How to Select a Commercial Real Estate Company

Selecting a commercial real estate company can be a challenging process. You want to hire someone who is knowledgeable, skilled, experienced and can match your goals and ideals. This is easier said than done. One company may offer you some of these features while others have the remaining characteristics you desire. There is no lack of the number of commercial real estate companies out there, which claim to possess peerless knowledge and skill. So, how do you go about selecting a commercial real estate company?

The secret lies in finding a real estate company that suits your needs and criteria. Yes, there are some overlaying concerns that also need to be considered like appropriate documentation. However, when you are looking for one of the best real estate companies for your needs, you need to do more than just scratch the surface. Here are some tips outlined below that can be useful in helping you during this process.

Let’s take a look at them:

Look at their experience

Commercial real estate is a blanket term and this business can be multi-faceted and highly nuanced. Therefore, you cannot just hire any real estate company for your needs. You have to start looking for one that suits your criteria. For instance, if you are interested in buying or selling properties in strip malls or shopping districts, you shouldn’t hire a company that deals in offices and residential homes. You want someone with a background in the kind of real estate you are focused on or else the company will be of little use because they will be out of their depth.

Assess their reputation

One of the best ways of spotting the best companies is by taking a look at their reputation. How can you do that? There are certifications, customer reviews as well as awards that are readily available due to the magic of the internet and the culture of open communication. If you find a commercial real estate company that seems appealing, you can do some research and discover if they do stack up. This step can be immensely helpful in allowing you to dodge a bullet.

Go over client’s opinions

The greatest problem with reviews is that they are mostly from satisfied customers. Unhappy customers either don’t post or their reviews are removed. Therefore, it is recommended that you ask the commercial company to provide you with a list of their past clients. This allows you to do some homework of your own and identify any weaknesses or problems that a previous client encountered.

Meet the representative

Last, but very important; don’t hire a company over the internet. Always meet their representative in person and see if they understand your needs. Open communication is vital in this business and if you are not comfortable with them, there is no point in starting a relationship.

Use these pointers to pick out one of the companies for your realty requirements.

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Real Estate Advertising Ideas – 5 Unique Advertising Options

When building customer-base for real estate, success is not an overnight feat. It will involve a lot of hard work. Letting other people know of your business or about the property you sell does not totally mean that you have to place lots of text-based ads all over. You have to be creative to excite your potential buyers. Here are some tips for your next real estate advertising goal.

  1. Create a video walk through of the house. Take advantage of the technology offered by smartphones and drones. Using them plus your creativity, you can shoot at different parts of the house to present realistic view of what you are selling.
  2. Build free offers to collect email addresses. If you are observant, you probably can see that a lot of websites and blogs have pop-ups offering free trials, free newsletters, pdf downloads of articles, and a lot more. By simply filling out the electronic forms, users can give you email addresses which you can later use to send out your offers of real estate properties being sold.
  3. Be a resource person for local TV networks and radio stations. By being an expert person on real estate, you can actually gain the attention of local TV networks and radio stations. It’s like applying for a job but if you’re able to hook with them, you will have a great venue to advertise the properties in your portfolio. You can email them to send either a letter stating your endeavor or a short video presenting yourself as an expert and willing to be their resource person on subjects related to real estate.
  4. Take advantage of the trending internet memes. Admit it or not, you are also among the bunch of internet users who are enthused with the trending memes we see. They carry a range of graphics ranging from animation characters, Hollywood stars, animals, and a lot more. Depending on the graphics and the texts that go with them, they become instruments to send-off messages to those who see them. With this said, then you can have memes that actually persuade people to buy the property you are selling or call them to action to avail your services as a real estate agent.
  5. Have video testimonials done by previous clients. Go beyond the usual testimonials which are fully textual and placed on specific sections of the website or blog. Instead, ask for video testimonials from your past clients. Aside from presenting their real experiences, you present real people to potential customers.

Go unique. Go beyond the usual. Exhaust your creative juice to excite your clients. Real estate marketing is tasking and will need you to work your way to become a brand and an authority.

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Ten Ways To Lose Money In Real Estate Notes

While investing in Non-Performing Real Estate Notes, or NPN’s for short, can be a great way to get secured, above average returns compared to the roller coaster stock market or 1% in a CD. Though like all investments, there is no guarantee you will make any money. Actually, if you are not careful, you can lose some or all of your investment.

We have put together a list of all the ways we can know of that you can lose money in the Distressed Asset Arena.

Ten Ways To Lose Money In Real Estate Notes:

1. Paying Too Much

We feel the #1 reason you can lose money in NPN’s is paying too much for the note by not researching the true value of the property As-Is compared to move-in ready comparable prices, or comps., and adjusting your price accordingly. There is a saying; There is no bad note, just paying too much for a note.

