A Syndicated Post By John Highman

Commercial real estate is a category of property that is structured around income performance. It is the lease that provides the stability to the income performance. When you get the lease correctly structured and agreed, the property will be a performing asset. Poorly leased properties with random lease documentation on average achieve lower sale prices when purchased by an investor.

If you are a property investor, you will be very interested in the structure of the relevant property lease and the stability of the sitting tenant. If you are a real estate agent, it is important that you develop lease controls and processes that optimise the tenancy outcome for the landlords that you serve.

The lease on a property will impact the cash flow for many years, hence careful control and decisions are part of the process.

To lease a commercial property, it is not just a matter of making decisions regards rental and lease term. The critical elements of the lease document will include important points such as:

1. The type of rental paid is actually more important than the level of rental. This rental type can be gross or net rental and the recovery of outgoings from the tenant will be impacted by the choice of rental. The net income for the building is driven from the decisions taken by the landlord in this regard.
2. The initial lease term should be carefully considered and this is done at the commencement of the lease when the tenant is found. Usually this lease term will be a number of years based on the negotiation between the tenant and the landlord. In most property types, it is not desirable to have lengthy lease terms which restrict the landlord from future property decisions. This has to be balanced against the landlord’s requirement to do the lease deal in the prevailing market at the time. A landlord should always retain control over the asset and not randomly give lengthy lease terms without careful consideration on the future of the investment property.
3. An option for a further lease term. Many tenants prefer and seek to have an option for a further lease term. This gives them stability in the business operation. It does however restrict the landlord from future property decisions and any associated strategies such as redevelopment or refurbishment. This then suggests that the option for a further lease term should not be given without careful consideration.
4. The incentive given for any initial lease term may exist and may vary by type. When property markets become less active or frustrated by the economy, tenants will ask for an incentive as part of taking up a lease; the landlord will have little choice. The incentive can be a variety of methods including cash, landlord fit out, reduced rent, or rent free period. The choice that the landlord makes is largely dictated by the impact of the incentive on the landlord’s taxation position. For example, a landlord funded fit out may be an item of expense which may create depreciation under local taxation laws. The landlord needs to check this out with their accountant. It could be that the landlord will see the depreciation as more useful than a rental reduction or rent free to the tenant.
5. The permitted use for the premises should be clearly outlined in the lease documentation. What you should be seeking to do is control is direct the way in which the premises are used. This is critical when it comes to future occupation and potential assignment of the lease. It is to the landlord’s advantage that the property is used specifically for an agreed purpose. This then prevents any conflict with the tenant mix in the property. When the tenant mix is poorly controlled, it will impact the rental and destabilise the property. As you would expect, this is critical in a retail shopping centre.
6. The outgoings recovery is of concern to the landlord and the tenant. The outgoings that are recovered from the tenant should be clearly detailed in the lease document. When a property is sold in the future, the recovery of outgoings will be of great interest to the buyer of the property. They will be seeking to maximize their net return and recover as much from the tenants as possible.
7. The controls imposed on a tenant during fit outs are important if you want a happy tenants in the building. When a fit out is commenced for a sitting tenant, it is in the landlord’s interest to control the trades people on site and the approval processes for the fit out works. This will allow the landlord to achieve the quality of fit out construction that complements the building whilst not upsetting other tenants in close proximity. Part of this will be the due regard to the structural drawings and design of the building. Any tenant fit outs should be approved by the landlord before the works are commenced. It may also be that the local planning authority should approve the fit out design and drawings before they are undertaken.

John Highman is an expert in investment real estate strategy, property performance, and tenant mix analysis and strategy. He is an author and coach that helps property investors, and real estate agents improve their retail, industrial, and commercial real estate opportunities and targets.

John has specialised in major commercial, industrial, and retail property for over 30 years. He knows what works and what doesn’t. He gives you the ‘good oil’ on getting active and achieving results.

You can get John Highman’s free tips and tools in commercial, industrial, and retail property at http://www.commercial-realestate-training.com

Article Source: http://EzineArticles.com/?expert=John_Highman

Desk – Music and Sound Design from Aaron Trinder Film:Motion:Music on Vimeo.

Interesting short piece on Lifehacker today about the relationship between people and their desks.  Thought this would be interesting to share as property owners, business owners, and workers struggle with new ideas of what is it to go to work, rent space from the landlord’s perspective and the tenant’s perspective, and the supposed changing face of work itself.  Is work really changing?  Are companies and employees actually using less space as a result of the technology available to us?

