Doug Marshall's Blog

Six Reasons for Firing Your Property Management Company

In my last blog post, I discussed eight reasons why you should fire your on-site manager.  If you didn’t read this article I suggest you do.  Go to article.  Today I’ll give you my reasons when it’s appropriate to fire your property management company.

Poor Recordkeeping

A property’s operating statements are the first indicator of how well a property is functioning.  They should give you a cursory “snaphot” about the property.  Is it operating smoothly or is a problem  possibly brewing?

I’ll give you a real life example.  I was noticing over the last few years that turnover expenses at an apartment I was helping to refinance were extremely high.  Now part of the problem was the owner had significantly raised rents over this time period which “encouraged” some of their tenants to move out.  But that answer didn’t completely satisfy me.  So I reviewed the general ledger for the past four years.  What I discovered was the same type of repair work was being done over and over again on the same units.  For example, one unit had been turned three times in four years and each time the carpet was replaced.  As we all know, carpets have a longer life expectancy than one year.  Or if the tenant abused the carpet then they should be charged for it.

In this example, good recordkeeping identified a problem with management making unnecessary carpet replacements as well as other unnecessary repairs.  But many times, the recordkeeping is so rudimentary that there is no way to find out why expenses are out of control.

Consistently Not Keeping Expenses Within Budget

An operating budget is the roadmap for how the owner wants the property to be managed and maintained.  We all know there are times when things happen that are completely outside the control of the property management company that can blow a budget to smithereens.  And we also know that an operating budget can be unrealistic from the get-go.  It can be a pretense that both the owner and the property management company go through once a year as an exercise in futility.

That said, I’ve observed property management companies that have made absolutely no effort in keeping operating expenses in line with budget.  The example I mentioned above about replacing the carpet in the same unit three times in four years illustrates my point.  A mortgage broker shouldn’t be the first person to point out an out of control budget.  A good off-site property manager should have recognized this problem long before I did but unfortunately that wasn’t the case.  She was clueless.

Not Adequately Training the On-Site Manager

As a mortgage broker I visit lots of properties every year.  Many times I’m shocked by the lack of professionalism of the on-site manager.  It’s embarrassing to see how poorly they represent the owner with their poor appearance and overall demeanor.  It calls into question whether they have been adequately trained by the property management company.  Do they know the appropriate policies and procedures about:

leasingqualifying prospective tenantsrent collectionoverseeing turnovercompleting work orders in a timely manner,maintaining a property’s appearance, etc.

If not, it’s not the problem of the on-site manager, it falls on the shoulders of the property management company for not training properly.

Lax Oversight of the On-Site Manager

As I’ve said many times before, “You get what you inspect, not what you expect.”  On-site managers need to be shopped on a regular basis by the property management company.  A shopper is someone who pretends to be prospective renter but in reality they are observing how well the on-site manager does in greeting them and showing them a market ready unit available to be leased.  Does the on-site manager try to overcome any objections that the shopper mentions or do they passively not respond?

The property management company also needs to regularly inspect

the property’s appearance,the lease files for all the paperwork being completed properly, as well asmonitoring how long it takes for a unit to be made market ready.

A good property management company does of all of this and much more.

More Concerned with Maintaining a High Occupancy Rate Than Raising Rents

An apartment owner was consistently told by the property management company that his property’s current rents were at the top of the market.  Raising rents they said would cause a mass move out of tenants. The property management company was replaced a short while later.  The new property management company raised rents an average of $250 per unit.  And more importantly, the property’s occupancy did not suffer from the hefty rent increases.

Sometimes property management companies are more concerned with keeping the property occupied than maximizing revenue.  Increased vacancy requires more effort than they want to expend.  In their mind, it’s just easier keeping the property full.  They think, “How can an owner have a problem with a property that’s always full?”

Lots of employee turnover

I’m a part owner in a small office building.  We have had four off-site property managers in the three years we’ve owned the property.  When that happens on-going issues lose out as the new manager needs to re-learn what the previous manager was doing to solve the issue.  If the property management company has high employee turnover something is wrong with how they treat their employees or their compensation for employees.

I asked the last off-site manager why he was leaving.  He said he had a portfolio of thirteen properties he had been managing.  He felt he could adequately manage three.  This high turnover of managers suggests I should be looking for a new property management company.  Employee problems don’t go away until they address the issue.

These are my six reasons for firing a property management company.  What have I missed?  What would you add to the list?

Doug Marshall is the award winning author of Mastering the Art of Commercial Real Estate Investing and the online course, The Great Game of Real Estate Investing.

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8 Reasons for Firing Your On-Site Property Manager

For large multi-tenanted properties to be well managed it requires three levels of oversight.  As the saying goes, “A chain is only as strong as its weakest link” is definitely true for property management.  If any one of these three is done poorly the property’s performance will suffer accordingly.

3 levels of property oversight

The three levels of property oversight are: 1) the on-site manager; 2) the off-site property management company; and 3) the owner.  Smaller properties with less tenants do not need an on-site manager.  But apartments with 20+ units and large retail, office and sometimes industrial properties may need on-sight management.  For these properties, on-site managers will maximize a property’s performance.  So when is it appropriate to fire the on-site manager?

Pay on-site property managers well

Before I answer that question, let me begin by stating once again that on-site managers are generally overworked and underpaid.  Often times, they don’t get the credit they deserve for a well maintained property.  If you have an on-site property manager that is performing their job well, pay them accordingly.  My management philosophy is to pay them 120% of what the going rate is for their position.  You never want to have a good on-site manger quit because they can make a few more dollars working elsewhere.  Not paying them well is truly “penny-wise, pound-foolish.”

8 reasons to fire your on-site property manager

That said, there are eight reasons when you should fire your on-site property manager.  They should be fired when they are:

Consistently not maintaining the property’s appearance.

A property’s appearance is the first impression a prospective renter has of your rental property.  Is it inviting, or does it leave a poor impression?  The property needs to look clean and neat.  A good on-site manager when walking the property should be in the habit of always be picking up trash that is lying around.

Not following the rental policies to the letter.

Rent is due on the first and late on the fifth day of the month. No exceptions.  Those who don’t pay on time are always assessed a late fee regardless of reason.  If you don’t consistently charge a late fee you remove the incentive of paying their rent on time.

Not keeping out of control tenants on a “short leash.”

Every property I’ve ever owned or managed has had at least one problem tenant.  These tenants act as if the rules don’t apply to them.  The on-site manager needs to let these problem tenants know that that is not the case.  If you let problem tenants run roughshod over the property, the good tenants will eventually move out.

Consistently not getting recently vacated units market ready for the next tenant.

