Commercial Real Estate Investing

The top pros in any business have little tips and tricks they use to make their jobs easier. The finance industry is no different. One of their little tricks is called the Rule of 72.

Rule of 72

Do you know how long it takes for your investments to double? There is a quick and easy formula to estimate it. It’s called the Rule of 72. Take your return or interest rate and divide it into 72. The answer will be the approximate number of years it takes to double your money.

Example: If your investments are earning you 8%, divide 8 into 72 and you get 9 years.
If your investments are earning you 10%, divide 10 into 72 and you get 7.2 years.

The formula looks like this:

72 divided by 8 = 9
72 divided by 10 = 7.2

Is the Rule of 72 exact?

No, not exactly, but it is pretty close. The chart below compares the rule of thumb to the real number. You can see it is not perfect but it is pretty good for a ball park estimate. You certainly wouldn’t use it anytime you needed to calculate real returns, However it is perfect for a quick off the top of your head number.

Using the Rule of 72

So lets say you go into a bank and ask how much their CD rates are. When they tell you 2% a little math in your head and you know it will take about 36 years for our money to double. It might make you rethink those low rates.

Often the results are round numbers, making it an easy calculation you can do in your head. Even for those without a good head for numbers, a few keystrokes on the calculator, and your friends will think you are a genius. When you want to figure how fast your earnings will grow, just remember the Rule of 72.

I am currently assisting to teach a year long class on Multi-unit investing.  Several people have asked me if they can join. No, the class is too far along to join at this point.  However because of the demand a second class is forming in Northern Virginia.

Introducing REACH – Real Estate Apprenticeship in Commercial Housing

Would you like to learn how to invest in apartment buildings? Better yet would you actually like to DO IT? REACH is a year long class that is a great opportunity to learn more than just theory, it is a chance to actually do a deal! The members will break up into groups of five, with the goal of each group to actually purchase an apartment building during the course of the class.

You see most real estate instruction is about giving you information and hoping you will then go out and do deals.  Sadly, after the excitement of a class is over, most people don’t take action.  In fact many are not geared to help you learn, but to entice you into ever more expensive classes and coaching programs. This class is different.   It is about helping you get real results.

Why you will succeed with this class.

What you will learn and do

How do I get involved

The year long class is limited to 25 People and the cost is $2950.00. More importantly that the money, you must be committed to doing the work. If you want to get involved contact me  at the Baltimore Real Estate Investing Blog and I’ll be glad to send out an application.

Sign up here for a class application

Happy investing,

Ned Carey

General Growth Properties Filed for Chapter 11 Bankruptcy this week. Headquartered in Chicago, General Growth is reportedly the second largest mall owner in the country with holdings throughout the country. This would be the largest real estate bankruptcy ever filed.

The name General Growth is appropriate. They have been buying up retail properties around the country. In 2004 they purchased the  Rouse Company, the original developers of Columbia, Maryland.  They leveraged heavily to make these purchases, reportedly amassing $27 Billion in debt.  As loans came due during this tough credit market, they had trouble finding lenders who would refinance the debt.

General Growth has been struggling for months to refinance their debt . They put several properties up for sale last fall.  President of General Growth, Thomas Nolan said;  “We want to come out as a less leveraged company. Our business model remains strong.”

General Growth will continue operating the malls and says it  expects shoppers will notice no changes. They have found debtor in possession financing at 12% above LIBOR.  That’s a tough loan to have to carry, and one has to wonder how long they can hold on if vacancies were to increase.

General Growth claims to have a 92.5 % occupancy rate but a casual observation of the holdings in the Baltimore area might suggest a lower number than that. Could this be the first sign of a collapse of the commercial retail real estate market. As retailer continue to struggle vacancies could increase. Weak retail sales mean lower percentage rents.  Do I hear a buying opportunity?

Dave Lindahl’s recent book  is about repositioning Apartment buildings. This is truly one of the better books on real estate investing that I have read. The obvious focus of this book is apartment buildings,  yet it has value for single family home landlords also.  Owners of other classes of commercial property like office, retail, or industrial will find little of interest.

Not Just About Repositioning

For those new to the commercial property business, repositioning would be the equivalent of rehabbing a single family home. Usually some renovation is required but it is more than just renovation It is often also about upgrading the tenants, management and the Position of the property in the marketplace.

While the thrust of the book is repositioning, he covers the topic from start to finish. He goes into topics like where to find your deals, how to analyze the deals, how to manage the properties and where to get the money. Chapter title s include:

• An overview of how to get your first deal
• Separating the gold mine from the land mines
• Twelve negotiating secrets of the Pros
• How to avoid being a landlord: Secrets to hiring great property managers
• Creating your success team
• Reselling for huge profits

As you can see there is plenty of interest here for anyone interested doing multi-family deals.

Who Should Buy this Book

Investors who want to invest in apartments will find this to be a wonderful book. Yet there is value to single family home landlords, and rehabbers.  This is one of the better books I have read on real estate investing.  In addition to really solid information it is well written, easy to read and easy to understand. Just as importantly it is not full of irrelevant fluff like so many investing books. I recommend this book highly. You can buy it from Amazon at a great price here. Multi-Family Millions: How Anyone Can Reposition Apartments for Big Profits

Hey if you own property your going to need a plumber some day. You might as well hire one with a sense of humor.

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