How Commercial Real Estate Deals and Residential Are Alike

Posted on Aug 31 2015 - 5:26am by Lance Edwards
Ron LeGrand

Ron LeGrand

BY RON LEGRAND— I want to take this opportunity to talk to you a little bit about commercial property. I’ve got a lot of experience in commercial property from developing vacant land to income-producing properties of all kinds. My favorite is development.

But first, let’s talk about what is commercial property. And, in the world of residential it’s anything over 4 units. So, a 4-plex is not commercial, but a 5-plex is considered commercial. And, some of the properties that I have dealt with actually had income from tenants. I’ve had office buildings, I’ve had apartments, I’ve had retail and two or three other things, heck, I even had a mobile home park at one time, and over the years I’ve pretty much dabbled in everything.

I’ve specialized in nothing in the commercial world because I’m more of a generalist than a specialist, and of course we could have this discussion for hours. I think the smartest thing to do is to be a specialist because you can get good at one thing and not have to do so much and go through the learning curve that I had to go through.

I’ve done all kinds of residential developments where you build houses on the property, developing land from nothing to streets and roads, sewer, water. I’ve done properties where we’ve actually built retail centers. In 2004-2008 had multiple projects going on in nine states, all different kinds including fractional. I’ve had a great housing project going in Myrtle Beach. We were in the midst of building some houses to sell off on fractions, which means we sell off on four week increments 12-13 pieces of the house. So, we would build it by the quart and sell it by the shot. And that’s very lucrative, what that amounted to is we would sell the house for approximately twice what it was worth and then collect dues forever to maintain the property while folks were using them for vacations.

In fact those fractions can be used all over the world, not just where they were purchased, which is still the case today, same as time shares. You buy one and you can use them anywhere there are other vacation properties available. Commercial properties in Texas, Tennessee, Florida, Georgia and Illinois. I even had a resort in Alaska, which is a 50-room resort. Beautiful place, the most beautiful resort in Alaska. I owned that for three years before the recession hit took it out. And I fished there for 11 years before I actually bought it. Now I am fishing there again. I go back there every year as a vacationer now, not as an owner of the property. And to tell you the truth, it’s more fun as a vacationer then it was when I was an owner. When I was an owner I looked around at all the things I would fix, as a vacationer I didn’t focus on anything but fishing.

So, I am qualified to talk to you about commercial. I’ve done a lot of things right and a lot of things wrong. Unfortunately my timing was not so great. I was just at the beginning of the recession when I was in the middle of building these things, with hundreds of millions of profit, and, gosh, most of it was ready to go when the recession took it all out. What that’s done is create a great opportunity today because commercial property has taken the biggest asset devaluation of our lifetime and that has created a lot of opportunity for you.

I’ll tell you what I like with land versus building, and that is with land I can force the value of it. I can make it worth more by doing some simple things like just simply rezoning and force the value up.

You can’t do that with buildings. Buildings I can fix whatever is broke, like vacancy or mismanagement, and can increase the value, but that is just about as far as that can go. Kind of like a house, I can renovate the house and make it worth more, but other than that there is not much more I can do. I can sit on the house and hope that time will take up the value.

I can rezone land and sometimes it is worth two or three times what I paid for it. I can get it entitled for some kind of development. In other words, I can change the use of it and create a lot of value with it. If I create a plat map, lay out whatever is going to go there and get that approved, that increases the value of it. I can build on it, all of it, part of it or none of it. I can do a lot of things with land that I can’t do with buildings.

But, land is not the only type of commercial project. There’s small apartments, self-storage, large apartments, shopping centers, office buildings and industrial. There’s all kinds of commercial property, and it’s everywhere no matter where you live.

I think of my friend, Lance Edwards, who specializes in small apartments. Small apartments meaning anything from 4 to 100 units. In fact, Lance will be at our upcoming boot camp in August, and he will be at the summit in February. Lance is very successful in that small apartment niche.