In a tight rental market, a unit that’s sitting vacant because the unit is not ready to show is costing the owner a lot of money in lost rent.

Ignoring maintenance repair requests.

A colleague of mine once had an on-site manager that he reluctantly fired only to discover she had a drawer full of maintenance requests that she let slide.  Do you want happy tenants?  Make sure maintenance repair requests are completed in a timely fashion.

Consistently poor tenant selection.

There is more to tenant selection than running background checks, calling previous landlords, etc.  There is also intuitively sizing up the prospective tenant.  I’m not suggesting that on-site manager discriminate based on race, sexual orientation, etc.  I’m not even hinting at that.  What I’m suggesting is that an in-person interview can many times give you insights into a person that can’t be objectively measured by the traditional tenant selection process.  Trust your gut instinct.

Beginning to consider their tenants as their friends instead of their customers.

You can imagine how this change in thinking can result in all sorts of bad things happening at the property.

Suffering from burnout causing them to stop caring for the property.

This the saddest reason for firing an on-site property manager.  You never want this to happen.  It’s incumbent on the off-site property manager and/or the owner to recognize the beginning stages of burnout so they can do whatever is necessary for this not to happen.

These are my eight reasons for firing an on-site property manager.  What have I missed?  What would you add to the list?

Doug Marshall is the award winning author of Mastering the Art of Commercial Real Estate Investing and the online course, The Great Game of Real Estate Investing.

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Why Real Estate Investing is Far Superior to Owning Stocks – Part 2

In my last blog post I stated there are at least seven reasons why investing in real estate is far superior to owning any other type of investment.  In that article I identified the first six reasons.  If you didn’t have the opportunity to read this article I suggest you do so now.  Click here.  Today I want to focus on the seventh reason which is often overlooked, and yet, in my opinion is absolutely the most important reason for owning real estate over any other type of investment.

Financial Freedom Defined

But before I do, let’s begin by defining financial freedom. By that I mean, what would it feel like to not ever have to worry about money again?  So how do you achieve financial freedom?  It is achieved when your monthly sources of passive income consistently and significantly exceed your monthly personal expenses. When that day happens you no longer need to work for a living. Congratulations! You can retire in style.

But notice I said passive income which is cash flow received that requires little or no effort to maintain it. Another name for passive income is mailbox money because it comes in the mail without lifting a finger.

And real estate in my opinion is hands down the best source of passive income you can invest in.

Two Potential Problems1. We invest in assets that don’t generate passive income

But there’s a problem. Actually, there are two problems. Some of you may agree intellectually that we should invest in assets that generate passive income, but most of us will fail miserably actually doing so. Why? Because we’ve all been brainwashed and incentivized to put our savings into an IRA or 401(k) plan. And what types of assets do you normally purchase for these types of accounts?  Stocks and bonds which generate little or no passive income.

2. We don’t understand the importance of passive income

The second problem is some of us don’t understand the importance of passive income. You’re thinking, “Why is it so important to generate passive income? I’m very happy with the return I’m getting on my retirement accounts.” Here’s my answer to that response.

You’ve likely seen the television commercial where people are asked how much money they think they need to save over their lifetime in order to retire well. Their response is typically “beats me” or something equivalent. That’s an honest answer if your investments are in most asset classes. It’s anybody’s guess, including the investment banking firm that produced the TV commercial. They don’t know either.

Retirement Outcomes

Now fast forward to the day that person retires. How is he going to live off his retirement accounts? He will live off them by slowly liquidating them over time. What happens if he lives longer than his assets do? He’s toast. He ends up like the vast majority of Americans who eventually are dependent on Social Security, family, friends or charity.  Hardly the “golden years” any of us are hoping for.

So let’s assume that you decide to invest in real estate instead of a typical retirement plan. How are you going to live off your rental properties? Are you going to slowly liquidate your rental properties over time? No. You are going to live off the passive income that is generated from your rental properties. And when your passive income from your rental properties coupled with your future Social Security checks consistently and significantly exceeds your monthly personal expenses, you have attained financial freedom. In other words, you could live to be 120 years old and you’ll never run out of money.

Passive Income is the Key to Financial Freedom

So passive income is the key to achieving financial freedom.  Does that make sense? It’s not your net worth, it’s certainly not the size of your retirement account. And real estate investing is by far the best source of passive income you can invest in.  And that is why owning real estate is far superior to owning any other type of investment.

Those are my thoughts.  I welcome yours.  What do you think is the best way to achieve financial freedom?

Doug Marshall is the awarding winning author of Mastering the Art of Commercial Real Estate Investing and the online course The Great Game of Real Estate Investing.

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Why Investing in Real Estate is Far Superior to Owning Stocks – Part 1

Why should you invest in real estate, especially since there are many other types of assets to choose from? There is one overpowering reason to do so, but before I tell you what it is, I want to explain the other benefits of owning real estate.

Four Well-Known Reasons

When comparing commercial real estate to owning most other types of investments, there are four distinct advantages:

The positive cash flow from real estate is a major advantage over owning most other types of investment. Stocks and bonds can also provide positive cash flow from their dividends. Bonds much more so than stocks, as an average dividend yield on the New York Stock Exchange is about 2 percent. But well managed CRE should generate significantly better cash flow, conservatively 6 to 8 percent and higher is not uncommon.1031 exchanges on the sale of investment properties allow investors to defer capital gains taxes for decades. But if you sell another type of investment, you pay the capital gains that year.Depreciation on real estate shelters income, reducing the investor’s income tax burden. No such tax benefit exists for owning other asset classes.Using debt to buy property has two benefits: It significantly reduces the equity needed to purchase the property and leveraging a property with debt can significantly improve its return on investment. This is a huge advantage of owning CRE over other types of investments.

These four reasons for owning real estate are commonly known benefits. However, there are also three not so obvious reasons why investing in real estate is far superior to owning other types of investment assets. In my comments below, I will specifically focus on comparing real estate to owning stocks, because for many investors that is the logical alternative investment to owning real estate. But I believe this comparison is true of most other types of investments, not just owning equities.

Three Not So Obvious Reasons1. The Concept of Efficient vs Inefficient Markets

The first less obvious reason to invest in real estate rather than owning stock has to do with the concept of efficient vs. inefficient markets. In an efficient market, everyone has the same financial information.

And you buy at whatever the price is. The stock market is a good example of an efficient market. Investors know the value of each stock. They have no legal way to buy a stock below the established market price.

The real estate market, on the other hand, is a perfect example of an inefficient market. The price of a piece of property is determined by what the seller and buyer agree upon. It has very little to do with the market at large. You make me an offer, and if I agree to it, we have a deal. It’s as simple as that.

