Real Estate Investing Adventures

Real Estate Investing Equity Requirements

You need money to invest in commercial real estate. If you think you are going to make it with some no-money down type of deal, think again. It’s not going to happen. You are going to have to have skin in the game. Banks are going to typically want 20% to 25% equity in a deal. You will have up front costs for setting up your company. You will have due diligence costs. You will need money for a deposit. The 100% financed, no money down deals just don’t exist other than once in a lifetime. If you think you will find a partner that will provide 100% financing, you are again wasting your time. Why would a savvy investor let you run with his money? What are you bringing to the table in terms of experience in making one of these deals actually happen? Maybe you can talk your Mom into lending you some money, but don’t count on it.

Credit Necessary for Real Estate Development

You need decent credit. If your credit isn’t good - fix it. If it is good - protect it. If you can’t fix it - commercial real estate is probably not your game. My best deals have occurred when people struggled getting financing. Cash is still king when it comes to real estate investing and development. If you can close on a property quickly, you can negotiate from a position of power when times are tough. Your money is always made on the front end. What did you pay for the land? What construction price did you negotiate? You always focus on your costs first. Great credit helps immensely.

Preparing to Invest in Real Estate

You have to be ready to pull the trigger quickly when you come upon a good deal. If you don’t, someone else will. That means having your company already established. Having a relationship with a bank and knowing for what size loan you will qualify. Having money already deposited in your business account. Having your attorney, accountant and insurance agent already selected. Having already set up your financial models and knowing your hurdle rates for cash on cash return and return on equity so you can run the numbers quickly. Essentially, you need to be able to say yes to a deal immediately and follow through. Anything else is just playing around and very quickly no one will have any more time for you.

Real Estate Study Topics

You need to spend a significant time studying. There is plenty of money to be made in commercial real estate. But no one gives away money. No one! If you think you are going to make a whole bunch of cash without working for it, you are wasting everyone’s time including your own. You need to learn about leases, real estate contracts, construction contracts, architect and engineer contracts, zoning laws, codes that affect development in your county or city, financial analysis and on and on. If you are going to consistently make good money, you have to be willing to learn everything you can on the subject. If you are not, take your money and go buy an index fund.