Confessions of a Real Estate Entrepreneur: What It Takes to Win in High-Stakes Commercial Real Estate

A front row seat into the world of high-stakes commercial real estate investing “A must-read book … one of the best real estate investment books I have ever read. On my scale of 1 to 10, this unique book rates an off-the-charts 12.” —Robert Bruss Confessions of a Real Estate Entrepreneur is for the individual who is ready to get serious about investing. Not a rah-rah or get-rich-quick book, this book is for someone who is prepared to think about what he or she wants to accomplish. James Randel provides the how and why. James Randel has been a successful investor and educator for 25 years. He teaches investing through stories and anecdotes – bringing to the limelight not just his successes (and t

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Question by scottw2100: In Commercial Real Estate investing….what does “90% cap rate” or “5cap rate” refer to?
I’ve heard brokers and investors talk about this as an indication of a projects health, vialbility as an investment, etc…but I don’t understand the foundation of the concept.

Best answer:

Answer by Summit Seeker
Cap rate is the ratio of the net operating income divided by the price (times 100 to make it a percentage). You can think of it as analagous to the return you would get by buying a CD from a bank. For example, a 0,000 CD yielding ,000 represents a return of 5,000 / 100,000 = 5%. The cap rate is the same idea, but for real estate. If the property generates ,000 in net income and costs 0,000 to purchase the cap rate would be 20,000/400,000 = 5%, same as the bank CD. Since CDs are risk-free (insured by the gov’t), you would purchase the CD in this case and pass on the building since both yield the same return, but the CD has no risk.

I’ve never heard of a 90% cap rate, 8-12% is typical, compared to 4-6% typical for CDs. The extra return is due to the extra risk of owning property. So, the cap rate is a quick way of telling whether the seller’s asking price is a good or bad deal. 10% is typical.

What do you think? Answer below!

I like experts. A friend of mine told me that the definition of an expert consultant is that they know the 344 different ways to have sex but cannot for the life of them find a date.

Unfortunately, this is the way most experts are in the world of investment real estate.

For example, talk to a banker about investment real estate. Most bankers like to tell you about what you should or should not do with investment real estate but do they actually own any themselves? Just ask them.

Or how about accountants and attorneys? Once again, most like to tell you about what you should or should not do with investment real estate but do they actually own any themselves? Just ask them.

Or how about investment advisors or financial planners? You know, just ask them.

For the record I am not picking on these folks. The facts speak for themselves and there are others I could add to the list. My quote from one of my clients above says it best.

My point here is make sure any advice you choose to listen to is coming from someone that really knows what is going on. The advice needs to be from someone with real world practical experience as an owner of an apartment or commercial investment property – period!

Because what will happen is that you will more than likely want to put at least some monies into apartments or commercial investment real estate. And, since this is not the “mainstream” kind of investment you will get all sorts of advice on it. What you should do and not do. Just be prepared to know that most advice you get will come from people that should not be dispensing it at all and as long as you realize this point you will be just fine.

One of the things to keep in mind about the real successful apartment and commercial property investors is that they are not active owners.

I hope you follow me on this because this is very important.

Give some thought to some of the most successful real estate investors you know. Lets take a look at a couple that come to my mind – Sam Zell and Donald Trump.

Trump owns multiple properties and developments including high rise towers and even golf courses. Mr. Zell is one of America’s largest office building owners.

Now when I think of these two guys and then even my own private client groups there are a few things in common.

1. They own and or control large amounts of real estate.
2. They do not manage their own properties. Sure, they manage them from a portfolio standpoint and performance standpoint but they are not out showing units or showing vacant space themselves. I don’t think Trump does the bookkeeping.
3. They focus their time on non management things such as buying and selling strategies, income stream strategies, etc.
4. They are in a way passive owners while not dealing with day to day activities, but they are receiving all of the benefits of being a full time property owner and manager.

Did you get what I just said here? My most successful clients are not active owners but they receives all of the benefits of an active owner!!

Think about it. You and I own two separate apartment properties, lets say that they are across the street from each other. I have a private investment fund, which I am a member of, running my property. You run your property yourself. I am at the property maybe once per year just to make sure all is well. You have to be at your property an average of once every other day.

Now get this. Even though I spent close to zero time at the property I get all of the same ownership benefits that you do and you are spending hours and hours week in and week out at the property.

And that is the strategy. Do whatever you can to get all of the same benefits in cash flow and return of large apartments and or commercial properties BUT do not spend any time doing any management activities whatsoever.

You see this gives you all of the great benefits of the big guys, the pros, without having to spend any time on it. No special education required or the time to get this education. No management. No commercial code or housing code knowledge needed. You can treat this much like any other typical investment BUT get all of the benefits of the guy managing the property day in and day out.

Is this great or what?

Just the desire to earn a great return, get great cash flow and tax savings AND have a property that will give you pride of ownership as well is the only real prerequisite.

Active Owner of Great Apartments And Commercial Property Without Ever Having To Do ANY Management.

Active Owner of Great Apartments And Commercial Property That Give You Cash Flow Every Month, Tax Savings, Appreciation, Equity, Etc.

Active Owner of A Great Apartment And Commercial Property Without Spending The Time To Educate Yourself.

Active Owner of Great Apartments And Commercial Property Without Ever Having To Pay Capital Gains Taxes.

This Is An Option For You.

So think of it. Getting say a 12% cash flow annual return with checks being sent to you for this every month. On top of this and at the same time you are getting all of the benefits of the active owner and you are at your kids ball game, Grandmas birthday party or on a family outing.

What else could be better?

OK, I hope that I have your attention now. Does this shatter most of the investment real estate myths that are out there? It sure does.

Does it make you think that you should be considering this kind of investment?

I hope so.