Getting Deals Done!

Getting a deal done can be tough sometimes, especially if that deal is an Acquisition and Development deal. The transactions are often referred to as A&D funded loans.

So what is an A&D loan? It can be a traditional conventional style commercial loan, a hard money/private money style loan or anything in between. You'll ofter hear terms like Mezzanine or Carry-Over loans used.

These loans typically provide the money to purchase and repair a property. In many cases the property will be purchased with cash and the A&D (at this point it is then referred to as a Mezzanine loan) will be used to pull cash to rehab the project.

Many investors are having a hard time finding the money to purchase existing buildings right now. That's because the CMBS (Commercial Mortgage Backed Securities) market has all but dried up.

But! The A&D money is starting to creep back in. While owner are hawking their half occupied, fully depreciated properties at laughable cap rates, vacant bank-owned properties sit just waiting for someone to swoop in and buy them for as little as 25 cents on the dollar.

If your strategy is to buy and hold and you already have 5 or more residential properties then switching to a small apartment building or a small office building might be a good choice. Using an A&D loan to fund your new projects might be the way to get your business moving.

Changing to commercial deals even though there are tons of residential deals available might be the only way to get many peoples investing business back on track and growing. Make the decision to move to commercial and create a Cash Flow Monster, the you'll start to get deals done!

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

Financing the Hard Way

There are a lot of people that want to invest but they can't overcome one main barrier ... financing! With the tightening credit requirements of many banks, real estate investors are finding it tough to finance their deals.

Investors can get financing, however they have to realize the new market realities. For small commercial projects, I recommend that investor use a system that has been used for many years by residential real estate investors.

In the past many residential real estate investors have used a strategy of purchasing properties in disrepair, buying them at a huge discount and then fixing them up as rental properties. This same strategy can be used with small commercial real estate.

So how has this strategy worked in the past, they've used a type of loan called a Hard Money loan to finance the purchase and rehab of the property. After work was completed and the property was occupied, the investor was able to get a permanent loan to refinance the Hard Money loan.

Hard Money loans are short-term loans designed to give investors the ability to buy property and fund the rehab. These loans usually run from 90 days to as long as one year. Investors must be cognoscente of the balloon date, the date the loan is due, because the loans can carry huge extension penalties.

Hard Money loans come in wide range of terms, but there are two things you can be sure of; 1.) you will be charged a lot of 'up-front' points and 2.) the interest rate will be high.

These loans are very risky for the investor so they hedge their risk by taking profits on the front when they close the loan. This profit, often referred to as points, can range from 5-10 point or 5-10% of the loan amount.

Interest rates on these loans are often very high as well. Interest rates range form 12-18% with the most common rates being around 15%. While this sounds like an expensive way to finance a transaction, if you don't have cash in the bank, it is a good way to get started.

I remind investors who are incredulous that these lenders charge these high rates and points of two facts. First and foremost, there is a cost for opportunity and if you don't have any cash the expense of this loan is nothing more than the cost of the opportunity.

The second fact I point out to investors is there is a cost to inaction as well. This is what I refer to as the cost of lost opportunity. How much money did you NOT make by not doing a deal because you didn't want to give away a share of the profit to the lender in the form of high interest rates?

Finally I'll close with this thought. Let's say you don't want to use Hard Money to finance your transaction and you find a 'money' guy to partner in the deal with you. What do you think their requirement will be? Would you give them 50% of the deal? Think about it...then give me a call.

Michael Gross is the author of this blog. He is the President of Dividend America Mortgage and he has been a builder, a Realtor, an appraiser and a consultant to Fortune 500 companies on the subject of real estate. He leverages all of his expertise to help investors finance their real estate transaction and create wealth through real estate investing. Contact him a 770-350-7373 or email him at mgross@dividendamerica.com

5 Things to Know About Financing Your Apartment Deal

It's tough to get financing for all those houses you want to buy and there is a good reason for that. Traditionally, if you wanted to own multiple units of rental properties, it made no economic sense to own more than two or three houses.