Typically the property is not in a move-in ready state, so it will have a lower price, and if you don’t take that into account, you will be pressed to many any profits when you go to sell it. The solution would be to either see if putting in $3-10,000 in light repairs would give you a $10-20,000 increase.

Other options are to rent it out for cash flow while hopefully, it appreciates. Then in a few years it can be sold for a higher price. Or sell it with owner financing to people with lower credit scores for a higher price, or sell that “loaded rental” with the tenant in it to an investor as a cash flow machine.

2. Wrong Location

By buying a NPN in a rural, blighted, or crime ridden location, even if it’s in great condition, you will have a harder time to sell it when you need to, and might have to drop the price to just get rid of it. No family wants to live in the middle of nowhere, or a war zone, or without basic needs like grocery stores, gas stations, or general merchandise stores.

3. Not Visiting The Property

Imagine if you buy a note, and you find out that the house is no longer there! It could have burned down, or the city could have condemned it. This will result in a loss of most of your money, and the only thing you can do is sell the land itself for a much lower price than you paid. At least it won’t be a total loss, the land does have value. It just depends if a builder will find the location good enough to invest in.

Or if the property is damaged, knowing the extent of the damage before paying for it is priceless as to saving you a lot of money. Sometimes it’s better to walk from a smelly deal, than risk the investment if it’s not making sense.

4. Not Confirming Your Lien Status

You are told you are buying a Senior or First lien on a home, then you find out that it’s really a 2nd or Junior lien. This could be due to incompetence or neglect from the seller to know what they were selling, or a Junior lien could have foreclosed and if unchallenged, they are now the Senior lien holder and you are now a Junior. You still have claim to the debt, though now you are not first in line.

5. Not Checking For Lawsuits or Liens

One of the first things we do after we narrow a list of NPN’s or REO’s (Real Estate Owned or Owner has title.) we are considering to purchase, and before we pay for it, is we run an O&E Report (Occupancy & Encumbrances) which shows how many liabilities are attached to this property.

The homeowner could have been sued in the past, or owed Federal, State, or County taxes, and a lien placed on the property. This would result in you now being liable for paying that if you get them to sign a deed-in-lieu of foreclosure. Only a foreclosure on the property would possibly eliminate most or all of the lien’s or encumbrances on it, considering IRS Liens have a 1 year redemption period where they can pay off the mortgage if they want it, though they really don’t want the house.

6. Not Checking For Taxes

There are a plethora of taxes fees, penalties, and fines that can be imposed on a property at every level up the government hierarchy. From city fines for not cutting the grass, or leaving garbage around, you have any number of agencies that can penalize you from water, to power, to trash, to schools. You also have the county real estate taxes and fines you get for not paying them. If you ignore them, the county can sell the tax lien to someone else, and after a redemption period of usually a year, you could lose the property.

The State can also put a lien for income taxes, child support, and any number of issues. Then you have the Federal government that can put a lien on the property due to not paying your income tax. We just purchased a note that had $67,000 in total taxes, fines, liens, and penalties. We intend to foreclose to wipe them out, and possibly sell the house back to the homeowner.

7. Not Checking For Bankruptcy

Bankruptcy is not the end of the world for the note investor; many times they are a good thing. A Chapter 7 will eliminate all unsecured debt like credit cards, etc., leaving more funds each month to pay their house off that would have gone elsewhere.

A Chapter 13 is a repayment plan and typically the house payments are part of the payment plan. It takes 5 years to complete, and many people fail to complete it, resulting in them still owing the debt.

If you have a junior lien, and there is no equity, you can typically lose your entire investment if the lien is stripped in bankruptcy. They still owe the debt, though its unsecured, and you can get a judgment against them that will be on their credit. If they tried to buy another house or car in the future, that debt would still be there, and they would have to work something out with you to have the court mark it as paid in full.

8. Land Leases

Not Checking For Land Leases means you could lose your entire investment at the expiration of the lease, depending on the surrender clause. It’s not your land, and if the owner wants to do something else with it, well, there is nothing you can do. Condo’s & Townhouses can be considered a form of Land Lease in that you don’t own the land, just the building.

9. Buying From Joker Brokers With Daisy Chains

We have seen people offering to sell notes that are number 5 or 6 in a chain of what we refer to as “Joker Brokers,” and our policy is to not avoid them for many reasons, #1, they don’t own the note, and to not deal with the owner is asking for problems. #2 is that they typically are getting it from someone else. And then, most likely, that person is getting it from somewhere else, and on & on, and this can go on for a bit, with each link in the “Daisy Chain” adding cost to the purchase price.

