Is it time to Get Busy Buying? You know it is!

Mar 12th, 2011297 Comments

Phil Falcone of Addicted to Real Estate with Ron LeGrand

Timing the real estate market looks so easy when you use hind-
sight and so easy to determine what was going on, but when it’s
actually happening to you, trust me, it’s not that easy.

“ Timing and strategy are the red woods of real es-
tate success. Everything else is a bonsai.”

Robert wrote a terrific book in 2002 called Timing the Real Estate
Market that I read in 2005. I met Robert while he was on a na-
tional speaking tour and purchased his book that evening and
read it a few days later. He has a semi sophisticated system of
determining exactly when the real estate market is at the top of
the peak. I don’t know if I buy into all his scientifi c mathematical
equations, but I did enjoy his book as well as the advice that he
dishes out from it. Robert says the meek may or may not inherit
the earth, but it is almost guaranteed that they won’t make the
most money in real estate. Timing and assertiveness pay the big-
gest dividends in the long term.
Today I simply use all of the information at my fi ngertips, such as
the many articles on the Internet or the statistics of home sales
from the multiple listing service. I read and store as much as I can
about the real estate business while also paying great attention
to the political arena. Politics plays an increasingly larger role in
the real estate arena with each year and can no longer be a
topic that’s ignored by any businessman. I fi nd a huge number of
decisions that I make or don’t make for that matter are because
of my feelings toward the current politicians running this coun-
try. I think they have a great deal of involvement in causing this
economic downturn and more importantly too much to do with
keeping us here. If they would just get the hell out of the way and
let the free market capitalism take over and let entrepreneurs do
what they do best, we would already be out of this recession by
now. I have a T-shirt that says a recession is when your neighbor
loses his job and a depression is when you lose your job while
the recovery will begin when Obama loses his job. I truly believe
that a far left socialist like Obama is the worst thing that could
have ever happened to this country in this economic downturn.
His ass backward policies are the opposite of what this country
needs to get out of this recession.
Every decision that I make about real estate is based on timing
the market. In a flat market like we have now, I’m always looking
for commercial deals with cash flow, hoping to find one that’s an
amazing deal and the owner is selling only because the rest of
his portfolio is not performing properly, but the piece I am interested
in is performing quite well. I know from my own experience
that most real estate portfolios consist of some well-performing
properties with some very bad ones. So I’m looking for a guy
who has a $2 million building that makes a boatload of money
while the construction of forty homes that he did totally tanked.
The only way he can keep from going bankrupt is to sell the profitable
$2 million building to buy his way out of the construction
mess of the forty homes. I’ve been out looking for this kind of person
for several years now, and I believe he’s out there although I
haven’t found him yet.
From a residential side in a flat market, I simply don’t believe in
acquiring buy-and-hold properties, so I do flips to earn income.
Although occasionally I will do a house that I purchased so much
under current market values that I decide to keep it. After all, I
consider myself a buy-and-hold investor, and I consider that to
be the best overall strategy for anybody regardless of how much
money you have or the size your portfolio.

In a declining market my advice is to sell any property that you
have an equity position in and the cash flows are mediocre to
poor. If your cash flows are good I still might sell the properties, but
they’re a little harder to decide. If I can get ten years of cash flow
from the sale of a building, then I have no issues selling it. I would
not call it a rule but more of a guide line when selling. One of the
beautiful things about the real estate market when it comes to
timing is that over the years you learn things move rather slowly in
the real estate cycles. While the professional investors and some
of the professional realtors will know prices have begun to shift,
the general public won’t know for quite some time. As a general
rule the uneducated are not really paying attention, and the
public usually takes a year to catch up with the professionals. It
has always been my opinion that the top peak of the real estate
market was reached on Labor Day in the summer of 2005, but
some people were still buying properties like the market was still
red hot for almost a year after that. Some people laugh when I
tell them that the peak happened on Labor Day, but there is a
lot of logic behind why Labor Day tends to be a key moment in
real estate cycles.
Summertime is always slow in the real estate market, and people
generally take a lot of vacations. So when prices drop and
houses sit over the summer, it’s really nothing more than commonplace.
Even the professionals will say wait and see what
happens when we return in the fall, but shortly after arriving
back in their home offices, they quickly determine that this market
won’t be coming back anytime soon. So does the peak
really happen on Labor Day or isn’t it just fun to be able to
pinpoint it right down to a particular weekend? I suppose the
answer to that question is a little bit of both.
In the fall of 1990, there were clear signs that the real estate market
was about to tumble, which was then followed up by the
Persian Gulf War in the early 1991. I didn’t know it at the time, but
clearly looking back, it’s safe to say the problems started after
Labor Day in the summer of 1990. I settled on my second property
in October of 1990, completely unaware of the real estate
cycles. I was just in a mode to acquire as much property as I
could as fast as possible.