It is far more advantageous to invest in an inefficient market because you may have information that the seller doesn’t, and this can make your investment worth much more than what the seller thinks it is worth. This happens all the time. The buyer sees a for-sale listing through a different set of eyes than the seller. He sees the property, not as it is, but for what it has the potential to become. Now the seller has decided it’s time to sell, for whatever reason. He doesn’t see the property’s potential. Instead he sees the issues that plague his property. Who has the more accurate assessment of the property? No one knows with certainty, even when the sales price is agreed to between seller and buyer. But over time, the property’s true potential will become readily apparent.

So the first not so obvious advantage of owning real estate over owning common stock is that it’s possible to buy real estate at a bargain price. You can never buy stock at a bargain, only at what is considered the market price.

2. RE Owners Can Influence the Outcome of Their Investments

The second not so obvious reason to invest in real estate rather than owning other types of investments is that real estate owners have considerable influence on the outcome of their investments. They can:

make capital improvements to tired properties,change management for those properties that are poorly managed, anre-tenant properties with better quality and higher paying tenants.

As an owner of stock, you’re a passive investor with no influence whatsoever on the value of your investment. You are truly a passive investor. You are at the whim of the emotions that control the stock market. Your particular stock might be doing well right now. But if the market takes a downward cycle, your stocks are going down in price with the rest of the market.

But the successful CRE investor is actively engaged with considerable influence on the value of his investment through a variety of ways. In commercial real estate, you actually have quite a bit of control over your investment and its potential for growth.

3. The 3rd Not So Obvious Reason

But it’s the third not so obvious reason why investing in real estate is far superior to owning any other type investment, which I’ll explain in my next blog post.

Those are my thoughts.  I welcome yours.   What are your thoughts?  Is owning real estate superior to any other type of investment?

Doug Marshall is the award winning author of Mastering the Art of Commercial Real Estate Investing and the recently released online course The Great Game of Real Estate Investing.

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Learn how to overcome the fear of investing in real estate

In my previous blog post, Feel the Fear and Do it Anyway, I identified four types of fear that hold people back from investing in real estate. They are:

Fear of FailureFear of the UnknownFear of InadequacyFear of Rejection

Anyone of these fears can torpedo your chances of buying your first rental property. In that article I talked about Fear of Failure and the Fear of the Unknown. In today’s article I want to discuss two more types of fear, that are far more subtle, but just as debilitating. They are, Fear of Inadequacy and Fear of Rejection.

Fear of Inadequacy

Over the past few years, I have read several books on real estate investing. As an author of a book on real estate investing, I was curious to see what other authors were saying about how to invest in real estate. What I discovered is that most real estate investing books can be divided into one of two categories:

“You can do it” is the first group. These books are long on “rah-rah” and short on any meaningful content, orThey teach you things you really don’t need to know…

Let me explain.

Assemble a RE Advisory Team

Most real estate investing experts agree that every successful real estate investor needs to assemble a highly competent real estate advisory team. And the team members should be seasoned experts in their fields of interest, including, but not limited to:

Real estate brokeringGeneral contractingMortgage brokering, andProperty management

You should add those individuals to your team who are more knowledgeable than you are in their area of expertise. Makes perfect sense, doesn’t it? So why then do these real estate investing experts then focus the remainder of their books or online courses on checklists that are needed for one of their real estate advisors?

What’s their motivation?

Call me cynical, but I believe these real estate experts want to generate the Fear of Inadequacy in their readers. When a new investor sees all these checklists the natural response is to think, “I can’t do this. I’m clueless.” Why would these authors do this? What is their motivation? I believe that most of these authors wrote their books as a lead magnet. A lead magnet is a product that is offered, in this case a book or even an online real estate investing course, for the purpose of generating new business.

The author wants to make a new investor feel inadequate so that the new investor will hire the author, typically at an over inflated price, to be their real estate investing coach. That’s where the real money is, not in book royalties or online courses but in fat fees or commissions for helping the new investor find his first rental property.

You don’t need to know these things

Don’t be fooled. You, as the new investor, don’t need to understand all the things shown on these endless checklists. For example, as the real estate investor:

You don’t need to know how to negotiate the details of the Purchase & Sale Agreement that will protect you from a nefarious seller. Your real estate broker should know those details.You don’t need to know what things you should be looking at during a walk-through of a property to determine its condition. Your general contractor should know these things.You don’t need to know how to get the best possible financing for the property. Instead you need to have a mortgage broker who does.

If a task can be delegated to one of your real estate advisors, delegate it! You as a new real estate investor will never be as good as your real estate advisors in their areas of expertise. So why shoulder their responsibility? Empower them to give you their seasoned advice. Does that make sense?

How to overcome Fear of Inadequacy

Fear of Inadequacy melts away once you understand that you don’t need know everything about real estate investing to be a successful real estate investor. Simply put, delegate those responsibilities that your real estate advisors are more capable of performing than you are. Conversely, save your time, energy and brainpower for those decisions that you alone should be making.

Fear of Rejection

Thirty years ago, I was transferred by my employer to Atlanta, Georgia and within 18 months, due to no fault of my own, I was laid off. Now imagine my predicament. I was new to the city and I knew virtually no one. And now I had to find a job with no safety net of people to call on. I began with a measly list of three people that might be able to help me. Slowly over time, that list of three grew to 332 contacts during the 17 months it took to find my next job.

I got very good at overcoming rejection

I would call a prospect and say something like this: “Hi, my name is Doug Marshall, (name of referrer) suggested I give you a call. I was recently laid off and I’m looking for a new job. May I come by and briefly introduce myself to you?” Over time I realized that if I called ten people, four of them would say “yes” to my request for a meeting. Regardless of the outcome of these meetings before I said goodbye I would ask if they knew of anyone that they could recommend that I should contact. And that is how I got my list to grow from 3 to 332 names. But realize that if four were willing to meet with me, that meant six people said “no.” I got very good at overcoming rejection.

How do you overcome the Fear of Rejection?

So how does the Fear of Rejection affect real estate investing? As a new investor, people in the real estate business and those who own real estate will be constantly sizing you up. Are you a player, they’ll be asking themselves, or are you just wasting my time? And many will reject you as credible and will not want to do business with you.

Be Prepared

When I was seeking a new job those many years ago, I not only had a script that I read from when making my calls and I also had a script that I followed religiously when I met with my prospects. By being prepared, it took away some of my anxiety about finding a job. I knew what I wanted to say, and I could relax a bit. When you’re buying your first rental property, be prepared when you meet with the listing broker and other real estate professionals. Act professionally. Don’t act like this is your first rodeo, even if it is.