10. Buying From People Who Will Rip You Off.

Sadly, there are people who will rip you off in this business, and some still call the note business the “The Wild West.” A rogue employee can convince you that they own the note, and to send your money to him. In order to avoid this, using an escrow to hold funds secure, combined with a document scrubbing service from a Document Custodian insures they “sign off” that the collateral or document file identifies that the seller of the note/mortgage really own it, and are not trying to rip you off. Then the escrow can be released, that is the only way to prevent this fraud.

These are ten different ways we have seen that you can lose money in the Non-Performing Real Estate Note space.

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Positioning Strategies For Real Estate Agents

Just recently I was asked to do a talk for my good friend and co-author

of our best-selling book in Singapore titled Get Rich Now: 15

Strategies from a Self-made Millionaire, Dr Dennis Wee. (Dr Wee is one of

Singapore’s most celebrated entrepreneurs. Despite not having completed his

high school education, he managed to start and build up his own real

estate company, Dennis Wee Group, to become of Singapore’s leading real

estate companies generating S$3.8 billion worth of sales in 2006.)

He wanted me to share some marketing secrets with his real estate

agents and I was more than happy to do so because I believe there’s so much

more that agents can do to position, brand and market their services.

Sadly, most agents, whether in real estate or financial services

(insurance) or any other industries, tend to see themselves just as a

salesperson. This perception of themselves is limiting their growth and income!

By thinking that they are just salespeople, they don’t see the

possibilities of growing their careers into full-fledge businesses. There are

so much more benefits for someone to think big and build a big business,

compared to just existing, and making a living. Donald Trump said: “If

you’re going to be thinking, you might as well think big.” But that’s

another topic for another session.

Here, I’m going to show you some detailed examples of how an agent can

differentiate himself using some simple positioning and branding

strategies that I have used with other clients to great success.

Many people perceive that being an agent in any industry is like being

a salesperson. Someone who is always competing with all the other

thousands of salespeople in the industry. To a certain extend it is correct.

Those other agents are also looking for the same deals that you are. It

is a matter of who gets the deal first. So they are relentlessly going

out there to cold prospect.

Now, I am not a fan of cold prospecting. To me, cold prospecting is

like bashing your head against the wall, hoping it will crumble before you

start bleeding… most people just end up being very disappointed. Why do

you think new agents don’t last long? I strongly suspect it’s because

they realized that their heads can’t go against the wall.

But there are ways to turn the table around. In my talks I like to ask

the audience: Would you prefer to work hard and look for prospects, OR

would you prefer to let your prospects seek you out?

The answer is obvious.

But more than just having less work and an easier time, there are

deeper psychological advantages to being able to let your prospects seek you

out instead of you cold prospecting them. Simply said, when you seek

someone out, you will be open to the person’s ideas, advice, expertise.

That is the reason you seek him/her out in the first place–to get expert

advice.

There won’t be the wall of resistance you’ve grown accustomed to when

you cold prospect. In fact, now it’s them who are jumping over hoops to

seek you out in your domain. Man, it’s always exciting to talk about

this!

Believe me, it’s a whole new paradigm. Imagine you becoming a celebrity

overnight and people are just doing everything they can to get in touch

with you. Think of stars of reality shows like Survivor and American

Idol… It is that powerful!

So how can you achieve that?

Let’s look at a typical scenario:

You have probably have opened your letter box day after day only to

find it stuffed with piles of flyers from various real estate agents. Just

take a closer look. You will realize that all of them claim to be the

“specialist” in the area. Now if everyone is a specialist, then does it

matter who you call? Absolutely NOT!

“But I’m different from the rest. I have more experience, quality,

etc…” you protest.

Let me be upfront. It doesn’t matter who you are or what your

background is. If the prospects don’t recognize that straight away, you are just

like everybody else. No matter how different you think you really are.

Repeat after me: If you are like every-body else, you are a no-body.

Remember: It’s all about their perception, not yours.

So instead of being just another area specialist, be different. So far

I’ve not come across any agent who positions him/herself as the

specialist to serve “first-time home buyers”. Do you think that is powerful?

Absolutely!

First-time home buyers are inexperienced. They don’t know what to

expect, what the whole buying process is going to be like, how long will it

take, what possible hiccups might occur, etc. They are in a place where

they don’t know what they don’t know. Do you think they have different

needs/concerns compared to those who have bought a house before? Of

course! If you are able to gain their trust, do you think they will look

for someone else?

The point is this: you have the information that first-time buyers are

looking for (in fact all real estate agents should know these

information). But by letting them know that you are the expert who can guide

them through the whole process safely, will in itself, earn you a closed

deal.

You might need to make some minor changes in the way you do things,

such as explaining the buying process more thoroughly, going through the

nitty gritty details that you won’t normally need to with experienced

buyers, etc. But all these will help to cement your positioning and

branding as the expert to serve first-time buyers. And once your branding

gets out, you will be busy with so many referrals for other first-time

buyers. Is the first-time buyers market huge enough for you?