“ ‘No tree grows to the sky’ is a great warning that
even the healthiest growth can’t go on forever.
Nor can it continue at the fast pace that marks a
sapling’s fi rst few years. You’ll hear people repeat
the mantra location, location, location is the number
one rule in real estate and for most of my career
I have to say I agree with them. I fi nd it equally
as important tounderstand the timing of the real
estate market and the strategy for which you
plan to invest along with choosing good-quality
locations to be all part of the grand master plan.”

Commercial real estate for dummies

Feb 27th, 2011581 Comments

Breaking down the process of a commercial deal starts with knowing what you want to buy in the first place. You will probably never know that until you go out and look at a bunch of properties anyway, so it’s kind of like a chicken before the egg scenario. Once you’ve made the decision about what type of real estate you’re going to invest in, get right into it with the owner of the building. I’ll take a look at a piece of real estate without meeting the owner first, but I prefer he or she be there the day I look at it so I can immediately begin dissecting the opportunity before me. Commercial deals don’t happen quickly if they’re going to happen at all, but if we’re talking about the anatomy of a commercial deal, let’s get right down to the heart of the matter. The heart of the patient or the heart of the commercial deal lies in your ability to negotiate with the owner of that property. So get started as soon as possible talking with him or her about the opportunity in front of you.

Don’t get discouraged if your first meeting doesn’t go well, as many times I think you’ll find they don’t. One time I went to look at a diner in the Pocono Mountains of Pennsylvania with an investor friend of mind who intended to buy it. He asked me to go along for the ride and advise him of my opinions afterward. The owner was arrogant and began to get frustrated as we asked him question after question about his building and his mortgage and every other thing he didn’t think was our business. His levels of aggravation grew to the point where we got up and walked out of the building. At the time we left the building, the price for his diner with everything in it was $2.1 million. He had roughly at the end taken the attitude that we could take it or leave it, and we kindly said we would leave it.

With a 2 1/2 hour ride home, I told my friend that in my humble opinion the facility was worth somewhere around $1.6 million give or take $100,000. By the time we had gotten back to the Philadelphia area, we stopped by my friend’s office to see three voice mails from the diner owner with the last message naming a number of $1.7 million. We got quite a few laughs out of that voice mail, and we decided to ignore him for a week or two just to let him sweat it out. I had mostly negative things to say about the property and business deal that my friend mostly agreed with. He never did follow through with any further meetings, nor did he ever attempt to purchase the diner. I think my friend just lost interest in the diner after that day. That happens sometimes, especially to commercial real estate investors as another deal always comes down the road and takes the interest away from the first one.

The owner of the diner seriously misread the situation on the day we came up to talk to him. He knew we drove 2.5 hours to see him, so that should have proved we were serious and it also should send an alarm off in his head that he had this chance and this chance only to make this agreement happen. Watching him handle himself in this meeting was not a complete waste of time. Everything he did can always serve as a bad example. Needless to say, it was a good learning experience, as sometimes the best move in a negotiation is to get up and walk out the door. While I admit it could lose a deal for you, it also can be a strong move if it’s done at the right time in the right place.

Another technique that I like to use when negotiating a commercial deal is that I tried to get as much of the deal as I possibly can discussed and agreed upon verbally before I go to the lawyers to draft a contract. There’s nothing I hate more than spending money to draft a contract with an attorney only to find out that the deal is not going to happen. It’s a colossal waste of time and money, so you want to try to avoid it at all possibilities. Furthermore, if you spend the time to negotiate every little thing with the guy, you’re going to get to know him well enough to give you a terrific sense of whether this deal will ever make it to settlement. Get right to the heart of the matter and start talking to the owner and keep talking as long as it takes.

I’ve often had to tell realtors who were involved in a commercial deal and just wouldn’t get out of the way that at this stage of the negotiation they are not needed. I have nothing against realtors as I am one, but a listing agent for a commercial piece of real estate is going to bring very little service to a guy like me after twenty years in the business. I want to deal directly with the owner and get the answer straight from him or her. A good commercial realtor will try to get in the way of that, but you must overcome that obstacle.

Another line I’ve used many times and hope I don’t have to continue to use it is when the realtor tells me that I can’t meet the owner. I can’t even tell the story without laughing, as it happened to me more times than I can remember. I would raise my voice and say, “Do you really think that I would spend $2 million for this building without meeting the man selling it?” When it’s tried on you, just make sure that the realtor knows that there is no way you would accept not meeting the principal individuals involved.

As I think back about the best deals I’ve done, I’m most proud of the ones I was patient on. I worked a year and a half on the 1600 Building. I probably worked six months on Executec Suites. Bucks County Suites, which I’m hoping to have closed in a few days, has been a work in process for a year and a half. I took a lot of time off in between meetings. So take your time and have fun negotiating the deal you’re trying to buy and don’t ever fall in love with a piece of real estate. I probably learned just as much from the deals I didn’t buy as the deals I did, so don’t get too crazy about any particular deal. You’ll be learning as you go negotiating one deal after another, developing this skill you can’t really learn in school. Negotiating commercial real estate is learned in the school of hard knocks in a world of entrepreneurs, and they don’t give degrees at the end. What they give you is much better than any degree you will ever get. What they give you is a multimillion dollar income-producing building.

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