Category: Real Estate Investment

If you want to increase your real estate investments instead of decreasing them. With the sale of your income producing property you can reinvest the money received. This combines the sale and purchase of real estate. This is the equivalent of selling a property with the funds from the sale not going directly to the seller, but instead being used for the purchase of another property or for multiple properties. This is used in many real estate transactions today as a means to increase an investor’s for purchase revenue through the delay or removal of federal income taxes which have to be paid to the government on a yearly basis. These taxes include capital gain taxes through the sale of real estate.

For information on the 1031 exchange process go to this web site ca1031exchange.com.

Category: Real Estate Investment

Written by Mark Sanguinetti, California Bureau of Real Estate Broker ID #01792915

Mark Sanguinetti, a California licensed real estate broker is here to serve you in an advisory capacity on the purchase or sale of real estate as an income producing investment. Mark has many years of experience in commercial and industrial business and as a licensed real estate broker can help you find the ideal property for your business or investment needs. Mark is first and foremost service oriented in providing real estate investment services to his clients. Secondarily, he can legally receive a real estate commission in working with buyers or sellers of real estate in the purchase or sale of real estate. First is to be service oriented and truthfully factual. To be honest this is not always the case with other agents. Sometimes first and foremost they want as high a commission as possible.

As one example, I recently learned about a real estate agent who was acting on the buyer’s side of a possible real estate transaction who promoted a property owned by someone who also owned the business on the property, a Burger King in Twentynine Palms, California. The property is near a national park in the desert in southeastern California. The property was listed at a very high price of $1,963,000 compared to the land and building sizes. For the land size 13,939 square feet. For the building the gross leasable area of 2,121 square feet. The business owner promised to pay a monthly rental of a little over $4.24 per square foot. For other tenants in this area their rental cost was being listed as a little over $1.00 per square foot. With a yearly rental cost for the Burger King business owner of $107,965. In addition was the promise of the business owner to pay all property expenses. This includes the main expense of the yearly property tax. For the marketing of the property it was advertised as a 20 year triple net lease.

In looking at this it should be obvious that the agent on the buyer’s side could have recommended that to stabilize the Burger King business, along with the potential new property owner’s asset the per square foot rental cost could be lowered in comparison or proportion to the sales price. With this property being listed as a 5.5% cap rate this cap percentage could then stay the same. Why wouldn’t a business owner want to pay less for their monthly rental? This would obviously help to stabilize the business with a reduction in costs increasing the potential for a monthly and yearly business income profit. So what happened after the sale of the property with the business owner getting a very high real estate market price for the sale of his property? This combined with the agents on both the seller’s and buyer’s side getting a high commission. The Burger King Business owner declared bankruptcy after the first year of the 20 year lease. Then the lease was cancelled with a loss by the new property owner. Fortunately, the new property owner was able to work with the Burger King Company who assisted in the finding of a new Burger King Business tenant. The monthly rent for the owner of the new Burger King business would need to be lowered to be closer to the market rental price, while helping them make an income profit instead of a loss.

The next question is how much income will the new property owner lose with this purchase? The agent handling this transaction, at least on the buyer's side might still be happy though after receiving a commission, which if 2% would equal $39,260. However, this real estate broker, Mark Sanguinetti would not be happy for the purchaser of the property and would not appreciate the actions of the property seller. To stabilize this sale the price of the property could have been lowered by the same proportion as the monthly rental and with this it could have still resulted in a 5.5% cap rate. For example, with this property being listed with the yearly rental income to the new property owner totaling $107,965. And the sales price of the property being $1,963,000. Using math with the same 5.5% cap rate, if the property was instead sold and purchased for $1,600,000 the yearly rental expense for the business owner with the transfer of revenue to the property owner would change to $88,000. With this lowering of the monthly rental cost, a person wanting to continue with their Burger King business would have been happier. The purchaser of the property unless he had all cash for the payment would have needed less of a loan for the purchase of the property with lower monthly loan payments. However, a person wanting to get as much money as possible before walking away from his business might have been sad.

Mark Sanguinetti who has years of business experience is not one of the sad ones. He is not motivated to ignore factual information regarding real estate sales with current lease contract information just so he can get a higher commission. He would rather factually help the principal that he is serving either on the buyer’s or seller’s side of a real estate transaction. If you want an agent that is really good at deception in the marketing of a property for sale, then I am not the one. However, if you want an agent that will do extra work either on the buyer’s or seller’s side of a real estate sale, and provide the important and necessary information for purchase property decisions, then I would be a good choice.

As another example, when a property is listed for sale it is often marketed as a triple-net NNN lease property. This is an agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance in addition to any normal fees such as monthly rent, utilities, etc. On whether or not the rental of a property is on a triple-net lease contract, the lease agreement contract would need to be read in order to verify this. Mark Sanguinetti, as a licensed real estate broker is willing to read the lease contract in order to examine which expenses are paid by the tenant and which expenses are paid by the property owner. This analysis would be in an advisory capacity and this would need to be double checked by the potential property purchaser or by his or her attorney that specializes in real estate contract law. In contrast, other agents that I have worked with were not willing to even read the lease contract. Otherwise even when it is promoted as a triple-net lease, it may not be a triple-net lease and I have seen this with listed properties.

Category: Real Estate Investment

There are different types of real estate investments for income generating property. These are mostly commercial, but can also be residential. Unless of course, we have a small percentage of home owners with a large amount of residents needing to rent the property they live in. With property there are differences in land and building sizes with larger land and buildings sizes requiring higher investment amounts. For residential investment properties normally the largest are apartment buildings and property. These also use the most rental space per land size.

As long as apartments have been purchased at a price with positive cash flow where rental revenue is greater than total expenses, for example mortgage payments on a loan used for purchase, taxes, utilities, insurance, repair and maintenance, management fees, etc. Then a positive profit making cash flow should result. This may be small at the start of new ownership, however as time passes it could increase due to increase in rental prices. I would hope that rental prices would increase due to an improvement in property through additional construction or because of an improved more desirable neighborhood. However, prices could also increase due to the inflation of market rental prices.

One apartment building is less difficult to manage and maintain than several single-family homes. Time alone in transit going from one property to another should indicate this. Also with building maintenance for example, the cost per square foot would be less when a contractor does roof repair for one apartment with five tenants than five separate units and tenants at different addresses with five different roofs. Also with an apartment building, a hired property manager could be an option.

An apartment building allows you to charge for additional services with increased revenue, for example the following:

• Coin operated laundry machines with an onsite laundry room (can save the time and expense of tenants driving to a laundry business.)
• Appliance rentals for things residents use such as vacuums and carpet cleaners that you can earn income from while encouraging residents to keep their units clean.
• Additional rental storage units for the tenants to keep their possessions.
• Additional parking for reserved spot or covered parking with a monthly cost.

With an apartment building management and maintenance is required as the needs of the tenants will have to be dealt with. The specifics of the responsibility of maintenance between property owner and tenant needs to be part of the lease agreement. If you manage the property yourself, this can lower costs, but will require work. You will have to do bookkeeping, fill vacancies, and keep your property clean and maintained, while sometimes working with employed people. However, with larger apartments or if you plan on being primarily a capital investor, taking on the tasks of property management may not be in your best interests. This is especially true if your owned apartment is not near your location. Thus hiring a property manager may be in your best interests so that you can focus on acquiring additional properties that will build more wealth for a financially secure future.