Even though the market for residential real estate has begun to cool, commercial real estate investment opportunities abound. There are other risks in commercial real estate that you can mitigate through third party insurance policies. The most common form is title insurance. Environmental insurance is a new form of risk management that is gaining in popularity with lenders.

In older investment properties, commercial properties that have been neglected by the current owner, or properties whose owners’ have fallen on hard times, there exists an opportunity for an educated investor to purchase real estate at a significant discount with high leverage! Construction loans on commercial property usually allow the investor to come in with 15% to 20% of the total costs of the project provided the construction loan doesn’t exceed 75% to 80% of the final, stabilized value.

Your goal is to control the property without risking any of your money. As the Syndicator of group investment, you need to perform a Due Diligence investigation of the property. An acceptable alternative is the use of an Option to Purchase. The Option gives the option holder (you) an irrevocable right to purchase the property in the time period specified in the option. If you don’t purchase the property, your option payment (called “option money”) is gone.

A property selling for $1,000,000 with $100,000 in annual income has a GRM of 10. The cap rate measures the return on investment for the capital invested in a property. The cap rate assumes that the property is purchased all cash and is calculated by dividing the Net Operating Income (NOI) by the purchase price.

We’ll assume for the purposes of this article that you’ve selected your target investment property. The ideal time period for a group investment purchase is 120 days. Once it’s fully subscribed and the purchase escrow is ready to close, funds are transferred from the “funding” escrow to the purchase escrow. The reason to have the second escrow is to protect the investors’ funds in the event there are complications with the purchase escrow.

Let’s assume that you’ve decided to start assembling groups of investors to buy investment real estate. Here is a breakdown of property types and their attractiveness as syndication investments:

Commercial real estate lenders are awash in money thanks to Collateralized Debt Obligations. Large funds are taking on more real estate, making it a legitimate “investment class” like stocks and bonds.

You sign loan documents and money is funded into escrow. In the case of a construction loan, only a portion of the total loan is released. A: Commercial loans have the added security of an income producing property providing the funds to pay the loan payments. For residential loans, it’s the borrower’s income. For any given property type, there is usually a maximum “loan to costs” and a maximum “loan to value.”

Each of the members of the LLC (as individuals) has to sign a Property Management Agreement that employs the Syndicator as the day to day manager of the commercial property investment. 13. The Syndicator then files the Articles of Organization (LLC-1) with the state in which the LLC is formed and any formal registration documents if the property is in a different state.

One of the most important requirements for purchasing commercial property is having enough down payment money, called “equity,” to complete the transaction. Most people getting involved in group investments are usually under-informed or inexperienced with regard to the following group-investment concepts: