Pop Quiz Commercial Real Estate Investing

I read once that if you took all the real estate lawyers in Illinois and laid them end to end along the equator – it would be a good idea to leave them there. That’s what I read. What do you suppose that means?

I have written before about the need to exercise due diligence when purchasing commercial real estate. The need to investigate, before Closing, every significant aspect of the property you are acquiring. The importance of evaluating each commercial real estate transaction with a mindset that once the Closing occurs, there is no going back. The Seller has your money and is gone. If post-Closing problems arise, Seller’s contract representations and warranties will, at best, mean expensive litigation. CAVEAT EMPTOR! “Let the buyer beware!”

Paying extra attention at the beginning of a commercial real estate transaction to “get it right” can save tens of thousands of dollars when the deal goes bad. It’s like the old Fram® oil filter slogan during the 1970’s: “You can pay me now – or pay me later”. In commercial real estate, however, “later” may be too late.

Buying commercial real estate is NOT like buying a home. It is not. It is not. It is NOT.

In Illinois, and many other states, virtually every residential real estate closing requires a lawyer for the buyer and a lawyer for the seller. This is probably smart. It is good consumer protection.

The “problem” this causes, however, is that every lawyer handling residential real estate transactions considers himself or herself a “real estate lawyer”, capable of handling any real estate transaction that may arise.

We learned in law school that there are only two kinds of property: real estate and personal property. Therefore – we intuit – if we are competent to handle a residential real estate closing, we must be competent to handle a commercial real estate closing. They are each “real estate”, right?

ANSWER: Yes, they are each real estate. No, they are not the same.

The legal issues and risks in a commercial real estate transaction are remarkably different from the legal issues and risks in a residential real estate transaction. Most are not even remotely similar. Attorneys concentrating their practice handling residential real estate closings do not face the same issues as attorneys concentrating their practice in commercial real estate.

It is a matter of experience. You either know the issues and risks inherent in commercial real estate transactions – and know how to deal with them – or you don’t.

A key point to remember is that the myriad consumer protection laws that protect residential home buyers have no application to – and provide no protection for – buyers of commercial real estate.

Competent commercial real estate practice requires focused and concentrated investigation of all issues material to the transaction by someone who knows what they are looking for. In short, it requires the exercise of “due diligence”.

I admit – the exercise of due diligence is not cheap, but the failure to exercise due diligence can create a financial disaster for the commercial real estate investor. Don’t be “penny wise and pound foolish”.

If you are buying a home, hire an attorney who regularly represents home buyers. If you are buying commercial real estate, hire an attorney who regularly represents commercial real estate buyers.

Years ago I stopped handling residential real estate transactions. As an active commercial real estate attorney, even I hire residential real estate counsel for my own home purchases. I do that because residential real estate practice is fundamentally different from commercial real estate.

Maybe I do “harp” on the need for competent counsel experienced in commercial real estate transactions. I genuinely believe it. I believe it is essential. I believe if you are going to invest in commercial real estate, you must apply your critical thinking skills and be smart.

POP QUIZ: Here’s is a simple test of YOUR critical thinking skills:

Please read the following Scenarios and answer the questions TRUE or FALSE:

Scenario No. 1: It’s Valentine’s Day. You are in hot pursuit of the love of your life. A few weeks ago, she confided in you that all she ever dreamed of for Valentine’s Day was that her lover would show up at her door, dressed in a white tuxedo with tails and a top hat, and present her with a beautiful bouquet of flowers. You’ve rented the tuxedo, but now you are concerned about how much money you are spending.

TRUE OR FALSE: Since flowers are pretty much all the same, it is OK for you to skip the roses and show up with a bouquet of fresh yellow dandelions.

Scenario No. 2: For several years you eyesight deteriorated to the point where you can barely see your alarm clock. You are now considering corrective eye surgery so you won’t need glasses. Your sister-in-law had corrective eye surgery and has had spectacular results. She recommends her eye surgeon, but mentions the cost is about $5,700 for both eyes and that the surgery is not covered by insurance. A few years ago, you had surgery to correct your hemorrhoids and it cost you only eight hundred bucks.

TRUE OR FALSE: Since surgeons all went to medical school and are all medical doctors, you are being frugal and wise by asking the surgeon who performed your hemorrhoid surgery to perform your corrective eye surgery.

