Investing in Income Properties. Rosen Kenneth D.

using the terms income properties and commercial properties. They are synonymous, as are net operating income and net income.

      The public and the media think of real estate as homes and condominiums, but real estate is much more than that. The best kept secret in America is that fortunes are being made every day in income-producing real estate – not just by the rich, but by people who started off buying little apartment buildings, neighborhood shopping centers, small office buildings, and clusters of small warehouses. They started investing in a single $500,000 building, with as little as $50,000 to $100,000 in cash, and then began to buy more and more buildings.

      Ride up and down any street in the country and observe the small commercial buildings that dot the American landscape. These buildings are not owned by real estate moguls but by entrepreneurial people who got the bug to become owners of income-producing real estate. They knew that commercial properties would give them far more impressive returns – and with less risk – than any other type of investment. Their goal? To become wealthy enough to live the lives of their dreams without having to work.

      The book is divided into three parts. The first part reviews the basics and how to get started. It explores how income-producing real estate is superior to other investments. Most people have fears of investing in the commercial real estate market because it is unknown territory for them. I outline how to overcome those fears. And it is in this part of the book that we explore how to assemble the cash resources you'll need and where you can find the most effective educational resources as you work to become a savvy investor.

      Also in the first part of the book, you will learn how to bring together a first-rate team of professionals to provide needed expertise and counsel regarding your real estate investments. Among them are the right real estate broker, attorney, and accountant. Each will prove invaluable in helping you build a portfolio of wise investments.

      New investors, as well as those unhappy with the results of their past investments, should spend time soaking up the lessons provided in the opening pages. Experienced investors may know a lot about the basics, but a review can reveal new insight. As with a good golfer or tennis player, it pays to revisit the fundamentals.

      In the second section of the book, I detail the criteria for identifying the right buildings to buy. These chapters contain the most important advice you'll ever receive, including how to finance deals with the most leverage and the best rates of return. Adherence to the Big Six formula will build your equity, cut your income taxes, and help you escalate the return on your investment. My play-by-play examples of Big Six transactions demonstrate the fine points of negotiating price and revenue considerations. They will help you understand exactly how each element of the Big Six meshes with the other components for a no-fail deal.

      The third part of the book focuses on moving forward with your investment after you have closed the deal. There are many people who have never invested in commercial real estate because they say that they don't want to become landlords. They don't have to! Most successful investors do not personally manage their own properties. What most investors do is to hire a professional management and leasing company that handles everything for them. The cost of hiring such a firm usually pays for itself. Professional managers know the market inside and out and can, in many cases, increase income and reduce expenses.

      The conversions of large rental apartment complexes to condominiums were the craze from 2003 until 2007. Hundreds of thousands of units were converted to condos. This came to a virtual dead end in 2007 when the economy went into a tailspin. But, as with other commercial real estate investments, incredible amounts of money can be made – with virtually no risk – via condo conversions of apartment buildings. You'll learn about that in Chapter 13.

      “One Good Real Estate Investment Is Worth a Lifetime of Labor” is the title of the closing chapter of the book. This is where you will read the personal stories of four investors, each of whom became a multimillionaire from just one investment. They all started with very little money of their own.

      Throughout this book I will refer to the fact that you make your money in buying – and I'll tell you why. I will also emphasize that, if you adhere to the Big Six formula, you can, within a relatively short period of time, continually increase your rate of return – to 10 percent, 20 percent, 50 percent, 100 percent, 1,000 percent, and eventually to an infinite return, which is the ultimate goal of any investor. An infinite return is so great that it is immeasurable and incalculable.

      This book is designed so that you will understand what it takes to become a successful real estate investor. You won't do it overnight or by being lucky. But you will be successful if you put into action the principles and strategies of the Big Six, which will give you the tools you need. The road to riches is open to you. Seize the moment – and enjoy the journey.

      PART I

      THE BASICS

      A notable portion of the population has been through at least one real estate negotiation – buying a home – and many have changed their residences more than once. Despite that, too often people don't understand the nuts and bolts of a real estate deal. That's not entirely their fault. Real estate is not taught on a regular basis in high schools or many universities. And, in recent years, financing tools have changed dramatically. Now there are many different kinds of mortgages and a long laundry list of mortgage terms. On top of that, there is an abundance of real estate advice floating around, much of it misleading or just plain incorrect.

      In the case of commercial real estate investment, the old adage is wrong, because what you don't know can hurt you. Fortunately it's not hard to learn the fundamental principles of how real estate transactions take place and the terms used within the industry. (The glossary at the end of this book can help.) Easy as it may be to learn, however, you won't pick up the essentials when you're already in the middle of a deal. It is imperative that you have a grasp of real estate basics before you get going on your own investment portfolio.

      The most important part of this book is the Big Six formula, the core concepts that will put you on the path to riches. However, before we jump into that formula for success, we're going to review the nitty–gritty of buying properties, the terminology you'll need to understand, and other essential workings within the world of real estate investment. Chapters 1 through 4 tackle these, starting with an explanation of why real estate offers greater wealth-building opportunities – with much less risk – than stocks and other investment vehicles. We'll also look at the sequence of steps in a real estate deal, the expert professionals you'll need on your real estate team, and, finally, how you can access enough money to get started.

      Certain investment elements – such as zoning laws, contractual agreements, and construction standards – will vary from state to state and even city to city. But the basics remain the same everywhere in the country. Before you risk your investment, take some time to clearly understand what you're doing. If you do, you've set your stage for success.

      CHAPTER 1

      Why Commercial Real Estate?

      Americans work, work, and work. Yet many have little to show for it. Indeed, only a small percentage of people achieve financial independence by the time they retire. As recently as the mid- 1980s, most Americans looked forward to post-work years funded by pensions from their employers. But today, growing numbers of companies are abandoning those retirement plans as an employee benefit, leaving workers struggling to understand complex alternatives that they must manage themselves. The beleaguered Social Security system also faces an uncertain future. It's no wonder, then, that younger Americans, in particular, are seeking new ways to build wealth beyond the often inadequate safety nets used by past generations. People must shift the way they think about their future financial security. They must take the initiative to invest now in order to live the way they want later. Instead of working for their money, their money should be working for them.

      Commercial real estate investment, which is virtually recession proof if you follow my Big Six formula, is a powerful way to make that happen. And it is easier than you think. In fact, if you can master just half a dozen important keystones to property investment – the Big Six formula – you can put yourself on the road to real estate success.

      What you really need as you