Once you have established your branding, it is easy to market your

services. You can easily get the publicity that once used to be impossible

for you. If the media wants to get an opinion on what first-time buyers

think about a new housing policy, who do they look for? They will

interview the expert (you). And after appearing in the media, you will have

gained even more credibility. Can you see how this will snowball into

your profits?

It all starts with creating a powerful positioning, branding and

marketing strategy that is suitable for you.

What other positioning can differentiate you? How about:

o The property investments expert (investors love to work with those

who understand their investing needs, someone who is not just another

agent); or

o Divorce cases specialist (they definitely have different needs as

compared to the usual buyers); or

o Downgraders or upgraders; or

o Serve only those looking for luxurious, high-end houses worth $XX

amount and above (your service must of course reflect that); and

o Many more!

As you can see, it is critical to create a powerful positioning to get

your prospects to start looking specifically for you. I assure you I’m

not an expert of the real estate industry. But I’m an expert in

positioning, branding and marketing. These same principles can be applied in

other industries, such as the financial services industry, perfectly

well.

So start positioning yourself today!

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Quality Real Estate Representation: Sales, Selling, Marketing, Or A Combination?

We often, discuss, what someone should seek, from the real estate agent, they hire, to serve and represent their best interests, needs, goals, and priorities. An ideal agent possesses a combination of, a true, positive, can – do, attitude, an inspiring, motivating manner, and personality, and a well – developed, relevant, skill – set, and aptitude. However, far too often, we don’t consider, other necessary skills and traits, which relate, to achieving the essential necessity, of getting the property sold, etc! With that in mind, this article will attempt to briefly, consider, examine, review, and discuss, the differences between sales, selling, and marketing, and whether, one is most important, or there is a necessary combination, needed and required.

1. Sales: Many agents state, they are, in – sales, rather than stating, they sell real estate. Why is this? Is it because, they perceive a negative connotation, about selling, or are they focusing on what they believe to be, the politically – correct approach (also known as, PC)? What about the concept of selling, do they fear, or lack the confidence/ skill, etc, which makes a difference, for the better?

2. Selling: We all sell something, regardless of occupation, or goals and priorities? We either sell, ourselves, a product or a service! Professional selling is, both, an art, and a science, requiring a willingness, and ability, to be proactive, and real estate agents, must combine this, with serving the needs, goals, and priorities, of one’s clients, while maintaining the integrity, and ethics, required, both, by the law, and the Code of Ethics! The science of selling, includes the techniques, needed, and a willingness to master, the essential necessities of handling objections, addressing needs and perceptions, and proactively, bringing together, the seller, with the best qualified, potential buyers, in order to achieve a meeting – of – the – minds!

3. Marketing: Quality representation is only accomplished, when a comprehensive, well – considered, marketing plan, is perceived, and conceived of, created, and used, to attract the right buyers, to consider his client’s property! First, it’s important to recognize the target – market, most likely to seriously consider, this specific home, and use the best combination of vehicles, to market and promote it, effectively! Then, one must determine, the best way, to expend these funds, in order to get the best, bang – for – the – buck, and achieve his clients expectations.

4. Combination: The best approach is, to use, a combination of these necessities, to provide, what most seek, which includes, selling the home, in the shortest period of time, at the best price, with a minimum of hassle!

Doesn’t it make sense, to consider, the best way, to market, and sell, a house, from the onset? Thoroughly discuss these ideas and concepts/ approaches, with the agents, you interview, before you hire, the one, who will best represent you!

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Generate Real Estate Leads Easily With These Tips

Generation of real estate leads has gone digital. With different lead generation tools and some mobile marketing apps, you might feel overwhelmed. So, how can you decide which tools to add to your strategy on lead generation to attract or nurture potential prospects?

Concentrate your core strategy on the basics to real estate marketing. Methods that are tried and true are ageless and should still part of your plan even if they are dressed up for the digital consumers.

Video

It’s absolutely worth investing in high quality professional videos to showcase yourself as a real estate agent. Buying a house is often the biggest purchase an individual will make in her or his lifetime and he or she likes to work with the one who has traits they trust like personality and authenticity. They’re also looking to see if you’re the agent they like to work with, so make sure to put your best face forward. Some agents create YouTube videos to show expertise and knowledge blended with their relatable and honest style. Videos may humanize an individual much more than the static site profile. Numerous realtors showcase the area’s beauty they specialize in on videos. Videos also bring a high ROI and have proven to be important marketing technique to generate leads.