Focus on the Prize

I had great incentive to find my next job. I had a wife, who was a stay-at-home mom, and two pre-school children to support. I had no choice but to find my next job! In the same way, many first-time investors are financially motivated. You know that if you don’t do something to change your financial situation for the better, retirement may be meager at best, and for some you, you may not be able to retire at all. So focus on what motivates you to become a real estate investor and not on the very real possibility you’ll be rejected many times along the way.

Mastering Fear: A Navy Seals Guide

Finally, I strongly recommend you read the book, Mastering Fear: A Navy Seal’s Guide by Brandon Webb. Mr. Webb is a retired Navy Seal. The book has many practical tips on how to master your fear. There is a quote in the book that I have adopted as my own: Everything you really want in life is on the other side of fear. Think about that statement. Is it true? I believe it is. Is it true for real estate investing? Absolutely! Don’t let fear get in the way of what you truly want in life.

Those are my thoughts. I welcome yours. What holds you back from investing in real estate?

Doug Marshall is the award-winning author of Mastering the Art of Commercial Real Estate Investing and the recently launched online course The Great Game of Real Estate Investing.

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Feel the fear and do it anyway!

Recently I had the privilege to be a guest on James Nelson’s podcast, Real Estate Investing – Live from New York.  I was on his show promoting my new online real estate investing course, The Great Game of Real Estate Investing.  It’s my third time being a guest on his show.  James is an excellent podcast host.  Unlike some podcast hosts, he’s well prepared, he has insightful questions and excellent comments that enhance a guests’ presentation.  I would highly encourage you to listen to his podcasts when you have a chance.  He’s worth listening to.

The Ninety-Five Percent

During our conversation, James made a passing comment which got my attention.  He said that 95 percent of his listeners never end up buying their first rental property.  Ninety-five percent!!  He went on to say that the advice he gives his listeners to overcome this inertia is, to borrow a phrase from Nike, to just do it!  As simplistic as that advice sounds, it’s good advice.  It really is.

I believe fear is the number one reason people don’t invest in real estate.  And I believe James’s podcast audience is typical of most would-be investors.  They can’t pull the trigger to buy their first rental property.  It’s not because of a lack of money, or a lack of knowledge that prevents them from investing in real estate.  It’s fear, plain and simple.

4 Types of Failure

As we all know, there are many types of fear – fear of public speaking, fear of flying, and fear of heights to name just a few.  But I believe there are four types of fear that prevent people from investing in real estate.  They are:

Fear of FailureFear of the UnknownFear of InadequacyFear of Rejection

Anyone of these fears can torpedo your chances of buying your first rental property.  So let’s go through them, one by one.  Today’s article I’ll tackle the first two fears – The Fear of Failure and the Fear of the Unknown.

Think about this statement: Everything you really want in life is on the other side of fear.  Is that true?  I believe it is.  Think about that first kiss.  Hmmm???
How about the first time you did anything well?  A solo, a speech, an athletic endeavor.  Do you remember that fear you felt that gave way to relief? And then to joy?  So let’s see how fear affects real estate investing.

Fear of Failure

Fear of failure is all about looking foolish in the eyes of family and friends should things go wrong.  But I believe it’s based on wrong thinking which is, “You win or you lose.”   Those who are reluctant to invest in CRE need to adopt a different mindset of, “You either win or you learn.” In everything we do, we either win (we make the right decision), we do the “happy dance,” or we learn what not to do so the next time we have a better outcome.  Sometimes your investment is a home run, and sometimes you learn what not to do so next time has a higher probability of being a success.  Over the years I’ve observed that highly successful real estate investors understand and practice this truth.

In 2009, a group of like-minded investors banded together to purchase a 56-unit apartment that had been taken over by the bank.  Do you remember what was going on in 2009?  We were in the depths of the Great Recession.  The real estate market was in a freefall.  Everybody and their brother was running away from real estate in 2009 and here we were thinking about buying an apartment.  Was I fearful?  You bet I was!

But I kept looking at the numbers and it made sense to me.  Looking back on it now, it was the best investment I’ve ever made.  For every dollar invested we have received to date $10 dollars back in either owner distributions or in increased equity.  But before I could invest, I had to get over the fear of failure.

This reminds me of the well-known quote by Warren Buffett.  “I will tell you how to become wealthy,” he said.  “Be fearful when others are greedy.  Be greedy when others are fearful.”

There is one more truth about the Fear of Failure that we need to address before moving on which is explained beautifully in this cartoon by Steve Moore.  The cartoon is both humorous and serious at the very same time.

Notice the guy on the starting line ready to run the Fear of Failure Marathon.  He looks over to the people on the sidelines who are all saying something like, “Heck no. I’m not going to run in this race.”  And notice what the guy on the starting line says to the people on the sidelines.  He say’s “ditto” which means, “I agree.”  In other words, he too is fearful just like them.

But he’s also courageous because he’s ready to run the race even though he’s fearful.  And that is the serious message contained in this humorous cartoon.  Fear and courage are not mutually exclusive.  And that is how we have to be when investing in commercial real estate.  It is okay to feel both emotions at the very same time.

Fear of the Unknown

Fear of the unknown also stops many people from investing in real estate.  But it need not be that way.  Every new investor could take away much of the uncertainty of real estate investing by answering five questions before they buy their first rental property.

If you’re investing in real estate for the first time, the first question you need to answer is:

Do I want to be an active or passive real estate investor?

An active investor makes all the decisions about the property such as what property to buy, how much to offer, who will manage the property and which lender to use for financing their property.  A passive investor allows someone else to make all those decisions and many, many more.

If you want to be a passive investor, you only have one decision you need to make.

Who do I invest with? 

There is no doubt in my mind that every major real estate market in the country has several reputable commercial real estate sponsors that are looking for people like you to be passive investors in their next real estate venture.  You need them for their real estate expertise, and they need you because they are tapped out of funds to buy the next rental property.  It’s truly a symbiotic relationship.

But if you decide you want to be a passive investor, understand choosing who you want to invest your hard-earned money with is really the only major decision you need to make.  Once you’ve made this decision, you can kick back and relax.

But let’s say you would rather be an active investor.  You have four different decisions you need to make.

Do I want to invest by myself or do I want to be the decisionmaker for a group of CRE investors? 

The advantage of being a solo investor is that you don’t have anyone else to satisfy about your commercial real estate investment strategy.  But the disadvantage of going it alone is that often times you don’t have the financial resources to buy anything more than a small rental property, e.g., a duplex.  If on the other hand, you are the managing member of an LLC with, let’s say with four other investors, you now have significantly more money for a down payment and with more equity the group can buy a larger property.  But the downside is you now have investors you will need to keep happy.