And there’s self-storage. My friend, Scott Myers, is the king of self-storage, he has hundreds of units starting from scratch with no money or credit and has built an empire by buying and redeveloping or by buying land and building self-storage units on it, which it has always been a hot commercial component in the market because even when people use their homes, they still need a place to store their Junk. Did you know that self-storage is the only type that you can literally get 100% financing on? That’s how much the banks think of self-storage. Scott will also be at my commercial boot camp, and he is a wealth of information when it comes to the self-storage business.

Most people who enter the apartment business start with small apartments and work their way up to large apartments. However, I have seen many of people do the opposite and start with large apartments. There is plenty of money available for larger apartments, including HUD money. There is a program called the HUD 221 D that’s available to buy and renovate apartment projects, and if done correctly can be done with as little as 7% of the total capital needed coming from you or your equity partners.

Then there are small shopping centers, which I also kind of favor because once they’re rented the tenants don’t tend to move very quickly. Shopping centers can be bought all over the country at reasonable prices depending on where they are, especially if there is a management issue and/or a repair issue because the management is not taking care of the property correctly. Once you learn how to finance these shopping centers without having to come out of pocket, they may very well may become your new niche. I know several developers who do nothing but shopping centers, and some of them have as many as 25 centers that they have accumulated over the years.

Then of course, there are always office buildings. This is a great time to buy office buildings because they seem to be at the bottom now, nowhere near the top. As long as you can construct the financing on these office buildings so that the cash flow can take care of them until you can turn them around and get them occupied they can become cash cows.

I even like closed-up, single-use buildings, like restaurants, that you’ll sometimes see free standing if you’re looking. Of course, if you’re not looking you won’t see any of these opportunities. Sometimes these free standing buildings are owned by individuals and great financing can be created on them since they are sitting there vacant and probably need some renovations, just like we do on houses. The worse condition on property the lower the price and the better the financing we can get from the sellers. These are also out there bank-owned all over the place. If they are bank-owned, quite often we can get a really deeply discounted price because the last thing the bank wants is a closed-up restaurant sitting there. Sometimes they’ve been sitting there for one, two or three years with nobody taking them to the next level, so these become good opportunities for people who can see the future for these properties.

Then there is an opportunity that very few people are actually able to see: small tracks of land dead center of civilization. I mean tiny pieces of land located between two buildings or near a highly developed area that can be rezoned and converted to a much higher and better use. Maybe it’s an old building sitting in the middle of, or right near, new buildings that hasn’t been developed yet that needs demolished and or rezoned to a higher density. For example, an old building on a single level that has rezoned to a high-rise of six levels will literally take that piece of land and multiply its value by 10, 15, 20 times what you pay for it. Any time you can create more density on a track of land, you’ve drastically increased its value. And again, the good thing about rezoning a property is you hire other people to do the work for a very small amount of money. You do not have to be an expert or know the zoning department or even know anybody there.

I could go on for hours about the opportunities available in commercial property, and in fact I will in August. I will spend four days on it, and we will cover everything there is to cover about it. You can get information on that event from us if commercial property interest you. I will have some time to go through a lot of different types of projects, the good, the bad, and the ugly, because we will be working on projects that you bring to class after I train you on what to look for and what to bring.

Many of the deals we do don’t require money or credit. Some will, but if you don’t want to use your money or credit then I will show you how to get other people to put up the money, or credit, or both and you still get a big upfront payment from the deal as well as piece of the action all the way through to the end. And in fact, I’ll even provide you with the contracts to make that applicable.

The ability to see the opportunity is the valuable piece. If a deal is good money, it’s easy to find, and that assumes that you are going to stay in the deal and care about raising the money to fund the project. Some of the biggest money I’ve seen made right now is made by flipping projects, many times without doing anything to them, like the rezoning we discussed earlier. They’re just like houses. When you can find them undervalued, you can put them under contract and flip them for their value. One good commercial deal can set you up for life. When you become a player the deals seem to come to you. I can help you become that player.

Contact us when you’re ready about the upcoming commercial property boot camp in August because it will be your only chance to be taught by me. It will be the last one I teach. You can reach us online at RonsCommercialBootCamp.com or call George Powers at 800-567-6128.