My Take
People, at least those that I know, myself included, still need a place to go to work.  I still have to feel as though there’s a separation between work and home.  I’ve tried working from home.  It didn’t work out well; too many distractions and too much time by myself.  While I feel that you need time to focus on the task at hand and that multitasking is a farce imposed on us by people with more time than tasks to complete, there’s something to be said for the ability to bounce ideas off your colleagues – face to face – to gauge reactions and to get more rounded opinions.

Part of that sense of place created by a workplace is your desk.  I know, for me at least, my choice of desk and workspace had a big impact on my comfort level and my feeling of ‘place’ at my office.  I have a fairly large desk with a very traditional feel.  Nice wood grain, brass handles, pedestal base, and an ‘established’ feeling.  It just makes me feel like I’m there, really there and not just filling a seat.

What about your desk? How does it make you feel about your workplace?

My Desk

REALTOR® POSITION
Allow the capital gains tax and the recaptured capital cost allowance to be deferred when an income property is sold and the proceeds are reinvested in another income property within one year.

THE ISSUE
Many average Canadians are reluctant to sell in order to reinvest in another income property because of the tax consequences. Paying the capital gains tax and recapture of the capital cost allowance leaves investors with less equity and often unable to acquire a property of similar value. Removing the disincentive to reinvestment, by allowing tax deferral, will rapidly trigger a chain reaction of benefits for the economy, communities, and the environment.

BACKGROUND
Over a number of years, CREA’s proposal to defer taxation on income property reinvestment has been fine-tuned and is gaining momentum. CREA commissioned research from leading Canadian academics, as well as from a respected independent economic analysis firm. In a 2007 report, An International Comparison of Capital Gains Tax, Dr. James McKellar of York University’s Schulich School of Business found taxation influences behaviour. His analysis pointed out the “lock-in” effect, which occurs when people hold onto assets with relatively low returns for tax reasons, even if other assets would be more productive.

Research from Dr. Thomas Wilson of the University of Toronto demonstrates tax deferral on income property reinvestment is a Main Street issue. He found 58 percent of those reporting rental property had net incomes of $50,000 or less. The proposal would help level the taxation playing field for investment property owners. Tax deferral is permitted under various circumstances in the Income Tax Act. Subsection 13(4) and 44(1) allow capital gains deferral when a “former business property” is voluntarily disposed and a “replacement property” is acquired; or where a “former property” is involuntarily disposed. Subsection 14(6) provides similar treatment for eligible capital property.

This proposal would help stimulate demand for the struggling commercial real estate sector, which has yet to rebound from the global economic recession. In 2009, vacancy rates increased and rents declined. Uncertainty about the strength of the economic recovery continues to weigh on demand for commercial real estate in 2010. A healthy commercial real estate market spins-off opportunities for trades people in renovations and redevelopment; fees for professionals; income for industries that mine, harvest and manufacture construction materials; as well as tax revenue for all levels of government.

TAX DEFERRAL ON INCOME PROPERTY REINVESTMENT
In fact, research from Altus Group estimates, between 2006 and 2008, the typical multi-unit residential income property transaction in the Greater Toronto Area, Greater Calgary Area and Greater Vancouver Area generated $287,850 in ancillary spending. Furthermore, the Altus study found more than one job was created for every two transactions. This proposal would assist Canadians saving for retirement, as well as retirees dependant on regular income, by making real estate a more viable investment vehicle. It would also facilitate investment portability for real estate investors who move to another city, something that is easily done with a stock or bond portfolio. By encouraging renovations, which typically occur after an income property sale, this proposal would contribute to a greener environment.

Dr. McKellar’s 2008 report Promoting Community Reinvestment Through Tax Deferment notes buildings account for 39 per cent of U.S. carbon emissions and Canadian numbers are similar. He also cites a study, which identified 1000 buildings in the GTA that consume 20 per cent more energy per square metre than a typical single family home. It is estimated retrofitting could cut energy use and carbon output in those buildings by well over 50 per cent.  Tax deferral would also help generate needed housing supply to meet the demands of rental housing and urban intensification. According to the Canadian Federation of Apartment Associations (CFAA), purpose-built rental housing starts across Canada have declined over the last 35 years from an average of 60,000 starts per year to an average of less than 15,000 starts per year, despite population growth. Dr. McKellar notes people are migrating to the urban core. Among other actions, this requires the redevelopment of underutilized sites, as well as reusing, retrofitting and  adapting existing buildings, which are often owned by small landlords. In the past year, the National Trade Contractors Coalition of Canada (NTCCC), the Canadian Construction Association (CCA) and the Appraisal Institute of Canada (AIC), have joined existing coalition members, the CFAA and REALpac – the Real Property Association of Canada, in support of this proposal. The Canadian Chamber of Commerce has passed a policy resolution recommending tax deferral on property reinvestment.