Client Testimonials

You cannot beat a passionate, heartfelt statement from satisfied clients. Reviews and testimonials must definitely be part of your presence online. Video testimonials are a perfect so some potential sellers and buyers can resonate with that individual. If you do not have video capability, there are lots of ways to show your happy customers. Make a page on your social media or website to share testimonials and share them to bigger sites as well. Sellers and buyers will appreciate the customer’s honesty and have high probability to reach out.

Social Media

It is highly recommended to use social media. Facebook is one of the most dominant communication forms across the globe and the paid ad platforms are cost-effective way to generate some real estate leads. Use this when targeting your core demographic. Majority of marketers include Facebook strategies in marketing plans and you should also. It is a worthwhile, practical advertising investment that would pay off when generating some new leads. Although you do not spend money on the ads, you may still improve generation of leads on Facebook with the use of fresh content, engagement, and optimization.

Real Estate Lead Capture Forms

Majority of people used to look for homes for sale in a newspaper, yet now a lot of consumers start their home search over the internet. Having some forms on your site for lead generation is a good way to bring in the new business. It’s one of the best lead-generating strategies, yet never forget to ensure that your site is fresh and updated so people would keep visiting and you can boost your repeat traffic.

Blog

It can really improve your online presence and show your expertise as a real estate agent. Use this to communicate your grasp of everything related real estate consistently. Never forget to end your blog with effective call to action fill out the form for lead generation or make phone calls.

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Guide to Investing Out of State for Commercial Real Estate Investors in Los Angeles, California

Isn’t real estate supposedly one of the best categories of investment classes in the world? People always need a place to live right? Then why does it seem almost impossible to invest in real estate in California, which is known next to New York and Florida, as one of the top places in the world to invest in real estate, unless you have a few million dollars? It is because they are densely populated and in the case of Los Angeles have already risen dramatically not only in the last six years by 40% but have quadrupled, 400%, over the last 30 years. (S&P Index LA) Those are great returns for an asset that is considered to be safe and moderately growing. So what should a person do nowadays if they live and grew up in Los Angeles, and want to invest in real estate but don’t have a million dollars to invest? The solution is simple, invest out of state!

A lot of people think it is hard to invest in a state such as Texas. You have to manage the property, collect rent, and make the right investment decisions for the long term in a state that at this point in time you are only somewhat familiar with, right? Well allow me to explain to you why it is great for someone to think otherwise, and how a great agent can acquire property for you in another state in a deal which the tenants, the ones using the property space, are managing the property for you and even paying your property taxes! Not only that, but these are institutional companies who guarantee you the money you are promised for periods of up to 10-15+ years, per contract. This is only the beginning of me explaining how investing outside of your comfort zone with the proper advice can benefit you and your family.

How about the safety of these investments? I don’t want to lose my hard earned dollars. Neither do you. So why would you invest in anything outside of the Los Angeles, or the California region? A region that has proven itself for decades and showing promising signs of growth in certain areas. These are definitely valid points in the eyes of an avid investor, but maybe it’s time to reconsider. I already mentioned that property prices in Los Angeles are expensive, that being one of the main reasons to invest elsewhere.

Haven’t you noticed a lot of people who have been living in California are moving to the surrounding states where it is a lot cheaper to live and in places where new and old business industries are beginning to thrive? I personally know a few people who have moved away. Texas alone has added over 5 million people to its population in the last thirteen years according to Texas Department of State Health Services, and it is still growing. With that in mind, doesn’t it seem like a great deal to acquire a commercial property in a state where you can buy commercial real estate for around $150,000-$300,000 down? You couldn’t dream of that in Los Angeles unless you wanted to buy an old run down building.

Are you starting to understand how easy it can be to invest outside of your state, and why it is more lucrative? If you do, that’s great, if not here is another way to understand it in a situational scenario with numerical figures.

My friend Jack has $500,000 right now that he wants to invest.

This is what would happen if Jack invested in a Los Angeles Commercial Property from 2015-2020.

Let us say Jack doesn’t take out a Loan and buys a Fee Simple Commercial Estate.

$500,000 x 4% Interest Yearly = $20,000 Income / Year (Before Taxes) x 5 years = $100,000

Over this period of time the value of the property goes to $600,000 by 2020, and Jack sells his property to Jenner. That makes for a profit of $200,000 before Capital Gains, and Income Taxes.

Now, let us say Jack went outside his comfort zone and decided to get a property in Texas.

$500,000 x 8% = 40,000 Income / Year (Before Taxes) x 5 Years = $200,000

Over this period of time the value of the property goes up to $750,000 and Jack now shows Jenner how much easier it was to invest out of state because of the structure of this deal. He told Jenner that since Starbucks was managing his property and paying him on time without question every month, this made it much easier for him as an investment. Now, Jenner wants to buy this investment off Jack, because he sees the benefit and Starbucks wants to sign again for an additional 10 years with a rent increase!

Jack just made another $250,000, on the increase of the value of the property.

