Commercial Deals Are Like Home Deals, And Here’s Why – Part 1

I want to take this opportunity to talk to you a little bit about commercial property. I’ve got a lot of experience in commercial property from developing vacant land to income-producing properties of all kinds. My favorite is development.

But first, let’s talk about what is commercial property. And, in the world of residential it’s anything over 4 units. So, a 4-plex is not commercial, but a 5-plex is considered commercial. And, some of the properties that I have dealt with actually had income from tenants. I’ve had office buildings, I’ve had apartments, I’ve had retail and two or three other things, heck, I even had a mobile home park at one time, and over the years I’ve pretty much dabbled in everything.

I’ve specialized in nothing in the commercial world because I’m more of a generalist than a specialist, and of course we could have this discussion for hours. I think the smartest thing to do is to be a specialist because you can get good at one thing and not have to do so much and go through the learning curve that I had to go through.

I’ve done all kinds of residential developments where you build houses on the property, developing land from nothing to streets and roads, sewer, water. I’ve done properties where we’ve actually built retail centers. In 2004-2008 had multiple projects going on in nine states, all different kinds including fractional. I’ve had a great housing project going in Myrtle Beach. We were in the midst of building some houses to sell off on fractions, which means we sell off on four week increments 12-13 pieces of the house. So, we would build it by the quart and sell it by the shot. And that’s very lucrative, what that amounted to is we would sell the house for approximately twice what it was worth and then collect dues forever to maintain the property while folks were using them for vacations.

In fact those fractions can be used all over the world, not just where they were purchased, which is still the case today, same as time shares. You buy one and you can use them anywhere there are other vacation properties available. Commercial properties in Texas, Tennessee, Florida, Georgia and Illinois. I even had a resort in Alaska, which is a 50-room resort. Beautiful place, the most beautiful resort in Alaska. I owned that for three years before the recession hit took it out. And I fished there for 11 years before I actually bought it. Now I am fishing there again. I go back there every year as a vacationer now, not as an owner of the property. And to tell you the truth, it’s more fun as a vacationer then it was when I was an owner. When I was an owner I looked around at all the things I would fix, as a vacationer I didn’t focus on anything but fishing.

So, I am qualified to talk to you about commercial. I’ve done a lot of things right and a lot of things wrong. Unfortunately my timing was not so great. I was just at the beginning of the recession when I was in the middle of building these things, with hundreds of millions of profit, and, gosh, most of it was ready to go when the recession took it all out. What that’s done is create a great opportunity today because commercial property has taken the biggest asset devaluation of our lifetime and that has created a lot of opportunity for you.

I’ll tell you what I like with land versus building, and that is with land I can force the value of it. I can make it worth more by doing some simple things like just simply rezoning and force the value up.

You can’t do that with buildings. Buildings I can fix whatever is broke, like vacancy or mismanagement, and can increase the value, but that is just about as far as that can go. Kind of like a house, I can renovate the house and make it worth more, but other than that there is not much more I can do. I can sit on the house and hope that time will take up the value.

I can rezone land and sometimes it is worth two or three times what I paid for it. I can get it entitled for some kind of development. In other words, I can change the use of it and create a lot of value with it. If I create a plat map, lay out whatever is going to go there and get that approved, that increases the value of it. I can build on it, all of it, part of it or none of it. I can do a lot of things with land that I can’t do with buildings.

But, land is not the only type of commercial project. There’s small apartments, self-storage, large apartments, shopping centers, office buildings and industrial. There’s all kinds of commercial property, and it’s everywhere no matter where you live.

Next month, I will share with you my thoughts about those other types of commercial projects and talk about the opportunities available with those as well. Until next month…