Who do I want on my real estate advisory team?

You should add people to your advisory team where you lack expertise. Each of these advisors should bring their unique backgrounds and experience to the team enhancing your chances that all the potential issues will be identified upfront during the due diligence process instead of being unpleasantly surprised after the transaction closes.  At the very minimum you should consider having on your advisory team a:

Real estate brokerMortgage brokerReal estate attorneyGeneral Contractor/Building inspectorProperty management companyCPA/Accountant

One common issue I have with many of the books on real estate investing is the amount of unnecessary detail they provide about the role of each of these real estate professionals.  I’m going to let you in on a little secret: I will never have an adequate working knowledge for most of these areas of expertise, certainly not enough to help me make an informed decision about whether I should purchase a property!  And that is why I seek out honest, knowledgeable real estate advisors.  I rely on their judgment and so should you.

The very best thing you can do is to be very diligent in finding the absolute best members for your real estate advisory team.  And because you have a trusted real estate advisory team you don’t need to “get lost in the weeds” learning what each of your real estate advisors already knows.

How will I finance the property?

You have three choices: 1) if you’ve done this before, you can go back to an existing lender relationship; 2) you can shop the mortgage market on your own; or 3) you can employ the services of a commercial mortgage broker.  I strongly believe your best chances of getting the best possible loan for your property is going through a mortgage broker, which I will explain in detail why that is the case in Module 4.

How will I manage the property?    

Again, you have three choices: 1) you can self-manage; 2) you can hire an on-site manager who reports directly to you; or 3) you can hire a property management company to manage your property.  Each option has its advantages and disadvantages and which you choose is based on those criteria that are most important to you.

But once you answer these questions, Fear of the Unknown is significantly reduced because you now have made several critical decisions about your future rental property.

There you have it.  Overcoming Fear of Failure is all about changing your mindset from “You win or you lose” to “You win or you learn.” Overcoming the Fear of the Unknown is significantly reduced by answering these five questions.

Winston Churchill said it best when he said, “Success is not final, failure is not fatal; it is the courage to continue that counts.” 

Those are my thoughts on Fear of Failure and Fear of the Unknown.  I welcome yours.  What do you believe holds would-be investors back from buying their first rental property?

Doug Marshall is the award-winning author of Mastering the Art of Commercial Real Estate Investing and the online course The Great Game of Real Estate Investing.

The post Feel the fear and do it anyway! appeared first on MarshallCf.

The #1 Reason People Don’t Invest in Real Estate

Recently I had the privilege to be a guest on James Nelson’s podcast, Real Estate Investing – Live from New York.  I was on his show promoting my new online real estate investing course, The Great Game of Real Estate Investing.  It’s my third time being a guest on his show.  James is an excellent podcast host.  Unlike some podcast hosts, he’s well prepared, he has insightful questions and excellent comments that enhance a guests’ presentation.  I would highly encourage you to listen to his podcasts when you have a chance.  He’s worth listening to.

The Ninety-Five Percent

During our conversation, James made a passing comment which got my attention.  He said that 95 percent of his listeners never end up buying their first rental property.  Ninety-five percent!!  He went on to say that the advice he gives his listeners to overcome this inertia is, to borrow a phrase from Nike, to just do it!  As simplistic as that advice sounds, it’s good advice.  It really is.

I believe fear is the number one reason people don’t invest in real estate.  And I believe James’s podcast audience is typical of most would-be investors.  They can’t pull the trigger to buy their first rental property.  It’s not because of a lack of money, or a lack of knowledge that prevents them from investing in real estate.  It’s fear, plain and simple.

4 Types of Failure

As we all know, there are many types of fear – fear of public speaking, fear of flying, and fear of heights to name just a few.  But I believe there are four types of fear that prevent people from investing in real estate.  They are:

Fear of FailureFear of the UnknownFear of InadequacyFear of Rejection

Anyone of these fears can torpedo your chances of buying your first rental property.  So let’s go through them, one by one.  Today’s article I’ll tackle the first two fears – The Fear of Failure and the Fear of the Unknown.

Think about this statement: Everything you really want in life is on the other side of fear.  Is that true?  I believe it is.  Think about that first kiss.  Hmmm???
How about the first time you did anything well?  A solo, a speech, an athletic endeavor.  Do you remember that fear you felt that gave way to relief? And then to joy?  So let’s see how fear affects real estate investing.

Fear of Failure

Fear of failure is all about looking foolish in the eyes of family and friends should things go wrong.  But I believe it’s based on wrong thinking which is, “You win or you lose.”   Those who are reluctant to invest in CRE need to adopt a different mindset of, “You either win or you learn.” In everything we do, we either win (we make the right decision), we do the “happy dance,” or we learn what not to do so the next time we have a better outcome.  Sometimes your investment is a home run, and sometimes you learn what not to do so next time has a higher probability of being a success.  Over the years I’ve observed that highly successful real estate investors understand and practice this truth.

In 2009, a group of like-minded investors banded together to purchase a 56-unit apartment that had been taken over by the bank.  Do you remember what was going on in 2009?  We were in the depths of the Great Recession.  The real estate market was in a freefall.  Everybody and their brother was running away from real estate in 2009 and here we were thinking about buying an apartment.  Was I fearful?  You bet I was!

But I kept looking at the numbers and it made sense to me.  Looking back on it now, it was the best investment I’ve ever made.  For every dollar invested we have received to date $10 dollars back in either owner distributions or in increased equity.  But before I could invest, I had to get over the fear of failure.

This reminds me of the well-known quote by Warren Buffett.  “I will tell you how to become wealthy,” he said.  “Be fearful when others are greedy.  Be greedy when others are fearful.”

There is one more truth about the Fear of Failure that we need to address before moving on which is explained beautifully in this cartoon by Steve Moore.  The cartoon is both humorous and serious at the very same time.

Notice the guy on the starting line ready to run the Fear of Failure Marathon.  He looks over to the people on the sidelines who are all saying something like, “Heck no. I’m not going to run in this race.”  And notice what the guy on the starting line says to the people on the sidelines.  He say’s “ditto” which means, “I agree.”  In other words, he too is fearful just like them.

But he’s also courageous because he’s ready to run the race even though he’s fearful.  And that is the serious message contained in this humorous cartoon.  Fear and courage are not mutually exclusive.  And that is how we have to be when investing in commercial real estate.  It is okay to feel both emotions at the very same time.