Dr. McKellar believes benefits to society, which are rarely included in cost/benefit analysis, could far exceed the modest cost estimates of this proposal. Based on figures provided by Statistics Canada, analysis by Dr. Wilson and survey data and estimates from CREA, CFAA and REALpac, the first year tax deferral cost is an estimated $450 million.

At PAC Days 2009 and in subsequent fall PAC meetings, MPs from all parties indicated support for the proposal.

By John Highman

When looking at a new commercial or retail investment property for the first time, it is wise to have some form of checklist and system which assists you in the process. We have created this checklist to help get you on the right track.

When inspecting the property is almost like having your own due diligence process underway. Do not believe everything you see and certainly investigate anything of question. Anything of importance that someone tells you about the property should be investigated.

Having a keen eye for property detail and a diligent record keeping process as you walk around is the only way to inspect investment property. It is remarkable how these records have to be revisited at a later time for reassessment.

So let’s consider the following as some of the basic issues to review in your property inspection process.

1. A copy of the land title records is fundamental to your inspection before you even start. As part of this process, also seek out a copy of the survey records and any existing leases or licences. Also seek out any unregistered interests that may not appear on the title to the property. If in doubt seek a good property solicitor to help.
2. Take care to understand the location of the property boundaries and look for the survey pegs relevant to the survey plan. If in doubt seek a good surveyor.
3. Within the property land title there can be a number of easements, encumbrances, and other registered interests which need fully investigating. These interests can impact the price that the property achieves at the time of sale and can also impact of the method of lease occupancy. If any registered interests exist on the property title, a copy of the relevant documentation is the first stage of the investigation which should then be followed by questions.
4. Local council records may also have impact on the property. Are there any orders or notices that have been issued or are outstanding on the property, and can these things be of concern to the potential investor?
5. The zoning for the property and the zoning activity or changes in the precinct can impact a property. As part of this process, it is wise to include neighbouring properties and inspect them to ensure that they have little or no effect or impact on your subject property.
6. Copies of the local town plan will help you understand current planning issues. A discussion with the local planning office or planning officer can put you on the right track and explain any current issues or matters that may arise. In this process, it is wise to keep records of the discussions and the findings.
7. If copy of lease documentation is available for neighbouring properties then seek it out and review it. It is always good to know what the neighbouring tenants are doing and how long they will be there.
8. The local topography and plans across the immediate area will help you understand the fall of the land and the impact of any slopes and natural drainage. Look at the location of any water courses and flood plains. Seek out the history of any flooding in the area.
9. Supply of electricity into and across the area should be understood. If your property is an industrial property then the supply of energy to the property will be strategically important to any industrial tenant. If any easements or encumbrances exist across the property for electricity, then seek to understand the rights and obligations that these documents create on the property owner.
10. Services and amenities to the investment property will impact the future operations and interest from the business community. To the question to ask here is the nature of these services and amenities and whether they are well maintained.
11. Look for changes in road and transport corridors that impact the property or region. Any change in roads can dramatically shift the way in which property is used.
12. Look for the location of public transport and its potential to enhance your property function. Many businesses need stable and frequent public transport to help employees access their jobs.
13. Look at the community and business demographics of the region. The growth patterns for the last 5 to 10 years will help you understand the future of the property.
14. Other property valuers in the area are a good source of market intelligence. They can usually tell you the history of the area and the current business sentiment. Rental levels, incentives, and sale prices per square metre are valuable elements of market intelligence. They will all have impact on the yield that the property presents to any property investor.
15. Look around the area to see how many other properties are currently available for sale. Seek details of these properties and the prices being sought. If these properties have been on the market for a long time it will give you an idea of just how acceptable the regional prices and business sentiment is at the time of your inspection.
16. Look around the area to see how many properties are currently vacant. With reference to each particular vacant property, get details of the rental being sought and the time that the property has been on the market. You will need to form their own judgment on whether these rentals are relevant and reasonable in the current marketplace.
17. The supply and demand of vacant space by property category is an investigation to be undertaken in the region. What you want to know is exactly how much space is coming into the market in the future and how much space exists now for tenants to occupy.
18. Check out any new property developments that could be in the early stages of consideration and development approval. The key question here is the impact that these properties may have on your property.
19. The history of the area is always of high value to you. In commercial, industrial, and retail investment property, the history that you are after is the last five years. It is remarkable how much information you can glean from regional property sales and rental trends. Given that commercial and retail investment property works on the cycle of rise and fall, it is the history that can open up your understanding of what’s been going on and where things are headed.
20. With any property investigation, and particularly with properties that are complex and large, it is wise to seek out the comments of architects and engineers. What you need them to do here is comment on the structural integrity of the property and its future usable life. Also seek to identify how the property may be expanded or refurbished when times require.
21. Chase down the tenancy schedules for other properties in the area. Whilst these are not always easily obtained, they are of high value. They will tell you so much about the activity in other properties and buildings that may impact your future leasing strategy or property sale. What you do not want is a significantly high vacancy factor near your property when you are trying to lease it.
22. Review the local precinct for the larger businesses and how they operate. In doing this, you can understand who are the major business players and the major employers. Having these companies in the area is good thing, but losing them can be a major threat to the region. We call this the business stability factor. It should form part of your investment property assessment for the future.
23. Review the other major tenancies in the area and see how they operate. They can both stress and enhance the area depending on how they operate and the times of day that they do so. Of prime example is a transport company that has vehicle access peaks at certain times of the day. This can challenge the other businesses in the area and how they operate.
24. Walk around the precinct and the property taking many photographs for later investigation. It is surprising how useful photographs become for the reassessment of the property inspection. Walking through the streets in the region allows you to get a feel for the function of the streets and the neighbouring properties. It puts you in greater perspective for the services and amenities, and the function of all local surrounding businesses. A tip in the keeping of digital photographs for later evidence is the reversion of the important photos to ‘gif’ type files. This format is not easily changed and therefore more stable as court evidence of critical matters.
25. Knock on the doors of the other local businesses and talk to them about how things operate locally for them. Other tenants and businesses in the region will tell you so much and put you on the track of challenges and problems in the region.

Inspecting the commercial investment property is very much a physical process. In only this way can you completely connect with the property function before you form an opinion of its suitability for your plans, pricing, rental, or occupancy.

John Highman is a prominent investment real estate speaker and coach that helps property investors, and real estate agents globally to improve their commercial real estate property performance. He himself is a successful real estate agent that has specialised in major commercial asset sales and leasing for over 30 years.

You can get John Highman’s free tips and tools in commercial, industrial, and retail property at http://www.commercial-realestate-training.com.

Article Source: http://EzineArticles.com/?expert=John_Highman

Syndicated Post

There are three key factors that you must focus on when doing your due diligence in commercial real estate acquisitions. Fully understanding these three areas will enable you to be highly successful in acquiring properties.

These three areas are:

1. Verifying the reported income: It is imperative that you prove the reported income by examining each individual rental lease, doing a unit by unit inspection and engaging in a great deal of “sleuth work” utilizing the expertise of a solid management company. Every signed lease being reported by the sellers must be examined for legality and authenticity. If you determine that the current management has a “mom and pop” style, you shouldn’t even consider moving forward with the deal because the management transition would be far too drastic and increase the level of risk as the style of management that you would be putting in place will be highly professional and may alienate the current tenants…. unless you are really interested in buying yourself a job. One idea around this: Insist that the sellers place the property under third party management for a couple of months and then purchase the property based on the stabilized numbers reported by the new management company.

2. Verifying the expenses: Knowing the expense numbers of the sellers isn’t nearly as important as knowing the expense numbers that YOU will be able to run the property with. This is best determined by obtaining an average/unit expense number from several third party management sources in the immediate area of the property. It is also done by verifying each number that is being reported, including everything from insurance costs to lawn care. All numbers must be verified. Fortunately, most expense numbers that apply to running apartment complexes are fixed costs, such as property taxes, and insurance.

3. Verifying the physical condition of the property: Hire a third-party commercial property inspection company to perform a thorough inspection of the properties that you wish to acquire so that you can best determine what the current and future physical problems of the property may be. This is worth every penny and there is no short-cut around it.

There are still good investment ideas out there. If you need assistance in locating some investment opportunities, please visit our website at http://www.invesco.info and leave your contact information so we may respond to your request.

