” but most of the time NEEDS A LOT of guidance.

As entrepreneurs, we have established that we are tolerant to higher risks. If you want a 5.5-8.5 annual return on your investment, then why exude the time, effort, money, and stress of buying commercial real estate? Is it bragging rights? Is it for the company discount? Do not dilute yourself by taking the “safe investment.” If you want safe, put your money in a savings account, and do not think about for 40 years! That way, when you are too old to enjoy your money, you can regret the horrible choice you made. If you want that low of a return, invest in government bonds or saving’s accounts and save yourself the hassle. Here’s the bottom line, we as entrepreneurs did not get into this game to get a small return on a large amount of capital. We as entrepreneurs want big returns on calculated risks. We are willing to take the extra risk to get the extra reward.

Now, let’s talk about people like me. I am the investor that wants to work for his money and get a 10 – 50 percent return in 1 (one) year or less. These are the sophisticated investors that make my business fun. Think this is not possible? You are mistaken! I will talk in depth about this type of investor next time.


-Note from M Angioni II.

C. Clifford is a member of my business family. He obtained a B.S. degree in Economics from the University of Southern California, a Minor in Business from the same, and his Real Estate License in Nevada. He currently is employed by one of the largest commercial real estate firms in the United States. Although some of his language may be "rash," C. Clifford is trying to drive a point home. If you are offended by some of his language, you better strengthen your tolerance level. Language flys, and money moves. If you have to put up with a "not so soft spoken" client in order to close a deal, just remember, your offended character does not feed your family. Create a better life for yourself and your family, even if that means swallowing your pride for the time being.

ss_blog_claim=d4b8d84b7cd435a046138bf77aefb499