Fear of the Unknown

Fear of the unknown also stops many people from investing in real estate.  But it need not be that way.  Every new investor could take away much of the uncertainty of real estate investing by answering five questions before they buy their first rental property.

If you’re investing in real estate for the first time, the first question you need to answer is:

Do I want to be an active or passive real estate investor?

An active investor makes all the decisions about the property such as what property to buy, how much to offer, who will manage the property and which lender to use for financing their property.  A passive investor allows someone else to make all those decisions and many, many more.

If you want to be a passive investor, you only have one decision you need to make.

Who do I invest with? 

There is no doubt in my mind that every major real estate market in the country has several reputable commercial real estate sponsors that are looking for people like you to be passive investors in their next real estate venture.  You need them for their real estate expertise, and they need you because they are tapped out of funds to buy the next rental property.  It’s truly a symbiotic relationship.

But if you decide you want to be a passive investor, understand choosing who you want to invest your hard-earned money with is really the only major decision you need to make.  Once you’ve made this decision, you can kick back and relax.

But let’s say you would rather be an active investor.  You have four different decisions you need to make.

Do I want to invest by myself or do I want to be the decisionmaker for a group of CRE investors? 

The advantage of being a solo investor is that you don’t have anyone else to satisfy about your commercial real estate investment strategy.  But the disadvantage of going it alone is that often times you don’t have the financial resources to buy anything more than a small rental property, e.g., a duplex.  If on the other hand, you are the managing member of an LLC with, let’s say with four other investors, you now have significantly more money for a down payment and with more equity the group can buy a larger property.  But the downside is you now have investors you will need to keep happy.

Who do I want on my real estate advisory team?

You should add people to your advisory team where you lack expertise. Each of these advisors should bring their unique backgrounds and experience to the team enhancing your chances that all the potential issues will be identified upfront during the due diligence process instead of being unpleasantly surprised after the transaction closes.  At the very minimum you should consider having on your advisory team a:

Real estate brokerMortgage brokerReal estate attorneyGeneral Contractor/Building inspectorProperty management companyCPA/Accountant

One common issue I have with many of the books on real estate investing is the amount of unnecessary detail they provide about the role of each of these real estate professionals.  I’m going to let you in on a little secret: I will never have an adequate working knowledge for most of these areas of expertise, certainly not enough to help me make an informed decision about whether I should purchase a property!  And that is why I seek out honest, knowledgeable real estate advisors.  I rely on their judgment and so should you.

The very best thing you can do is to be very diligent in finding the absolute best members for your real estate advisory team.  And because you have a trusted real estate advisory team you don’t need to “get lost in the weeds” learning what each of your real estate advisors already knows.

How will I finance the property?

You have three choices: 1) if you’ve done this before, you can go back to an existing lender relationship; 2) you can shop the mortgage market on your own; or 3) you can employ the services of a commercial mortgage broker.  I strongly believe your best chances of getting the best possible loan for your property is going through a mortgage broker, which I will explain in detail why that is the case in Module 4.

How will I manage the property?    

Again, you have three choices: 1) you can self-manage; 2) you can hire an on-site manager who reports directly to you; or 3) you can hire a property management company to manage your property.  Each option has its advantages and disadvantages and which you choose is based on those criteria that are most important to you.

But once you answer these questions, Fear of the Unknown is significantly reduced because you now have made several critical decisions about your future rental property.

There you have it.  Overcoming Fear of Failure is all about changing your mindset from “You win or you lose” to “You win or you learn.” Overcoming the Fear of the Unknown is significantly reduced by answering these five questions.

Winston Churchill said it best when he said, “Success is not final, failure is not fatal; it is the courage to continue that counts.” 

Those are my thoughts on Fear of Failure and Fear of the Unknown.  I welcome yours.  What do you believe holds would-be investors back from buying their first rental property?

Doug Marshall is the award-winning author of Mastering the Art of Commercial Real Estate Investing and the online course The Great Game of Real Estate Investing.

The post The #1 Reason People Don’t Invest in Real Estate appeared first on MarshallCf.

Why I am no longer a Republican

I changed my party affiliation from Independent to Republican in 1976 so I could vote for Ronald Reagan in the primaries. That year Gerald Ford eventually became the Republican nominee for President, and as you know, Jimmy Carter won the election.

I have been a proud Republican for decades as I believe in the conservative principles of the Republican Party. Things changed for me in 2016 with the emergence of Donald Trump.

My 2016 Take on Donald Trump

In March of 2016, before Donald Trump became the Republican nominee for president, I wrote a blog post titled, My Take on a Donald Trump Presidency. In this blog post I wrote:

“Some will say, that if Mr. Trump becomes president, he will surround himself with the best and the brightest minds that will provide him the counsel he’ll need to make tough decisions. And surely that is what he’ll do. Unfortunately, there are indications that Mr. Trump has narcissistic tendencies. See if the description of a narcissist found in Daniel Goleman’s book, Social Intelligence, aptly describes Donald Trump:

A narcissist is someone who has a grandiose sense of self-importance, harbors obsessive fantasies of unbounded glory, feels rage when criticized causing him to lash out, considers himself special, and lacks empathy towards others.That deficiency in empathy means narcissists remain oblivious to the self-centered abrasiveness that others see in them so clearly.Although they can selectively turn on the charm, just as readily they can be disagreeable. Not in the least drawn to emotional intimacy, they are highly competitive, cynical and mistrustful of others, and readily exploit people in their lives.

I believe this definition of a narcissist perfectly describes Donald Trump. While history has shown that some narcissistic leaders get spectacular results others create disasters. Why?

Narcissists have a tendency to selectively seize on data that supports their views, ignoring the counsel that runs contrary to their preconceived ideas. Healthy dissent is ignored and eventually dies out altogether.Narcissists surround themselves with “yes-men” who agree with anything they say in order to stay in their good graces.Narcissists not only don’t listen, they prefer to preach and indoctrinate.

Now imagine for a moment the consequences of a president who does not listen to his counselors but rather listens to those who feed his ego. How dangerous would that be? Notice my criticism of Donald Trump is not based on his positions on the issues. It’s based solely on his narcissistic personality. He would be dangerous as President of the United States. We deserve better.”

Were those words prescient or what! Donald Trump’s behavior since losing the election to Joe Biden has been treasonous. His unwillingness to concede the election to Mr. Biden and his incendiary rhetoric resulted in a mob descending on the U.S. Capitol where five people died. He is a danger to this country and should be immediately removed from office.