In total, Jack has now accumulated $450,000 before taxes over the last 5 years investing in Texas. Get it?! Do you understand the benefits and the financial rewards? Not to say you cannot have these structured deals in Los Angeles, but remember they offer half as much interest in a market that has already gone up 40% in the last six years.

Jack has made $450,000 investing in Texas vs. $200,000 investing in California with the same amount of money. That’s an extra 125% increase in profit, which will make you an even astonishingly larger amount of money on your next big investment!

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Starbucks Coffee – What Commercial Real Estate Investors Should Know

Company Summary

Starbucks Coffee, sometimes referred to as Fourbucks Coffee is the largest coffeehouse chain in the world. It opened its first store in 1971 in Seattle’s waterfront Pike Place Market by three partners: Jerry Baldwin, Zev Siegel, and Gordon Bowker to sell high-quality coffee beans and equipment. In 1982, Howard Schultz, the current Chairman and CEO joined the company as the Director of Marketing. He was impressed by the popularity of the espresso bars in Italy after he traveled to Milan in 1983. Back to the US, he convinced the founders of Starbucks to sell both coffee beans and espresso beverages. However, the idea was rejected so he left the company and founded Il Giornale coffee bar chain in 1985. In 1987 Howard Schultz and Il Giornale bought Starbucks with $3.8M and renamed Il Giornale coffee bars to Starbucks and turned it into the Starbucks you know today. The company went public with the symbol SBUX in June 26, 1992 at $17/share with 140 stores. Since then the stock has split 5 times. As of May 2008, SBUX is traded at about $16, down from the high of $39.43 in November 2006.

Starbucks opened the first overseas store in Tokyo, Japan in 1996. The company currently has about 16,000 stores, employs 172,000 partners, AKA employees as of September 2007 in 44 countries. It has annual sales of over $10B with most recent quarterly revenue being $2.526B. About 85% of Starbucks revenue comes from company-operated stores.

Starbucks does not franchise its operations and has no plans to franchises in foreseeable future. In North America, most stores are company-operated. You may see some Starbucks stores inside Target, major supermarkets, University campuses, Hospitals, and Airports. These stores are operated under licensing agreements to provide access to real estate which would otherwise unavailable. Starbucks receives licensee fees and royalties from these licensed locations. At these licensed retail locations, the workers are considered employees of that specific retailer, not Starbucks. As of 2008 it has 7087 company-operated stores and 4081 licensed stores in the US. Internationally it has 1796 company operated stores and 2792 joint-venture or licensed stores in 43 foreign countries. The pace of expansion is slowing down as the company plans to open 1020 US stores in 2008, less than 400 stores in 2009 down from 1800 stores in2007. In addition, it also plans to close 100 stores in 2008.

Risks to Real Estate Investors

Starbucks coffee buildings remain a popular investment for many investors. When you consider investing in a property occupied by Starbucks, you need to understand the following risks of your investment:

  1. Recession-sensitivity: a hungry man can survive with a Big Mac & fries but can live without a four-buck Frappuccino. This means Starbucks is very sensitive to economy downturn as seen in 2007 and 2008 compared to Burger Kings and McDonald’s. This may be the main reason sales at stores in the US open at least a year are expected a mid single-digit percentage decline, the first drop ever. It triggers Howard Schultz to return to the CEO post. The company plans to double its marketing spending to $100M in 2008 to drum up sales. It began an aggressive coupons campaign offering free drinks every Wednesday through May 28, 2008. This may be a sign of desperation. On April 22, 2008 Starbucks cut its outlook for the year citing weak economy.
  2. Calorie & Sugar: Starbucks drinks have more sugar and calorie in which consumers are more and more concerned due to explosion of obesity and diabetes epidemic in the US. For example, its Strawberries & Crème Frappuccino® Blended Crème – whip has 120 grams (over 1/4 lb) of sugar, and 750 calorie on its Venti 24 oz size. If it becomes a trend that consumers decide to cut down on the sugar drinks, or stick to low-carb diets then it will have impact on Starbucks revenue.

  3. Competition: McDonald’s, Wendy’s and Dunkin Donuts now also offer espresso at lower prices to compete with Starbucks. They will capture some revenue from Starbucks, especially from cost-conscious customers. The current Starbucks prices are already pretty high; it’s very hard for Starbucks to increase the prices in the near future without affecting the traffic to its stores.

  4. High-expenses business model: while Starbucks profit margin is high as it pays an average $1.42 per pound for the unroasted coffee, its business is very labor intensive just like any other foods businesses. It takes between 10-20 employees to run one store. All eligible part-time and full-time partners in the US and Canada receive benefit package consisting of stock option plan, 401k with company matching, medical, dental & vision coverage. Starbucks is voted as the 7-th best company to work for in the US in 2008 by the Fortune magazine employee’s survey. What is good for employees may not be good for the employers. These benefits are normally only available to key employees or managers in the restaurant industry. Historically, the costs of these health benefits rise faster than the rate of inflation. In the long run, they may have negative impact on Starbucks bottom line. Should Starbucks not perform well, it may be under pressure as a public company to close more stores.