In most markets a detached home costs about 25% more than an attached home but the rents that one could receive from an investment with equal bedrooms and baths was only about a 10% more. The banks realize that investors with a strategy to rent many housing units are leaving a a lot of money on the table.

The banks force investors to move on to bigger and better things when they limit the number of residential loans an investor can have. The bigger and better thing they want you to pursue is multiple housing units under one roof, Apartment Buildings!

There are 5 very basic and important things you need to know about financing your apartment deals. Knowing these things before you begin your transition from residential to commercial financing can be the difference between a successful deal and one that will never make it!

1. Don't start to big! Commercial banks qualify you on credit worthiness, not just credit score. Credit worthiness means someone with a lower score may get financing than someone with a higher score because they have experience. If you've never had more than $500,00 in mortgages you won't be approved for a $2,000,000 loan.

2. Experience is the key. Never make an offer for a property that is larger than your experience. For instance, if all you've ever owned is two rental houses and a duplex (essentially 4 doors) don't try to buy a 50 unit complex (50 doors). Start smaller, say an 8-12 unit building.

3. You WILL need money. While there are some strategies that involve no-money down type scenarios, they are hard to come by. You'll need about 20%. Five percent for out of pocket expenses and due diligence and 15% for the down payment. (We'll talk about no-money down strategies in another blog, for standard loans you or you're partners will need a 15% down payment)

4. Personal positive cash flow is a must. The lenders will look at the cash flow of the deal, but they'll look at yours as well. If they throw your finances in with the properties ability to generate cash and the total DSCR (Debt Service Coverage Ratio) is less than 1.10, you will have a problem getting the approval.

5. Partners are important to... Make sure that you have a rock solid agreement and if the partner is the 'money' guy, make sure their money is seasoned for at least 90 days!

You may hear a different story about loans and approvals from the ones I've stated above but consider the sources you get your info from. What is their motivation, did you buy books and CD's from them, are they really lenders and if so, how long have they been in the lending biz.

The truth is that the economy has changed and the markets have changed and all of the lender rules have changed! Change has come to America and where commercial investment loans are concerned that change is not to the borrower's benefit.

Knowledge is power and if you arm yourself with the proper knowledge you can create the partnerships and negotiate the deals that will be successful for you.

Michael Gross is the author of this blog and President of Dividend America Mortgage. He has been a Realtor, a Builder, an Appraiser and is an active investor. With over 24 years of real estate and lending experience he uses if knowledge to help real estate investors create successful financing strategies. Contact him at 770-350-7373 or mgross@dividendamerica.com.

Buy Banks! Play the Bailout the Buffet Way

Warren Buffet is buying! The man who has been sitting on piles of cash for years is now in the game. This proves one thing, there’s blood in the streets and he’s making his move.

So what is he buying? He’s buying banks! That should be a signal to all of us that the time is right for us as well. This huge government bailout is associated with one thing, the credit crisis. That crisis has reached a fevered, political pitch and that means opportunity for those of us who choose not to panic.

There is a unique way to play this $700 billion banking bailout and we can emulate great investors like Buffet. We can BUY banks! There are many bank buildings that are empty and just sitting there waiting for creative investors to reposition them and turn them into something new.

With this crisis and the bailout, more banks are likely to come available. As industry giants alike Wachovia and Washington Mutual are snapped up for a song by Wells Fargo, Citigroup and Bank of America, more bank buildings will become vacant and put up for sale.

There are many ways to play the bank bailout. One is to put together a group of partners and go make low-ball offers on buildings that have been on the market for more than 6-months. Banks are strapped for cash and other than having to deal with a 10-year restriction that no other bank can occupy the space, these buildings can be bought for a fraction of their value in a normal market.

You could also invest in syndications. There are several real estate firms that are actively seeking investors to fund their purchases. The investment minimum is usually around $25,000 and offers an 8% annual return with a 10% bonus at the end of the third or fifth year. You can be a real estate investor without the hassle!