Scenario No. 3: Several years ago, when you first got married, you asked a former classmate who is a lawyer to represent you in the purchase of your townhome. The cost was only $375. A year later, you started a family and decided you needed a Will. The same attorney prepared Wills for you and your wife for a total cost of $700. You started your own business and your attorney friend formed a corporation for you and charged you only $600 plus the cost of the corporate minute book. Years later, when your son was arrested for misdemeanor reckless driving, your attorney friend handled the criminal case and got your son off with supervision for only $1,500.

Your business has been successful and you have built a pretty sizable nest egg, but you are tired of working for every dime and want to try investing in real estate. You have your eye on a strip shopping center. It includes a grocery store, bank, hardware store, dry cleaners (on a month to month tenancy), a couple of fast food restaurants, a gift shop, dental office, bowling alley (with a lease about to expire), and wraps behind a gas station/mini-mart on the corner. The purchase price is $8,000,000, but the net operating income looks pretty good. You figure if you turn the bowling alley into a full service restaurant/banquet facility, and convert the dry cleaners into a 24-hour coin laundry, the net operating income will increase and the shopping center will turn into a spectacular investment. You plan to pull together much of your life savings and put down $2,000,000 to buy this strip shopping center, borrowing the balance of $6,000,000. You remember that your lawyer friend handled the purchase of your home several years ago, so you know he handles real estate.

TRUE OR FALSE: Commercial real estate is the same as residential real estate [Hey, its all dirt, isn’t it (?)], so you are being a shrewd businessman by hiring your lawyer friend who will charge much less than a lawyer who handles shopping center purchases several time a year. [What is this “due diligence” stuff anyway?]

ANSWERS:

If you answered “TRUE” for any of the foregoing Scenarios

STOP!

The Quiz is over.

Please find a quite place to reflect upon your life and consider whether the decisions you make consistently give you the results you desire.

If, on the other hand, you understand that the answer to each of the foregoing questions is FALSE, I am available to help you in Scenario No. 3.

For Scenario No. 2, you should follow your sister-in-law’s suggestion and contact her eye surgeon, or some other eye surgeon with equal skill.

For Scenario No. 1, you are on your own. [But, if you answered TRUE for Scenario No. 1, you may be FOREVER on you own.]

Investing in commercial real estate can be profitable and rewarding – but it requires good critical thinking skills and competent counsel.

You have a have a brain. It is strongly recommended that you use it.

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Getting the Best Mortgage Rate

Buying a home is an expensive endeavor so getting the best possible mortgage rate should be one of your main priorities. By deciding to get the best mortgage rate possible you will be making a positive decision to help you for many years to come. However, just deciding to get the best mortgage rate available is not going to get you the best mortgage rate available. Instead, you will need to learn the tips and tricks for negotiating with your mortgage lender in order to receive the best possible mortgage rate for your personal situation.

Mortgage Rate Tip #1 Origination Fee

Your mortgage rate might be low in your mind, but you must take the origination fee into account as well because this can increase your APR. Lenders frequently charge 1%, but you can always negotiate the mortgage rate origination fee lower. Also, if the origination fee is much higher than 1% you need to either negotiate it down, or find another lender with a more favorable overall mortgage rate.

Mortgage Rate Tip #2 Lock in the Rate

When negotiating your mortgage rate, make sure your lender is prepared to lock in your rate for at least 30-60 days. This way you will be guaranteed a particular rate even if rates skyrocket the next day. Another not trick many individuals are not aware of is to include a clause that also will allow you to take a lower rate if rates fall during this period. This is a great mortgage rate tip because you get your mortgage rate locked in so it can’t go any higher, but if the average mortgage rate goes lower you receive the lower rate.

Mortgage Rate Tip #3 Fight

If the mortgage rate drops significantly and you have already signed a deal locking in a particular mortgage rate and don’t have a clause that ensures you will receive the lower rate, then you need to fight. You simply need to call your lender and say that while you signed the lock in agreement you want the lower rate. This will take some negotiating, but your lender wants you business and might be willing to negotiate the mortgage rate with you.