Why I am no longer a Republican

But that is not why I’m writing this article. I’m writing this article because of those Republicans in office who are still perpetrating the lie that the Democrats stole this election. Six U.S. Senators and 147 House Republicans, including the House Minority Leader, Kevin McCarthy are still in denial. They either believe this lie, which calls into question their ability to distinguish fact from fiction, or worse, they know it’s not true but are playing to their core constituency for political purposes. Blood is on their hands too. Shame on them.

My political party has been hijacked by men and women that I find an embarrassment to be associated with. For that reason, I am no longer a Republican.

Those are my views.  I welcome yours.

The post Why I am no longer a Republican appeared first on MarshallCf.

My 10 Most Favorite Books of 2020

This blog post is devoted to sharing ten of my most favorite books I read in 2020. You’ll see that I like to read a variety of books. If you’re interested in learning more about a particular book, click on the book title and the link will take you to its Amazon page.

#10. This Life or the Next: A Novel by Demian Vitanza

The protagonist, Tariq Khan, is born in Pakistan but raised in Norway.  He is torn between two very different cultures.  While growing up in Norway he slowly but inevitably drifts towards the darker, lawless side of teenage rebellion.  He is an outcast because of this race, language and culture until an uncle takes an interest in him.  The uncle, a devout Muslim, helps Tariq find his identity and purpose in Islam.  But Tariq’s faith evolves toward the radical fringe of Muslim revival.

With his new-found religious zeal, Tariq travels to Syria to enlist in the war against the Assad regime.  It is there that his idealism of jihad is juxtaposed alongside the brutality of war and the inconsistencies in his faith as he experiences various Muslim factions fighting among one another, not for jihad but for power.

This book is thought provoking.  It gave me a better appreciation of why young Muslim teenagers desire to fight for jihad, while at the same time it confirmed my thinking that jihad is evil.  The book put a human face to my long-held belief of prejudice towards those I had no empathy or understanding of.  Read this book if you have the courage to challenge your views on this topic.

#9. Genghis Khan and the Making of the Modern World by Jack Weatherford

This is another book where my perspective changed, this time about a historical figure.  I always thought Genghis Khan was a barbarian that conquered the known world through brute force with his Mongol hordes.  And yes, he did conquer the kingdoms of the known world, not through brute force, but through tactical brilliance.

The author makes a compelling case that the Mongol empire has had a tremendous influence on modern thinking, e.g., religious tolerance, meritocracy, globalization of commerce, public schooling and paper currency to name just a few of the more noteworthy concepts that Genghis Khan introduced to the world which have become absorbed into our modern way of life.

#8. The Ghost Map: The Story of London’s Most Terrifying Epidemic and How It Changed Science, Cities and the Modern World by Steven Johnson

In the summer of 1854 London experiences a devastating cholera outbreak.  At the time, London was emerging as one of the first modern cities in the world, but it lacked the infrastructure for clean water, and a system for sewage and garbage removal.  As such, it became the perfect breeding ground for spreading this disease.

At the time, no one knew how cholera spread.  One of the most popular theories, promoted by well-respected scientists and medical doctors of the day, was that it spread through the air.  Nor did doctors know how to treat the disease and in many instances the prescribed treatment actually increased the mortality rate of cholera.

The book follows the intriguing account of a clergyman and a physician, working separately, who ultimately solve the mystery of how cholera is spread (through water, not air) and the best treatment for those who contract the disease.  It is a riveting story of scientific discovery and tenacity of two individuals that eventually overcome the misguided thinking of the scientific community.

#7. A Higher Call: An Incredible True Story of Combat and Chivalry in the War-Torn Skies of World War II by Adam Makos

This is the true story of a German fighter pilot, Second Lieutenant Hans Stigler, spotting a badly damaged American bomber, piloted by Second Lieutenant Charlie Brown, struggling to fly back to its home base in England after a bombing run over Germany.  Instead of shooting the plane down, which the German fighter pilot could have easily done, Lt. Stigler escorts the plane out over the English Channel permitting the plane the chance to make it back to base.  It is a remarkable story of chivalry.

The book follows the WWII flying missions of both pilots and the chance encounter they experience of meeting one another 40 years later.  I am a voracious reader of WWII books, historical novels, biographies, and military history.  Most of these books, you know who the good guys and the bad guys are, and rightly so.  The Nazis are the closest thing to evil that the world encountered during the 20th century.  But in this story, the role of the “good guy” is a German fighter pilot.  Definitely a feel-good book to read.

#6. The Far Pavilions by M.M. Kaye

The Far Pavilions is a novel, set in 19th century India and Afghanistan.  It is the story of a young Indian-born orphan of English parentage raised by an Indian woman, a Hindu, who is the servant of his father.  When his father is murdered by an Indian uprising against British rule, the Indian woman adopts the boy as her own.  So begins the story Ashton, a saga of epic proportion.

Ms. Kaye is a very good storyteller but what makes this story come alive is her knowledge of Indian culture, Hinduism and other religious faiths found in India.  Her book has been compared to Margaret Mitchell’s epic achievement, Gone With the Wind.  And I believe that is an apt description of her book.  A true masterpiece of storytelling.

#5. God is Closer Than You Think by John Ortberg

Unfortunately, when I hear someone say, “The Lord told me to…” my knee-jerk reaction is skepticism followed by veiled contempt.  But occasionally someone whom I respect for their spiritual maturity will say the same thing and my reaction is quite different: I pause to listen, and my response is not skepticism, it’s envy.  “I wish I could hear God speaking to me like that,” is what I’m thinking.

The underlying message of John Ortberg’s book, God is Closer Than You Think, is that believers can have a personal, intimate relationship with God that involves listening and hearing God’s voice.  I find that a fascinating proposition and yet why should I be surprised?  If God is a personal God, then why wouldn’t he want to talk with us?

John Ortberg writes in a way that is both entertaining and insightful.  Do not expect a religious tome.  Chapter titles include, Where’s Waldo, A Beautiful Mind (the story of Nobel Laureate John Nash) and “As You Wish”, a phrase made famous in the hilarious comedy, The Princess Bride.  It is a thought-provoking book that both religious skeptics and believers will enjoy and benefit from reading.

#4. The Help by Kathryn Sockett

The book is a work of fiction, situated in 1962 in Jackson, Mississippi at the beginning of the civil rights era.  I unfortunately saw the movie before I read the book and almost didn’t read the book because of it.  The movie was quite entertaining, but it missed the intensity of the social and racial injustice that was articulated so well in the stories of Aibeleen and Minny, two black maids working for their white female employers.  Yes, there were some humorous tidbits throughout the book, but the real gut punch came in hearing the stories of black maids (which I believe are true, not fiction) told in a story-like setting to make it all the more poignant.