So once you’ve bought an empty bank building, what can you do with it? The ideas are endless. How about taking the drive through teller positions and turning them into a hand car wash and detailing center. The traditional wide open interior can easily be partitioned into office space and because of the vault and safety deposit boxes, some of that space can be turned into a mail-boxes-etcetera style shipping center.

As a matter of fact, Fed-Ex/Kinkos style businesses would do great in an old bank building or, how about a check cashing facility. The parking lots are usually huge and are large enough that the facility would make a great used car lot. I’ve even seen an old bank building turned into a restaurant where the vault was used as the wine cellar and private tasting room.

If done properly, playing the bank bailout could be quite lucrative. Whether you buy the bank yourself, create a partnership or invest in syndications, don’t miss this great opportunity. An old bank building could be your next Cash Flow Monster.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

Cash Cows in the Big City

Cows in the city, is that possible? You bet ya, we’ve got Long Horn Steer, Herefords and Black Angus. All top of the line, all A-class, all the most expensive. There out there in the big city and ready to be bought, sold and leased.But you don’t want to pay top dollar for your cattle. Paying top dollar for anything in an economy like this makes it tough to turn a profit.Besides, you need a worker.You need to plow the fields and turn up fertile soil. You want to plant seeds that grow and generate a renewable resource.

You need an ox.Oxen are some of the hardest working cattle, heck they are some of the hardest workers in the animal kingdom! Okay, so why am I going on and on with the ‘cow’ analogy when you came here to read about commercial real estate? I’m doing it to illustrate a point.

Yes, you can go out and buy the best out there and yes you will probably make a little money. But, if you don’t have a lot of cash to invest and you want to maximize the income generated from your investment, in this economy you need a hard worker.

As we come out of any recession, the C-class office building is one of the first areas to receive the benefit from the upward rise. Many professionals who were laid off will start their own small businesses. They will need inexpensive office space to house their new venture.

The worker class of the office building space is the small office condo and older office buildings that have languished in the past. As a savvy investor you can purchase these buildings for a song and turn them into Cash Cows in no time.

B- and C-class office buildings are the working class of the office space market. They are the oxen if you will. Having these properties in your real estate portfolio will provide you with tremendous cash flows and give you the income you want from your real estate investments.

So stop and look at all the beautifully groomed and well bred herds and start looking for the lonely oxen out there ready to pull your cart! Find the one or two and you’ll have a cash cow that you can call a Cash Flow Monster.

For low- and no-money down strategies, contact me and I’ll show you how to add these Cash Cows to your real estate portfolio!

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

Upsize Your Residential Investment - Apartment Buildings

Residential, Residential, Residential! It’s all I hear form investors these days. Everybody sees the potential in residential right now because there are a lot of great deals out there. And to a certain extent, they are right.

However, I still don’t think people truly understand the investment. Residential real estate is an annuity. I say this because when you invest in a single family home, a duplex and in some cases even when you invest in a four unit residential building, you have to put a lot of capital into the investment in order to receive an immediate income.

Think about this, an annuity is an investment of a large amount of capital for a specified amount of time. When the time threshold is reached, the capital investment begins to throw off a decent amount of income. The time threshold can be shortened by increasing the capital investment. That’s how most single family residential investments work.

Now take a small commercial building. You make an initial capital input and that investment pays you immediately! It is a business and the lenders will not lend the money on the investment unless it can pay for itself in the form of current income.

Many people are afraid of investing in small commercial buildings because they say they don’t understand the nuances of dealing with the business to business relationship. Some real estate investors are just more comfortable being a residential landlord.

If you find you are one of those people. If you understand the renter and you pride yourself in providing a great place for people to live, then you can still upsize your investments by purchasing small apartment buildings.

The small apartment building gives you economies of scale. It helps to reduce the cost per unit for maintenance and repairs because the building houses more units. This type of investment also helps to flatten the loss curve by giving you multiple streams of income tied to a single property.