London Apartment – Everything You Need To Know Before Booking A Serviced London Apartment

A few weeks ago a secretary telephoned me in absolute desperation. She was desperately searching for accommodation in central London for some VIPs from abroad. She stumbled onto my website, not really understanding what the service was about. I think the words ‘free service’, ‘apartments’ just helped her to figure out that Quality London Apartments had something to do with accommodation. Apologies for my long opening, but it is a prime example of how little travellers in the UK and Europe know about the serviced apartment industry. After explaining the concept of serviced apartments and helping her find an apartment, I realised that I needed to share this knowledge further afield. Thus, this article is my contribution to open up this elusive industry and offer tips to travellers.

What is a serviced apartment?

A serviced apartment is a flat in a block, which has a separate bedroom, sitting room/lounge, fully equipped kitchen, your own private keys to own door. Serviced apartments can be in the form of a studio flat (all in one room with a kitchenette), one, two or three bedrooms.
All apartments enjoy maid service, utilities and a management team to help….just like a hotel. Guests only pay for a nightly rate and can live in a flat with everything they would have in their own home.

Pros: Serviced London Apartment vs Hotels

  • More value for money and cheaper. In a hotel, no matter which star rating, you pay per night for one room which will have a TV, bathroom, sofa and a bed. This is similar to a studio apartment! In an apartment there is a separate bedroom, kitchen, sitting room, bathroom and dining table (exception is studio)
  • Pay per apartment and not per person. An example would be paying £250 per night for a two bedroom apartment, which could accommodate up to 4 people, that works out at £62.50 per person.
  • Freedom and privacy. An apartment is like being in your own home and there is plenty of space. You have your own keys to your own door.
  • Booking is easy, just like hotels. The majority of apartments require a credit card to guarantee, pre-payment before you arrive and that’s it. No deposits, no tenants’ contracts.
  • Cons: Serviced London Apartment vs Hotels

  • Apartments lacks the buzz and services of a hotel such as restaurants and Room Service. Albeit some apartments are owned by hotels and offer you the use of their restaurants and other services.
  • No 24-hour service around the clock. The apartments are ran by a small team who work Monday to Friday 9:00am – 6:00pm, so you are on your own during the weekend. There are emergency numbers to call should you suffer an electric cut, but no 24-hours hotel Duty Manager to run to your room.
  • No pool, massages, saunas like hotels
  • What to look out for when booking a serviced London apartment?

    1. Quality of the apartment – make sure you find out if they are clean, well furnished and well maintained. How? Check the photos, and ask if you can book an appointment to view the apartment. This is very important if you are staying over a long period of time.

    2. Do they have a friendly and efficient management team? If you need the comfort of a welcoming face to greet you on arrival, then ask for an apartment with a reception. Some apartments provide key boxes, so you can arrive any time, but there is no-one to meet you. A friendly and small team will be able to give you a very personal touch.

    3. Opening time of the apartments office – doesn’t sound important? Well it is because the majority of apartments’ operations team open Monday to Friday 9:00am to 6:00pm. If you arrive at your apartment during office open hours, then fine, but any other time and weekends will mean that you will need to pick up the keys from a different location.

    4. Key delivery by car at the airport? – If you are flying from abroad to London, and do not fancy traipsing throughout London at night to pick up keys, the majority of apartments will hire a taxi to deliver your keys to the airport upon your arrival. Convenient for a small charge.

    5. Payment procedure and cancellation policy – every apartment vary in their guest terms and conditions. All will accept a credit card as a guarantee of reservation, some will ask for 100% pre-payment at least 7 days prior to arrival and cancellation can range from 12:00pm on the day of arrival to 28 days. So, before you confirm the reservation, be very clear about the terms and conditions. Ask your apartment agents to explain the procedure to you and read the terms and conditions on your confirmation emails. It will save you a great deal of trouble and headache later.

    6. Apartments are always allocated on arrival. This policy is the same as any hotel, so unless you are a regular guest to a specific apartment, apartments are on allocations. In the same breath, some apartments only have a small number of flats, so if you are reserving the only 3 bedrooms penthouse in their collection, then you are guaranteed that specific apartment.

    7. Rates become more competitive the longer you stay. In this, we mean you have more bargaining power if you are staying for one month or longer. This is when your apartment agent can really help you by negotiating with a variety of apartments to get you the best deal.

