I had the oppurtunity to interview Larry and Brent Rice, a father-son team, for my Vault series and today I want to share with you part of the conversation I had with them. Larry and Brent know the secret to making $100,000 or more in less than 6 months.
Larry Rice has been involved in real estate brokerage and investment since 1978, having owned, managed and/or brokered single family and multi-family properties, office buildings, retail strip centers and development land. His son, Brent Rice, has been buying commercial property since 1990.
During that time, Larry and Brent have purchased and sold over $15 million dollars in commercial real estate. Their transactions have included several retail and office buildings and single family houses. They have also brokered or funded over $75 million in commercial real estate; they know commercial real estate inside and out and we are fortunate that they’re willing to share their knowledge and experience with us here.
ME: Let’s start with the topic of this interview – how can you make $100,000 or more in less than 6 months?
LARRY: Let’s talk in specifics, I’ll use an example. I have a property in mind that we did a few years ago when we bought a house that was partially complete, the builder went under and the lender foreclosed and we were then able to go to the lender and negotiate to purchase the property in its unfinished state; that then meant that we had to take over the risk and buy the bank out. That means the bank got their money and the amount that they wanted.
So we negotiated with the bank, paid them, turned around and got a construction loan to complete the property, and then we completed and supervised the building of the house. It was about 55% complete when we bought it, so then we did the finish work and completed the house, put it on the market. When we sold it, we made our profit. So the value of the property at the time when we completed the house, after the cost of materials and time and so forth and the amount paid to the bank, there was a reasonable profit. That’s how you can make $100,000 in 6 months.
ME: Excellent. Why would someone go into commercial, such as apartments or some sort of multi-family, instead of just buying a lot of single family properties? What’s the advantage of doing that?
BRENT: Let me answer that one. You bring up multi-family properties, which I think is an extremely good asset category for an investor that has previously been focused on single family investment property. Multi-family is a natural progression from single family whereby an investor would be able to diversify their risk. In a single family residence, if your tenant suddenly decides to either quit paying or move out, you then don’t have any income but still have the expense. In a multi-family, you’re diversifying that risk so that you could have, you could have a 10% vacancy or a 20% vacancy but hopefully still have enough income to cover your loan payment or the taxes or the maintenance of the property. So I would say the main reason is diversification of risk from an income standpoint.
In terms of other types of commercial properties such as retail, office, hotels, self storage, industrial properties and so forth, those I would put in a category that are more specialized. You could possibly consider this a disadvantage of commercial properties, but for these, you need someone that is a CCIM (Certified Commercial Investment Member). A CCIM is someone that is fluent in interpreting commercial property leases. Unless you know what to look for, you could easily miss something that could cost you dearly in the long run; what do you do if a tenant just decides to quit paying you or who is going to repair your building if a major building system, like your air conditioning system, goes out? There are all sorts of ways for leases to be written, and a CCIM can help you avoid major liabilities.
And in some cases, these leases are written as what we call, “a triple net lease,” and that means basically all the expenses of the property get passed through to the tenant. The taxes, electricity, insurance, and maintenance of the property all are paid by the tenant – they just write you a rent check and that’s about it. I think that’s the simplest form of ownership.
LARRY: Another benefit of a larger commercial group is that you have some economies of scale; it’s easier to manage, it gives you a chance to negotiate your landscape, you have some people that can maintain some of the systems within the property and you can control the quality of that. I’ve learned through bad experiences with having rental properties that some of your tenants don’t necessarily take good care of the property.
And that’s one of the ways that your investment evaporates – when you have to go in there after your tenant moves out and replace carpets and repair holes in the wall and repanel the den. When you get to multi-family, you have a little bit more control because the people in an apartment complex know that you’re watching and they’ll basically behave a little better.
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What you see here is just a teaser. The Rices had really useful information to share about commercial investing, so I’ve decided to turn this interview into a blog series. Look for part 2 soon!
You can get the audio for the complete interview and eleven others by ordering The Vault. The Vault contains in-depth interviews with expert investors from across the nation and covers topics ranging from rehabbing to subject 2 investing to private money and more. Learn how you can get your hands on the Vault at a 36% discount by going to www.myhousedeals.com/thevault.
Until next time, happy (and profitable) investing!
Doug