Adding a small apartment building of 8-24 units can really pump up your cash flow. They are easy to get into using multiple strategies and the great news is that lenders are willing to lend on them. Where you might be struggling to get money to buy those single family homes, money to purchase small apartment buildings is abundant.

The advantages from purchasing small commercial residential properties like apartment buildings are numerous. Lower maintenance costs per unit, higher overall cash flow per investment, more flexible financing and the ability to negotiate great deals.

The secret to purchasing these deals is no secret at all. If you’ve purchased single family homes and rehabbed them to hold as rental then you already understand what you need to do to get started with small apartment buildings. Now all you need is the financing.

The financing can be arranged in many different ways. Down payments can be as low as 10% and in some cases you can structure deals with no money down. Remember that these are business deals and with the proper negotiation techniques there are many ways to bring a deal to the table.

The key is drop your fear of moving into larger properties and to understand the true money making potential of small apartment buildings. If cash flow is what you seek then investing in small apartment buildings can help you UPSIZE your residential real estate investing business and help you create a CASH FLOW MONSTER!

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

Politicians Do It All The Time

Watch the politicians and you'll see it happen over and over again. They take a position on a subject one day only to reposition themselves the next. Why do they do this? Because it is beneficial to their campaign.If the politicians can do it for personal gain, then you should do it to gain profits. Commercial property is a business and sometimes the business needs to take a new position. Many of the vacant small commercial properties in the market place are solid buildings that are just 'positioned' improperly and are unable to take advantage of the changing demographic of the surrounding community.

As savvy real estate professionals, it is our job to take these hulking eye sores and convert their darkened hallways into paragons of profit. By understanding the reasons the building (business) failed and by researching the underlying demographic change of the community, investors can purchase what appear to be unusable buildings and turn them into unbelievably viable cash flowing entities.

Great examples are all around. For example, in one community there was an old two story bank building that was converted into a laundrymat, arcade and cafe and business is booming. The high-end building was a bank with a 1960's two story concrete facade. The area was once a community of businesses and middle to high income households.

The neighborhood demographic has changed. The white collar work force moved out and a blue collar working class replaced them. Average income for the area decreased by 30-40% and expendable income for the market plummeted. Businesses that once targeted a clientele with money to spend moved out and were replaced. The Lehman's is now a Dollar General and Big Lots, the Publix was replaced by Save Rite. Every aspect of the community has changed.
The old bank building was out of place, the bank didn't service the new demographic so they folded their shop and moved on. The building was empty for years until one enterprising entrepreneur spotted opportunity. He bought the building for a song. After years of low offers, the bank needed to liquidate the unwieldy and deteriorating asset so they let it go for pennies on the dollar.

The new owner jumped into action. Remember this building was a stodgy old bank property. The windows were slits in the concrete and tinted with dark film. The interior was all dark stained wood and dimly lit. Everything about the property was wrong for this market.
The new owners transformed the interior space. They removed the film on the windows, added bright florescent lighting and painted everything white. The interior is bright and welcoming and the building is becoming a center of the community.

There are streams of income everywhere. There are coin operated washing machines and coin operated dryers. There is an arcade with the most popular video games, pool tables and fooze ball tables. There is a cafe, and CD exchange, an ATM and, because the community has a large ethnic population now, there is a money exchange where currencies can be converted and even sent back home. There are coin and card operated pay phones and a phone card vending machine. And that's just the first floor!

When the second floor conversion is finished there will be offices. What kind and who will rent? How about an immigration attorney, a bi-lingual accountant, a language translator and even a school for teaching english as a second language.

The once desolate and darkened hallways of this seemingly out of place and out time building have been made timeless by being repositioned in the market place. So during this political season take a page out of the politicians handbook and see what new position you can take with your real estate.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call him at 770-350-7373 or via email at mgross@dividendamerica.com.

Feels Like 100% Financing

Many real estate professionals that invest mostly in residential housing are reluctant to even attempt to enter the market for small commercial. This is because they have a perception that it is very expensive to get into commercial properties.