    8. Using an apartment agent will also save you time searching, but most importantly they will work with your budget and negotiate a great deal for you. Of course, you also need to be realistic about what you can book, don’t expect to spend £80 per night for a luxury apartment. For example, one of our clients had £300 budget per night for a two bedroom apartment and he wanted something luxury. For those readers who know London well, also understands that this budget is actually very small. Despite that, we booked him and 3 friends into the Victoria Park Plaza luxury apartment (£150 per night less than the usual price) for £300 per night with free breakfast, gym and access to the executive lounge. Any apartment agent worth their salt can and will move mountains to help you.

    What if I don’t like the apartment when I get there?

    If you really feel that you have been hard done by, tell the apartment management team and ask to be moved to another apartment. All of the apartments that we work with are very customer focussed and try to help guests enjoy their stay. If this does not work, talk to your apartment agent, if that is how you booked. Best advice though, is to ask all the right questions before you book an apartment.

    Your appetite for apartments is now whetted – how do you find London apartments?

    1. As already explained, you can choose a free search and book service of an apartment agent or go direct to a specific apartment that you know. Both methods are absolutely fine, dependent of your knowledge of London apartments. Using an agent will mean that they will search far across their portfolio and present you with a variety of choices…all within 10-15 minutes. Agents are impartial and will only (good agents anyway) recommend the quality apartments for your needs.

    2. You can use search engines like Google, Yahoo and MSN to find apartments. Type in keywords like ‘London serviced apartments’ or ‘quality London apartments’ and so on.

    3. Stating the obvious but, ask for a recommendation from friends and acquaintances.

    4. Check on Tripadvisor.com and other customer review websites.

    Summary

    If you have read this far, then thank you for your time. I have tried to make this article clear and as helpful as possible, but I welcome your comments and any further information that you feel is very important.

    Finding the Best Mortgage Rate for Your Needs

    If you have found your dream home and are ready to make a purchase offer, congratulations! Shopping for a home is never easy. It is hard to find a home to suit your needs and wants, and you want to purchase a place that you absolutely love, not just a place that you have lukewarm feelings about. Whether you are purchasing your first home or your fifth home, the next step can be one of the hardest. It is time to find a mortgage! Dealing with finances is never fun, and picking a mortgage is one of the biggest financial decisions you will ever have to make. There are a variety of different mortgage rates available for every individual, and taking the time to find the right one for you will ensure you will be satisfied over time.

    A mortgage is one of the biggest commitments you will have to make. Mortgage rates and terms vary between lenders so it is important to take the time to research what suits your needs best. Lenders, mortgage brokers and online tools can be great resources to help you with your mortgage. Every type of mortgage has both disadvantages and advantages, and experts can help you understand how each mortgage can affect your future. The wrong mortgage can have a huge negative impact on your financial future and can hinder your lifestyle. It can seem like a good idea to visit one lender to see their mortgage rates, but shopping around will give you the best mortgage rates and terms possible for your needs. Some people find that a well-qualified mortgage broker can be helpful in navigating through the process. At each stop, you will understand what you are looking for more and more, and this information will give you the ability to pick the best mortgage for your future!

    One of the biggest mortgage decisions that needs to be made is deciding between a fixed-rate mortgage and an adjustable-rate mortgage. Both of these mortgages are different beasts and suit different financial needs. A fixed-rate mortgage has standard mortgage rates that do not change each month. From month to month, a fixed-rate mortgage payment stays the same. These mortgages allow for better budgeting, but tend to have slightly higher rates. The other type of available mortgage is an adjustable-rate mortgage. The benefit of an adjustable-rate mortgage is that the rates are typically lower than those of a fixed-mortgage, but since the rates change each month, it can be hard to budget and some monthly payments can be significantly higher than others. Both of these mortgages have advantages and disadvantages, and it is important to understand them in order to be sure to get the best mortgage for your lifestyle and needs.

    Mortgage rates fluctuate between lenders so it is important to do research and speak with a number of different financial institutions before signing anything. An offer may be tempting to accept, but a much better offer may be available at the bank down the road. It is important to understand that there are many options available and choosing a mortgage will not be as easy as eenie, meenie, minie, mo. The good news is that with the available resources to help you find the best mortgage, you will find mortgage rates and terms to fit your needs and wants if you take the time to find them!