Do you know the worst part about making money in commercial real estate???

Having to share it with the government when you decide to sell your investment property

Did you know there was a way to put off paying taxes on the money you earn on investment properties? And notice that I said put off and not avoid...unfortunately taxes are as sure as death so maybe you won't be paying the taxes today but you will have to pay eventually. I'll try and explain the process so even the most inexperienced investor understands the basics.

Something you really need to know about if you are planning on investing in real estate and what I am referring to is a 1031 exchange. The name comes from the particular section of the Internal Revenue Code (section 1031). Basically it's a way for you to sell a property and defer paying capital gains taxes by purchasing another property and reinvesting all of your profit.

As far as the person selling the property and completing the 1031 exchange is concerned, the whole process is transparent. You will have to add a few extra lines to the P&S but that's about it...
Here is how it works. I will use as an example, Steve, an investor, who currently owns a 3 family investment property and wants to buy a larger 6 family property.

1. Steve first consults his accountant and his financial planner to figure out his tax situation and what kind of profit he is looking at with the sale of his 3 family. He bought the 3 family for $100,000 3 years ago and its now worth $300,000. He has a potential gain of $200,000. The 6 family he wants to buy is listed for $500,000.
   
2. He contacts a QI (Qualified Intermediary) to discuss the 1031 exchange procedure. The QI is the middle man in the 1031 exchange process and you must use a QI, you can't do this on your own so don't try it.
   
3. Steve finds a buyer for his 3 family and puts in an offer for the 6 family which is accepted. Naturally he used a Buyer's Agent to find the new property. Here is where the fun begins...hold on tight!!!
   
4. Steve sells his 3 family and the $200K profit he just made is immediately transferred to the QI to hold for safe keeping until Steve closes on the 6 family.
   
5. At the same time as Steve is selling his 3 family, he is also working on closing on the 6 family. The QI takes the $200K he is holding for Steve and gives it to the guy selling Steve the 6 family. Steve then closes on the 6 family and never even sees the $200K and therefore doesn't have to pay any taxes on it. It's a beautiful thing...

Now for those of you that have had experience with a 1031 exchange, you will notice that I left out some of the details but my point here is to explain the process in a way that a novice investor can understand it. There are a couple of good references at the bottom of the post if you would like to learn more about 1031 exchanges. Here are some important points to consider when deciding to do a 1031 exchange...

1. The property you are buying must be of equal or greater value as the property you are selling.
   
2. In order to defer all capital gains taxes, you must reinvest all of your profits from the property you are selling into the property you are buying.
   
3. The IRS has a very strict timetable to complete a 1031 exchange. From the date that you sell your property you have 45 days to identify the property you wish to purchase and you must close on the new property within 180 days of the date that you sell the first property. The IRS doesn't care about weekends or holidays either...its calender days so if the 180th day is a Sunday and you waited until the last minute, you're out of luck since you can't record at the Registry of Deeds on a Sunday.
   
4. You are not avoiding the tax on the gain. In the example above, the gain was $200K but the money was reinvested in the new property. At some point, if Steve sells the 6 family, he has to pay taxes on the $200K profit he made on the sale of the 3 family unless he does another 1031 exchange and buys a property of even greater value.
   
5. You must hold the investment property for at least 2 years before the IRS will allow you to sell it and defer the payment of capital gains taxes.

Typically a QI will charge $1,500 to complete a 1031 exchange. I say typically because I only know about companies in my area and they all charge the same. Unfortunately there is no current regulations or licensing involved with being a QI so technically I guess they could charge whatever they want. If you are going down this road, make sure the company you are working with is reputable because as in my example above, the QI takes possession of $200K of Steve's money for a period of time while the exchange is completed. You have to be sure you can trust somebody holding $200K of your money.

Here are a couple of good resources to learn more about 1031 exchanges...

The Exchange Authority - This company is in Massachusetts but handles transactions all over the country and even overseas. I am working with a client completing a 1031 exchange now with this company. Tim Halligan is the man over there...