Well, that may not be exactly true. It actually costs about the same in terms of percentages to get into commercial as it does residential. Think about it this way. If you have 10 loans at $100,000 you have a million dollars in loans. If you paid 3% to close each transaction you've actually paid $30,000 in fees, about the same amount you would pay to close one $1,000,000 loan.

Others decry the 'large' down payment required to acquire small commercial property. But now, the out-of-pocket cost is less to get into small commercial than in most residential transactions. This is because of the flexibility of small commercial lending.

There are lenders that will allow investors to cross-collateralize loans. This feels like 100% financing to the investor. Cross-collateralizing works in a combination of ways. In most cases the lender will put a loan on equity in other property to use as a down payment on the property being purchased. In some instances real estate with equity acts as additional security in the loan along with the property being purchased and all the properties are secured under the same 'blanket' loan.

These strategies along with more advanced lines of credit, like the ones that are available for loans against stock and mutual fund portfolios, can be used to provide real estate investors with financing for new projects without having to liquidate cash assets. With small commercial real estate investors can have a 100% financing experience. That is something that is not currently available for single family residential real estate investments.

Create Your Hedge Fund

Hedge funds are a great thing for those wealthy individuals that can afford to invest a small amount of ‘risk’ capital to boost their returns. Think about it, you can invest about 10% of your wealth and generate returns that can boost your overall portfolio from a paltry 6-8% per year to 12, 15 or 20% if you are in the right fund!

Hey, if you loose money theirs good news as well. The loss is active and can count against any taxes owed on income from other sources. It’s almost a win, win right?

So how can we investors create a windfall Hedge Fund like return for ourselves? It’s easy, invest in small commercial properties. Small commercial property is less risky than hedge fund investing, but it gives us many of the same market and tax advantages.

Think about it, with commercial property you get positive income streams, depreciation deductions on your taxes and, if you’ve invested properly, you get to enjoy the benefits of capital appreciation tied to the properties value growth. Talk about a hedge against downturns, inflation and possible stock market losses.

By investing in just a few small commercial properties you can create additional cash flows and tax deductions at the same time. Investing in a small office building, an 8-12 unit apartment building or a small retail strip center with 4-8 retails spaces can be a great way to diversify income and support your residential real estate portfolio.

Making a few small commercial investment today could be like creating your own mini-hedge fund for your small business.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please contact Mr. Gross on his direct line at 770-350-7373 or via email at mgross@dividendamerica.com

Cycle Into Success

Business cycles, we read about them all the time and many times we never slow down to think about how the national economic cycle affects our own local small business. That is until we are knee deep in debt and wondering how we’ll dig our way out.

As real estate investors we have a unique opportunity if we can recognize the cycles and use them to our advantage. For instance, when credit became fast and loose and anyone that could fog a mirror could get a loan, savvy investors recognized early on that using a flip strategy for residential real estate was a great business.

However, now that the cycle has changed and credit is tight, using a flip strategy is not such a good idea. So the question is how does one create a cash flow monster so that they don’t have to go back to the 9 to 5 grind?

The answer is simple. Recognize the cycle we are in and adjust accordingly. Because of the nature of commercial real estate and the way loans are made on commercial property, the small commercial real estate market has made real gains in the past year.

While residential business has been squeezed by a lack of available credit the small commercial market has plodded along. That’s because each small commercial property is looked at as its own business entity. It has to make a profit or lenders will not loan money against it.

As an investor with equity in properties or with stocks and mutual funds, you can create situations where you leverage your wealth to get into the high cash flow properties that can give you a paycheck and keep you from having to schlep back to a J-O-B!

If you don’t think you have the money to get into commercial real estate you may be wrong. By leveraging loans against existing equity in property or by securing loans with stocks, bonds and/or mutual funds, you may be able to obtain all the money you need without having sell your assets.

With 100% CLTV programs and partnering strategies, you may be closer to colossal cash flows than you think!

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please contact Mr. Gross on his direct line at 770-350-7373 or via email at




mgross@dividendamerica.com