  5. Special-purpose building: Starbucks freestanding building is a special-purpose building designed specifically for Starbucks. Should Starbucks decide not to close or not to renew the lease, it’s hard to re-lease the property. There are few tenants out there willing to pay the high rent like Starbucks. It’s hard to use it as a fast food restaurant due to a relative small square footage. Besides, it does not have a commercial kitchen. Once vacated by Starbucks, the property value will most likely go down.

Starbucks Real Estate Operation

Starbucks divides the US & Canada into 17 real estate territories, each has its own store development office to develop the market in its territory. The developers constructed freestanding buildings about 1800 SF with drive through in a location with high visibility, heavy traffic. Once the location is approved by the territory office, Starbucks typically signs a 10 year NNN lease with 2 five year options in which landlords are responsible for roof and structure. All the leases normally have corporate guarantee which means Starbucks will continue paying rent in the event it has to close the store. The lease often has 10% rent increase every 5 years. The rent is between $1.65/SF in a store in Utah to $5.84/SF in New York. This rent survey is based on the rents at just 30 Starbucks properties, 18 of them are free standing, on the market for sale through out the US as of April 2008.

Starbucks Location with Minimal Store Closure Possibilities

During tough times, e.g. in 2008 when sales are declining Starbucks will attempt to cut costs and close underperforming stores. As a real estate investor considers investing in a Starbucks building, you don’t want to invest in a property that will be closed in the future.

Location—— 1mile——3miles——-AHI/yr—–Size (SF)—-Base rent /yr—Rent/SF/mo –Price—–Cap(%)

Ohio……………296……..2609………$88375….1613………$58,590……….. $3.03……….$868K…….6.75

Florida………..9186……55270……$68595…..1816………$75,000………..$3.44……….$1.2M………6.10

Georgia………5717……57201…..$143936….1750………$74,000………..$3.52……….$1.091……..6.75

Mississippi….188……..4923……..$77372…..1816………$112,184………$5.15……….$1.558M…..7.2

Texas………….5944…..40970…….$75043…..1752………$92,914………..$4.42……….$1,327M….7.00

Table 1: Rent Comparables for Free-standing Starbucks Buildings

Location——SBUX rent/yr—SBUX Size—SBUX rent/SF/mo—Other tenant Size—Rent/SF/mo—Difference

California…….$30096……..1248 SF…..$2.01……………………1245 SF……………..$2.50………….-19%

Kansas……….$43200……..1600 SF….$2.25…………………….1600 SF………………$1.33………….68%

Utah……………$38568……..1950 SF…..$1.65…………………….1200 SF……………..$1.86…………-11%

New Mexico..$92004………2000 SF….$3.83…………………….2500 SF……………..$1.92…………100%

New York…….$125004……1785 SF….$5.84…………………….2819 SF………………$2.75…………112%

Table 2: Rent Difference in Multi-tenant Starbucks Retail Centers

Since Starbucks does not release sales revenue for a particular location, you just need to make an educated guess. Based on annual revenue and numbers of stored operated by Starbucks, the average annual revenue per store is about $1M. In addition, if the annual rent to revenue ratio is less than 10% there is a good chance the location is profitable. For example if the base rent for the Starbucks in Ohio is $58,590 then the annual revenue should be more than $585,590. Besides picking a store at a good location (refer to the article titled “What ‘Location’ Means in Commercial Real Estate” by this author), and the cap rate you should consider the following:

  1. Densely-populated area: more people mean more customers size and thus more revenue. The Starbucks in FL, GA and TX on Table 1 are more promising. Note: the author tries to be sensitive by not disclosing the exact locations.
  2. Low-rent: the Starbucks in MS pays $112,184 for base rent. To be reasonably profitable it needs to have annual revenue of $1.12M. However, since there are only 188 people within 1 mile and 4923 residents within 3 miles radius from the store, it’s less likely the store ever achieves that revenue. Besides Starbucks pays $5.15/SF which is very high compared to just $3.52/SF in a fast growing, high income, densely-populated in GA where there are 57,201 residents within 3 miles radius and Average Household Income (AHI) of over $143K/year. It’s hard to understand how the Starbucks in MS could be an irreplaceable location in an area with just 188 people within 1 mile radius from the property! While offering the highest 7.2% cap, this property appears to be a good investment but it actually has the highest risk of underperforming and could be closed down in the future. Alternatively, Starbucks could attempt to renegotiate the lease with lower rent during tough times. While Starbucks has not asked for rent reductions yet, it is not surprised if Starbucks will do so to improve its bottom line in the future. In either case, the property value will go down.