1031 Exchange, Wikipedia

 

...Rob Beland

The Real Estate TrendMill

I'm reaching out to the Active Rain community for your thoughts on commercial real estate and what you would like to know about it...

Have you had clients that had questions about commercial real estate that you couldn't answer?

Have you ever represented a buyer or seller in a commercial real estate transaction and felt like a fish out of water?

Are you a commercial real estate professional that like most of us only thinks you have all the answers but in reality there is that one area where you wish you had a little more knowledge such as 1031 exchanges or ground leases?

I recently started a blog, The Real Estate TrendMill that focuses on commercial real estate in Leominster, MA and throughout North Central Massachusetts. Although the main focus of the blog is the local commercial real estate market I also want to have plenty of information on commercial real estate in general. I want the blog to be a resource for business owners that are contemplating leasing space or buying a commercial property. I also want to be a resource for commercial real estate investors.

I know I have a long way to go if I want to be the "Bloggiest" blog ever but I'd like to be thought of as a valuable resource. One thing I've been noticing about real estate blogs is that there are two categories of blogs and also bloggers for the most part. There are blogs that are geared towards other bloggers and then there are the blogs that are geared towards our customers whether they are investors or home-buyers or anybody else...

The content you write for your customers in your market is in my opinion key to the success of the blog but writing content geared towards other bloggers is important as well since these other bloggers make up the majority of any blogs readership. I, like most of you, would be thrilled to have my blog read by my clients or my potential clients but the reality is that other bloggers are our audience for the time being...

Pat Kitano, from Transparent Real Estate made reference to this fact in one of his recent posts...here is a brief excerpt from his blog...

Hyperlocal content makes for useful and often entertaining reading... but blogging success requires a secondary effort that surprises many new bloggers - interacting with other bloggers to drive traffic. The reason? Most real estate blog readers are the bloggers themselves... the consumer readership hasn't solidly kicked in yet and the bloggers are building their online presence in anticipation of the consumer finding them.

So what is the point of all this and why should you care???

Well to answer the second question, I guess you have no reason to care other than because you as a blogger would like to reach out to another member of this great blogosphere of which we are all a part...

The point of my post is that I need content...simple as that. You all, as business owners and fellow real estate professionals are a big part of my readership and if I can reach out to you for inspiration, my blog will prosper and I will have all of you to thank. As the title of my post states, I will be linking to any bloggers that provide me with ideas for content for my blog. One thing I have learned in the short time that I have been blogging is that link exchanges are not the best idea. I do believe in the power of linking but I feel it has to be done naturally and the way to do it is to place the links directly in the posts. I will certainly give credit where credit is due and hopefully the success of my blog will add to the success of your blog.

Your input is greatly anticipated and I look forward to being a resource for each of you. 

OK so I'm not talking about lions but that title should grab a few more readers...

I wanted to share an experience I had recently with a residential broker that on behalf of a family member, decided to list a commercial property for sale. 

The following is a true story although the names have been changed to protect the guilty. Incidents like this are happening every day all over the country and probably the world...Please don't let this happen to you.

I recently met with a fellow agent regarding a property she was listing on behalf of some of her family members. Ruthy Realtor, as she'll be referred, was listing a property for her aunt and uncle. The property consisted of a 3.75 acre commercial parcel containing two single family houses and a small building currently being used as a used car lot. The property is on a pretty busy numbered route in town and would be a perfect spot for a few small businesses within a strip mall or maybe a couple of free-standing buildings like a coffee shop or a small convenience store.

Now in my area commercial land can sell for upwards of $500,000/acre and if it's at a light with a high traffic count, the price can go up to $1M for 1 acre. Typically you would need a minimum of 2 acres to be considered by a national retailer willing to pay those prices. Generally speaking, commercial real estate is nothing like residential which is why not too many residential brokers want to get involved.

Back to my story...

Ruthy is a residential agent who occasionally "dabbles" in the commercial side of real estate. Ruthy has probably seen some of the recent sale figures on commercial land in the area and relayed these to her uncle or maybe her uncle has seen the sale figures and relayed them to Ruthy. I would bet on the latter. Ruthy's listing price for the property is $3.5M. Now mind you, as I pointed out previously,  the higher end of the pricing spectrum for commercial land is reserved for the premier properties at lighted intersections. This particular property was not at a light nor was it in a premier location. Unfortunately Ruthy most likely wants to do right by her family but she is being blinded by the $$$

I don't want to bore you with lots of details but there were wetland issues, floodplain issues, right-of-way issues, and a small portion of the land was actually zoned residential so it would require some rezoning...

Point # 1 - Just because you are working for a family member, you are still the expert. Not them.

I don't care how long your uncle or mother has lived in the house and I don't care how well she cared for her fabric wallpaper, you need to be honest with your family just as you should be with any potential listing client. You need to set the price of the listing, not your uncle who you don't want to offend by telling him that his gun collection on the dining room wall isn't going to attract rich hunter guys to the house.

Point # 2 - Don't try and  "dabble" in commercial real estate - it's not like cooking

Before taking on any listing that is outside of your usual scope of services, consult some experts. In the case of a residential broker listing a commercial property, call some of the area commercial brokers and bounce your ideas off of them. Get their input before you put your name of a flyer for a property with a $3.5M price tag that is only worth $1.2M. It doesn't help your credibility. The same goes for a commercial agent that is considering listing a residential property. Call a residential broker and ask for some help with the CMA and get their thoughts on the current market. They're your competition but they are human beings and should have no problem helping you. Maybe offer them a small fee for their services. It will be well worth it in the end...

Point # 3 - Know what you are selling before you try and sell it

If you are selling a property with questionable issues such as the existence of wetlands, or zoning issues or environmental issues that may negatively affect the price, before you waste the seller's time, your own time, and anybody else's time, resolve the issues. Make sure the property owner hires the proper experts ahead of time and get the issues resolved. Don't list a property with the assumption that the land can be rezoned and the stream on the property is not actually a stream but runoff from some abutting property. Hire an engineer and have an official determination made.

 Don't tell a prospective buyer that you are working on a site plan to determine the property's maximum build-out potential. Do the site plan so at your first meeting with a potential buyer the question can be answered.

Don't list a property that may or may not have an underground oil tank. Find out about the existence of the tank and get a price to have it removed if it does exist. Getting the tank removed is actually less important than having a qualified contractor's quote in hand to remove it. The Buyer can deal with the tank if he knows how much it will cost to remove.

 

 Be a professional and spend a little extra time and effort at the front-end of a transaction. You'll look like that much more of an expert than a salesperson. There is nothing a buyer hates more than unanswered questions. Ask yourself every potential question you can think of that a buyer would ask and find the answer and then ask your colleagues for their thoughts and answer those questions and then ask some more... get the point???

 And most importantly, if you aren't a lion tamer, stay out of the lion's den...

In this second part of my four part series on the Leominster office market, I want to focus on the Erdman Way

Business Park located across the street from Staples just off Route 12 at the Interchange of Routes 2 and 12.

With a total combined leasable area of close to 120,000 SF, the Longview Corporate Center and the Commerce Place Corporate Center represent two of the five Class A office buildings in Leominster and represent the two largest office properties in the area. In the first part of this series, I highlighted the Woodblock Building and 14 Manning Ave, two of the other Class A office buildings in Leominster.

The Erdman Way Business Park is also home to the Four Points Sheraton Hotel, Bj's Wholesale Club, and The Center for Digestive Wellness. Access to the park is convenient for visitors who can take Exit 31B off of Route 2. Erdman Way is a right turn off of Route 12 at the first set of lights.

Some of the many amenities of the Corporate Centers include on-site professional managment and maintenance services, executive office suites built out to tenant's specific needs, ample parking for employees and guests, and convenient access to the area's services including restaurants, public transportation, shopping, and a first class hotel directly across the street.