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This book is a true story of Hyesonseo Lee, a North Korean woman who decides to escape from the tyranny of her country.  Her family lived along the Yalu River, the border between North Korea and China.  The book explains the extensive cross border smuggling that her mother and other relatives participated in.  Due to her close proximity to China, she could also get Chinese cell phone service which opened her to a new reality.

Slowly she realized that North Korea could not be the best country in the world as she had been told all her life.  The repression, poverty, and starvation that she witnessed and seeing how much better life was in China confirmed that she had been brainwashed by North Korean propaganda.

This book is a real page-turner of the true story of one woman’s struggle to avoid capture and repatriation.  You may wonder why the title, A Girl with Seven Names?  Because to avoid capture in China and forced repatriation, she moved around a lot and each time she moved she took a different name to stay one step ahead of the law.

#2. American Dirt: A Novel by Jeanine Cummins

The protagonist is Lydia Quixano Perez who lives in the Mexican city of Acapulco.  She runs a bookstore, and her husband is a journalist for the local newspaper.  Lydia’s life is turned upside down when her husband publishes an expose’ on Javier, the leader of the newest drug cartel that has brutally taken over the city.  At a family birthday party, fourteen members of her family including her husband, are gunned down in retribution for the article. Lydia and her eight-year-old son are forced to flee for their lives.

Lydia and Luca are instantly transformed from their middle-class existence into migrants making their way north to the United States to safety.  This is the story of Lydia, Luca and countless other people trying to reach el norte by hitching rides on tops of trains, the harrowing encounters with those who would take advantage of them (especially women) as well as the kindness of strangers that help them along the way.

The book has been described as the Grapes of Wrath for our times, and a new American classic.  I agree.  In my opinion, it is a must read.

#1. Just Mercy: A Story of Justice & Redemption by Bryan Stevenson

This book has been named one of the most influential books of the decade by CNN and one of the best books of the year by The New York Times, The Washington Post, The Boston Globe, and Time magazine.

The following is quoted directly from the book’s Amazon page:

“Bryan Stevenson was a young lawyer when he founded the Equal Justice Initiative, a legal practice dedicated to defending those most desperate and in need: the poor, the wrongly condemned, and women and children trapped in the farthest reaches of our criminal justice system. One of his first cases was that of Walter McMillian, a young man who was sentenced to die for a notorious murder he insisted he didn’t commit. The case drew Bryan into a tangle of conspiracy, political machination, and legal brinksmanship—and transformed his understanding of mercy and justice forever.

Just Mercy is at once an unforgettable account of an idealistic, gifted young lawyer’s coming of age, a moving window into the lives of those he has defended, and an inspiring argument for compassion in the pursuit of true justice.”

If you are going to read only one book from my list, this is the one.

These are my favorite books of 2020.  What have you read lately that you would recommend?

Doug Marshall is the award-winning author of Mastering the Art of Commercial Real Estate Investing.  Check it out on Amazon.

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Six Key Underwriting Guidelines that Lenders Use to Qualify You

A Short History of Underwriting Guidelines

Borrower underwriting guidelines have changed dramatically in recent years. Back in the good old days, prior to the Great Recession, lenders did a very cursory job of underwriting the borrower. They typically asked the borrower to provide a simple financial statement with a credit check, and that was the extent of the credit items required.

Back then, they focused almost exclusively on the pros and cons of the property. And if they liked the risks associated with the property, it was very likely the loan would be approved with only a cursory look at the borrower.

Ah, the good old days.  But as you know that all changed in recent years.  In today’s environment, lenders have upped their borrower documentation considerably requiring an extensive amount of information on the borrower.

Under today’s lender guidelines the borrower would do themselves a favor if they were proactive about providing their personal documentation at the same time as the property documentation. Doing so strongly suggests that you, the borrower, are a professional, seasoned investor.  Instead of slowly dripping the required documents over a couple of weeks or so, have it all prepared to give to them right from the get go.

Six underwriting guidelines lenders use to qualify you:

Minimum Net Worth to Loan Ratio – Provide the lender with a complete, professional looking personal financial statement. Each lender has different requirements but they typically require the borrower’s net worth to be equal to or greater than the loan amount. Some require a borrower’s net worth to be as much as two times the proposed loan amount.  Ask the lender before you send him your financial statement what is the minimum net worth to loan ratio.  If your net worth exceeds this ratio then proceed with sending him all your personal documentation.
Minimum Number of Months of Debt Service Required of Liquid Assets – Again each lender is different but they typically require liquid assets showing on the borrower’s balance sheet equal to 6 to 12 months of debt service. Find out what your lender requires before signing the application.
Complete the REO Schedule with all the Details Filled In – Most lenders now create a global cash flow spreadsheet on the borrower. They want to see if the prospective borrower is generating a positive cash flow or slowly draining himself of all his cash.  Much of the detail required to determine his global cash flow comes from the real estate owned schedule.  Prepare the REO schedule before you begin talking to lenders so that when they ask for it, it’s ready for them.  If you need a copy of a REO schedule contact me and I’ll email you one.
Credit Rating & Explanations of 30 Day Late Payments – Run a credit report on yourself before you start looking for a lender. Find out your credit score.  Most lenders require that your credit score be a minimum of 680.  If yours is not that high, you better have a good explanation.  Also you need to explain every payment that is 30 days late or more.  Put it in writing before they ask.
Explain Past Tax Liens, Judgments, Litigation – Have written explanations with back up documentation already prepared before you sign the application. Give the prospective lender your explanations and have him verify in advance of signing your application that your explanations are satisfactory and will not impact loan approval.  Do it before you sign the application when you have the most negotiating power, not after when you have little or none.
Tax Returns, not just Schedule 1040s, signed and dated including all K-1s – Lenders want all of your federal tax returns, not parts of them. This includes providing all of you K-1s.  To speed up the process get it done correctly the first time.

Time Kills Deals

One of the truest statements ever uttered about commercial real estate is, “Time kills deals.”  A lengthy, drawn out loan underwriting process will at the very least move your deal to the bottom of the pile.

It has the potential of killing the deal altogether.  These borrower underwriting guidelines can be verified quickly if the borrower is proactive and anticipates what the lender is going to require.  A borrower should work towards making the lender’s process as easy as possible to avoid ever hearing the words, “I’m sorry to inform you, your loan has been turned down.”

Those are my thoughts, I welcome yours.  What underwriting guidelines do you think are most important for qualifying a borrower?

Doug Marshall is the award winning author of the book, Mastering the Art of Commercial Real Estate Investing.  Check it out on Amazon.

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