  3. Rent premium: while most Starbucks properties are freestanding in which it occupies 100%, you may see a Starbucks in a small multi-unit strip center with a few other tenants. It normally occupies the end unit with drive through and thus is expected to pay a premium compared to the adjacent unit. However, most of the time Starbucks pays substantially higher rent. For example, in Table 2 it pays $5.84/SF compared to just $2.75/SF by a tenant in the unit next door in a center in New York or 112% higher. In this strip center should the rent for the unit occupied by Starbucks be reduced (due to closure or lease renegotiation) the value of the center will be reduced substantially. You certainly don’t want to invest in this property.

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5 Reasons To Invest In The Real Estate Market

If you have always wanted to become a real estate investor, now is the perfect time to achieve your dream. Today’s economic conditions and housing market are suitable for long term and profitable investments, so get the most out of your savings by investing in the housing market.

If you are wondering about the benefits of housing investments based on the current market trends, here are five reasons why this is a good option.

  1. Good Long-Term Returns: For people who are willing to improve their investment and work on it to increase its value and sell it at a later date, real estate can be a good bargain. Buy an old property, refurbish it, and sell it again at a good price to gain a profit. You can also rent your property if you want a continuous flow of cash.
  2. The Economy is Improving: The economy is finally rising from its recessive state. As it improves, people who had to foreclose on their homes will once again be looking for prospective house and properties to buy. Thus, an investor will have plenty of prospective buyers to sell his home to, once the has renovations are completed.
  3. Endless Opportunities: Investors are provided with boundless opportunities, as there are always people who are willing to sell their homes. Whether it is due to foreclosure or other reasons, many people are quick to sell to an investor. On the other hands, many buyers are ready and willing to purchase homes for their families. Regardless of economic and market conditions, the housing market never comes to a complete standstill.
  4. Tax-Free Profits from Rental Properties: Many real estate investors use their savings to buy rental properties that they can rent to tenants at favorable rates. The rent money received from tenants is exempt from taxes; thus, it is a purely accounted as your profitable income.
  5. An Asset: If you do not have any existing monetary assets, then choosing real estate is a good idea. No matter how much the economy might fall, you will always be able to encash your property as an asset to get money in a time of need.

Considering the above reasons, the time is now for becoming a real estate investor.

However, when searching for investment property, always consider multiple options, make sure you have the money to fund your investment, and create a backup plan in case your investment faces any major issues over time.

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Looking Ahead To 2019: What Factors Should Real Estate Examine?

Anyone, who, either, as a professional, or, simply, a curious observer, watches the real estate markets, and possibilities, must take a close look at the possible factors, which might impact, what might be trends in the housing market, as well as the overall economy. Beware, there are no guarantees, but, simply probabilities, or best guesses (also called, educated guesses)! After more than a decade as a Licensed Real Estate Salesperson, in the State of New York, I believe, the more educated and aware, a potential buyer might be, the better his chances. That’s why I have been using my trademarked slogan, for many years, I’ll always tell you what you need to know, not just what you want to hear. (TM)

1. Interest rates and mortgage rates/ terms: Most economists are forecasting a gradual, moderate rise, in interest rates, and the Federal Reserve, has stated, its intentions to raise rates, twice during 2019. Most believe these will be, relatively minor increases, and, with present mortgage rates, relatively low (from a historic perspective), the overall result will probably be, fewer qualified buyers, slightly higher monthly payments, and probably, a slower rate of price increases (especially in terms of the pace). When rates rise, potential buyers often shop for slightly less house.

2. SALT: In the tax legislation, passed, at the end of 2017, there is a cap placed, on the amount of State and Local Taxes, known as SALT, which remain tax – deductible. In higher tax states, such as New York, New Jersey, Connecticut, Massachusetts, Illinois, California, etc, this becomes significant, in terms of selling a house, especially if it is, in the higher price range. Potential buyers might consider, home ownership, as less beneficial, from a tax standpoint, and, this might, hinder the perceived value, and desirability, of purchasing certain types of homes.

3. Uncertainties: No one knows for sure, how long, the present, partial government shutdown, might last, and continue, but, at present, the opposing sides, appear far apart, and not close to a meeting – of – the – minds! Uncertainty is the enemy of nearly every financial market! Will the Stock Market continue on its present downward spiral? Will the changing political climate, be a positive or negative influence? How will consumer confidence be, during 2019? Will potential buyers perceive, job security, which encourages, especially, new buyers, to seek a home, of their own?

An educated consumer, who pays close attention, and is aware, and prepares, normally, is most successful. What are your real estate plans, for 2019?

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