Below is a breakdown of the two Corporate Centers:

Longview Corporate Center, 80 Erdman Way

• 53,000 SF Class A Office Building
• Current tenant mix includes several medical users, the Registry of Motor Vehicles, insurance companies, and a mix of other professional businesses.
• Lease Rates typically range from $16/ - $18/SF Gross - A little more for Medical Users
• Fully ADA compliant with dual passenger elevator access to all three floors
• Executive level finishes
• High Speed Internet Service

Commerce Place Corporate Center, 100 Erdman Way

• 60,000 SF Class A Office Building
• Current tenants include MWCC, North Central Mass Career Center, United States Armed Forces Recruiting Center, and several other professional businesses such as attorneys, accountants, and mortgage companies.
• Lease Rates ranging from $16 - $18/SF Gross
• Fully ADA compliant
• Executive level finishes
• High Speed Internet

Unlike downtown properties, the Erdman Way Business Park offers its business clients a different setting with more convenient access to the highway system. Parking at the Corporate Centers can be found in two adjoining on-site parking lots or in a third auxillary parking lot just across Erdman Way. Even though Erdman Way isn't downtown, to get there is a merely a straight shot down Route 12. Access to Erdman Way for clients coming from Fitchburg is just as easy considering Route 12 is one of the major routes residents of Fitchburg must travel to access Route 2.

The park's proximity to UMass Medical Center's Leominster campus (Leominster Hospital as the locals still say) make it a great location for medical users that aren't able to locate their office within the hospital. Nearly half of all tenants at the Longview Corporate Center are currently medical users.

As far as office space goes, the Corporate Centers are considered the flagships of the Leominster market. Originally built in the late 1980's, these two properties have undergone extensive renovations including upgrading to the latest, modern, energy-efficient HVAC systems, ongoing site improvements to improve on and add to the existing parking infrastructure, and ongoing interior upgrades including painting, flooring, and numerous capital improvements.

If you're not fan of the congestion of the downtown, and want to locate to a first class professional building, Erdman Way is the place to be...

In the third installment of this series, I'll focus on the smaller sub-office markets including the Rte 12 corridor from Sterling to downtown Leominster and the Rte 117 corridor from Lancaster to downtown Leominster as well as some of Leominster's Class B & C properties.

 

Are you looking to lease office space in Leominster?

Are you aware of all of the options there are in Leominster to lease office space?
I'd like to provide you a breakdown of the different options there are in Leominster for leasing office space. You may want to consider a downtown property, a property with good highway access, or maybe you want to be close to the hospital because you're a doctor.

In this first of a four-part series, I'll focus on the downtown area and all that it has to offer. I have separated the downtown into two sub-markets. The first being Main St and the surrounding commercial properties heading up Merriam Ave towards from the Post Office to the court house and extending South from about the Post Office down Main St to the BankNorth building and the second being the Woodblock building and 14 Manning Ave.


Main St/Courthouse area to BankNorth building

• Relatively low rents typically between $10-$12/SF Gross
  
• Older buildings, most without elevators so upper story offices are not ADA compliant
  
• parking can be found in the municipal lot behind the post office, in the garage next to the police station, or on street in a metered space. There are limited off street spaces available in a couple of privately owned lots
  
• Current mix of downtown businesses include several attorneys, staffing agencies, bank branches, and a few food and drinking establishments
  
• Biggest benefit of being downtown: Short Walk to all necessary services such as post office, drug store (new Walgreen's coming to town), coffee shop, etc...
  
• Biggest Drawback: Not easily accessible for clients especially for businesses in the middle of Main St on a second or third floor, and highway access is better elsewhere in town.

In general, the Main St office market is a love it or leave it type of location. If you're down there you love it and if you aren't you never want to be down there. Attorneys love the downtown because of the proximity to the courthouse. Staffing agencies, as I recently learned when I was out with a staffing agency looking for office space, love to be on Main St because there is basically a stream of job seekers that start at one end of downtown and walk to the other end hitting all of the staffing companies looking for work. Their clientele generally take the bus so the downtown is a convenient location for the temporary staffing industry.

You find very few medical professionals in the heart of downtown since the majority of the leasable space is in buildings without elevators so there is a problem with ADA compliance.