Virtual Banking Companies Unlimited LLC is a Private Placement Trading Program that works closely with INVESCO, a Portfolio Selection Agent company. Together the two combined companies search for solid and stable investment deals. For more information, please visit the website at http://www.invesco.info

Article Source: http://EzineArticles.com/?expert=Glen_Crozier

Due diligence includes physical inspection of the property. Key areas to include during this step are:

• Drainage should be checked including grates and issues that may cause rushing water to the edges of buildings. Also, look for areas that show signs of standing water issues.
• Grounds should be checked for sink holes. Landscaping needs and fixes should be considered.
• Parking should be adequate and parking should be observed for opportunities to sell spaces, etc.
• Amenities should inspected including all equipment and systems. Considerations should be given to value and the potential to eliminate and reduce expenses.
• Buildings including foundations, state of masonry, condition of insulation, etc. should be reviewed and documented.
• Units should be inspected on a unit by unit basis and changes documented. Often low costs changes can improve lighting and make an older property much fresher.
• Paint condition and removal of lead paint are major considerations. New federal regulations have made this a much more serious issue.
• Environmental concerns including abandoned fuel tanks, old wells, and past asbestos use should be checked.
• Common areas should be reviewed like buildings in general.
• Plumbing should be viable or plans should be made to replace it. Pay special attention if there is polybutylene installed.
• Electrical should be checked for adequacy of wiring. Aluminum wiring will have to be removed and each unit should have adequate wiring to support modern appliance requirements.
• Appliances should be checked and modernization plans made to reduce utility costs and improve supportability.
• Windows should be at least double pane. Modern windows reduce utility costs and are more maintainable.
• Doors should be in good condition and offer security and good insulation characteristics.
• Water heaters need to be current and in good operating condition.
• Metering by unit will reduce cost and increase profitability.
• Roofs can be a large expense and checking for this issue is important creating the investment plan.
• Fences can make a property look much better and depending on type offer a great security amenity.
• Signage is one of the best advertising opportunities a property has planning and installing the right signage is critical.
• Offices make the first impression on new resident prospects. Make certain the office sends the right message or modify it to do so.
• Traffic can make or break a property. If the traffic is great, often little has to be done to rent the property.
• Visibility can determine the effectiveness of signage and the ability to make the property traffic pay off.

These items should be inspected for their physical viability as well as for environmental issues. Additionally, the right view of physical structures can dramatically change the financial viability of a project.

Blake Ratcliff owns and operates residential property. He also operates International Residential Real Estate Investors Association (IRREIA) for the benefit of investors.

Needing support refining or developing business plans, financial models, market studies. Coaching and consulting support is available. Need to win those last few investors. Blake can help make your goal a reality.

Join IRREIA at http://irreia.org/getmypaidmembership.htm#order for premium and free membership.

Article Source: http://EzineArticles.com/?expert=Blake_Dale_Ratcliff

All successful condo conversions rely on the efforts of a great many people, and building a condo conversion team that you can work well with is paramount to a successful and lucrative project. The people you surround yourself with will be your most valuable resource for information, skill and guidance. Here is a brief rundown of the good people you will want to find for your team.

Mentors
One of the best ways to ensure success is to copy and do what successful people do. If you aspire to be successful in the field of condo conversion, then it only makes sense to forge some friendships with others who are doing that already. Study what they’ve done and what they’re doing. Ask them what mistakes they’ve made and what lessons they have learned, so you can avoid similar pitfalls. Everyone who is trying to master a skill can learn best from a mentor. Ideally, you want your mentor to be someone who has completed a few successful condo conversions, and is willing to share that information with you.

Real Estate Broker
Since you are dealing in real estate, a knowledgeable and experienced commercial broker will also be a valuable member of your team. You can’t begin your project without finding the best property for your investment, and this is the person who will help you find what you’re looking for, and will be at your side to guide you through each and every step of the process.

Construction Lender
Next on the list should be a banker that you respect and trust, and who has experience working with real estate investors. You are going to need loans and financing to fund your project and this is the person who can make it all happen. It’s not a bad idea to look to your own personal banker first and see if that will be a good fit. After all, you already have a relationship and it may work out just fine.

Bookkeeper and Accountant
To help keep things in good order financially you will also need a reliable and knowledgeable bookkeeper and accountant. Again, it is wise to seek out professionals in this area who have experience working with independent business owners and if possible who also understand real estate investing.

Architect
An architect will be needed for some projects so it’s a good idea to establish a relationship with one right away even if you may not need the service for your first project.

Real Estate Attorney
A lawyer who is experienced in working with real estate investments will be of enormous value when it comes time to handle all the legalities of your purchases, sales and the day to day functions of your corporation.

Building Inspector
You will also want a reliable building inspector as part of your team, preferably someone who has lots of experience. Missing a major flaw during an inspection can cause you plenty of dollars and headaches down the road.

General Contractor
Naturally your team will also include numerous members from various trades. The best way to establish this team is through a general contractor that you get to know and trust.
Building a reliable team is one of the most important steps of your condo conversion project. Build it well and you’ll save yourself time and money in the end.