The outskirts of the downtown market offer older triple deckers that have been nicely converted into office buildings catering to small businesses looking for an inexpensive, small private office. You'll find real estate companies, massage therapists, attorneys, and several other local professionals within these buildings.

If you're looking for a place to grab a sandwich at lunch or a drink after work, you can walk to any one of several downtown eateries and drinking establishments such as La Tazza or Roma Bakery.

14 Manning Ave & Woodblock Building

• Higher than average rents in the $18/SF range but quality of space is reflected in price
  
• Class A space, fully ADA compliant, many modern amenities
  
• Plenty of off-street parking in two adjacent municipal lots as well as privately owned off-street lots
  
• On-Site professional management and maintenance services
  
• The #1 reason to locate to the Woodblock or Manning Ave locations: Owner's commitment to excellence apparent throughout both properties -worth every dollar...
  
• The biggest drawback to leasing here: Owner has a relocation provision in all leases which can be inconvenient if you are having to move every few years even if he is paying for the move.

The Manning Ave and Woodblock buildings are two of the five Class-A office buildings in Leominster. The tenant mix in these properties include attorneys, mortgage companies, engineering firms, real estate companies, and several other professional businesses. Being owned and professionally managed by a local investor, the properties are maintained and kept up to the highest standards so if you are looking for that executive feel in a downtown property, these buildings offer you both. The best reason to locate to the Woodblock Building, in my opinion, is the well known watering hole on the first floor, The Monument Grill. (They serve some exeptional food as well...)

If the downtown is where you want to be, there are several options to consider. Should you need further information on any particular property downtown or should you require any additional information, as I always say, please contact a qualified real estate professional. The leasing market in Leominster is very competitive and virtually every property you might consider has professional representation on their side so why shouldn't you???

The second part of this series will focus on the Erdman Way office park located just off Route 12 at the Route 2, Exit 31B interchange. This area offers a different set of benefits and drawbacks and caters to a lot of different types of businesses.

Where is my swiss army knife? I just hit 5,000 points on Active Rain!!!

 

Yay to Me!!!

 

Rob Beland

The Real Estate TrendMill

Have you ever been to "Bike Week" in Laconia or some other national motorcycle rally such as Daytona or Sturgis?

I just returned home from a night in Laconia and spent about 17 minutes amidst the 26 million bikers that basically took over the town for the week. Don't get me wrong I would have loved to spend the entire day just people watching and being a part of such a major event but I was one of the 7 people in Laconia today that does not own a motorcycle and I cleverly parked on a street that was closed to 4 wheeled vehicles. Unfortunately as soon as I made it down towards the strip I noticed there was a tow truck in the area.

Sure it's a "motorcycle rally" and yes the locals and the bikers refer to it as "bike week" but I think it's turned into more of a "real estate" rally than anything else. The whole event is basically centered around really expensive real estate needs.

It starts with the fact that in general, room rates in Laconia are pretty standard throughout the summer except for this one week when the rates just about double or triple not to mention the fact that you have to book a hotel room 3 years in advance (not really but you get the point). The locals don't want to be around during this week so they rent their houses out for between $1,500 and $4,000 for the week depending on how close you are to the "Strip" and the likelihood of some guy in chaps puking on your lawn as he leaves The Broken Spoke.

Once you arrive, you then have to make your way down to the Weirs Beach area where all the action is. Route 3 is the main route from Meredith to Weirs where you will see the never-ending parade of motorcycles and it's lined with vendors on both sides for miles and miles. This is prime real estate for companies selling motorcycles and related "gear"... These vendors pay anywhere from $2,000 - $10,000 to set up a booth for the week. Some of this money goes to private property owners and some goes to the city of Laconia which owns land along the road that they make available to vendors. Three of the more notable booths were the bikini bike wash, the guy cleaning sunglasses, and the fresh squeezed lemonade.

Then you figure there are the 26 million bikers that come for the week and although you might think that all they do is drive around and around revving their engines looking mean, they do get off their bikes once in a while to shine their boots, get a meal, have a beer...etc...These bikers pay anywhere from $5 - $10 to park their bikes in people's backyards that have been turned into makeshift parking lots throughout the area. If you were one of the 7 people there with a 4 wheel vehicle that wanted to park somewhere, you would have noticed that the price went to $20 and you had to park way in the back by the port-o-potties.

In terms of available commercial real estate being a hot commodity, there are properties in the area that actually stay vacant all year round and then a company will come in, rent a space for bike week, set up a store, make tons of dough, and then the following week...ghost town.

My point is that although the 26 million (yes I'm over-estimating) people in town for the week are there because of a common interest in motorcycles, you have to consider the effect this one week has on every aspect of real estate for the city of Laconia.

Who goes to Laconia for any other reason other than to experience bike week?

Have you ever been to Weirs Beach?

Oh and speaking of Port - o - Potties...there was actually a whole section of a street that was closed down to accommodate about 50 portable toilets. I'd bet the family that lives next door to that lineup has a much different feeling about the effect of Bike Week on real estate values...

A few things to consider if you are looking to get into flipping houses for profit...


Popcorn belongs in a bowl with butter - It's great to snack on during a movie or while watching a marathon of Soprano's reruns but it looks terrible hanging from the ceiling

Wood Paneling - It's fine as long as the walls it covers happen to be in the smoking room.

Shag Carpet - Leave it in the van...

Crack Kills - Whether it's the plumber's version, or the kind you find in a foundation, either way it's bad news.

 

Lastly...Don't ever ask Casey Serin for advice!!!

Follow these simple rules and you will be a millionaire in less than 18 months...
(No guarantees on the millionaire thing though)

I'm finding that it's actually not terribly difficult to climb close to the top of Google's search results for certain keywords pertaining to my geographic area. SEO Companies charge lot's of money to get high keyword rankings and you can see that with a company like Active Rain in your corner, you can get the high rankings without the SEO companies help.

The key is getting my personal blog to the top of the search results page as well...

One example is Leominster commercial real estate agents

I'm also 2nd for Leominster commercial real estate

My goal is to make it up to the top for Massachusetts commercial real estate but this is a pretty broad and popular keyword that's crowded with national real estate listing services, and regional/national brokerage companies.

There are three things I believe new bloggers need to focus on get to the top of the google world and to ensure they aren't grouped in with the majority of blogs out there that don't last through the first year:

1. Continue to post every day and if you can't post every day post as often as you can on a regular basis.
2. Stay away from posts that involve the hottest news or the latest trends unless they are specific to your geographic area. There are too many successful blogs out there writing about the big national news headlines so the likelihood of your blog getting noticed diminishes when you try and follow in the big guys footsteps.
3. Make sure you know a lot about what you are writing about...you can't fake it. The more you come across as an expert, the more people are going to read your blog and start linking to you and you'll build up some clout with Google.

If only I could master rules 1, 2, and 3 I'd be a successful blogger.

 

Feel free to add to my short list of tips for new bloggers. I'm sure I can use the advice as well...

 

 

Not all office space is created equally...
For those of you working in commercial real estate that may have a client/property owner with office space that they want you to lease for them, one of the first things you do is go out to the property and take some photos.

For future reference...don't bother taking a photo at all if the office looks like this. This office needs a quick face lift with some paint and flooring and hopefully the old desk and debris will be gone before somebody even considers leasing the space.

Convince the property owner to spend minimal dollars to give the office a neutral coat of paint and and hire a company to haul away the trash. If you were listing a house and this was a bedroom in the house do you think a young couple with a small child would fall in love with the house based on this photo???

There are actually two problems with the photo...

1. The listing agent actually took the photo, reviewed it, and added it to his listing thinking it would attract a business owner to the property.
   
2. The listing agent was either not upfront with the property owner about the need to clean up the office before listing it or despite the owner's unwillingness to do just that, the listing agent still took the listing and actually thinks he is going to attract a business owner to the property.

Think about this the next time you go out on a listing appointment.

 

Rob Beland

The Real Estate TrendMill