Commercial RE … first steps!


I am working on my first US commercial real-estate deal right now and by coincidence received the following question from MoneyMonk:

I plan to buy commercial Real Estate (strip mall) in the near future within the next 4 yrs. I want your advice on some things.

I want a property between 350-400k, I plan to put down $80K <- which will take me 4 yrs to save/invest

I want a commercial re agent to search for me, Im think Im looking at 8-10% commission to give the broker;
I want to form an LLC for my company, apply for a federal id, get a good CPA, a lawyer to form the LLC, umbrella insurance for about 1 million (u never know, The U.S. like to sue).

For as cap rate I want something above 7%. Am I’m missing something???

I also want to visit a banker and ask about financing. Is commercial re different from personal RE? for as terms?
I know any decent bank want you to show a good income, credit and some cash in the bank. What are good questions to ask a banker?

First I would like to congratulate MoneyMonk on being so forward thinking; it doesn’t hurt to talk to a Banker upfront, but my suggestion as to the very first place to start is with the following four steps:

1. Identify the type / location / price ranges of properties that you want to buy – MoneyMonk is targeting “strip malls … between 350-400k”.

2. Start researching the types of properties in the areas that you are interested – with 4 years to go before MoneyMonk has saved sufficient deposit, nothing else matters right now other than the research: LoopNet and RealtyTrac are great places to do this research.

That’s it for now; when the deposit has been saved:

3. Find a real-estate broker – you’re looking for the trifecta: (a) a broker that you like/trust, (b) one who works with commercial RE in the area/s that you are interested in, and (c) somebody who invests in commercial RE herself.

Keep in mind that the best deals are NOT usually on Loopnet /Realtytrac – they are what the brokers haven’t been able to offload, so are probably NOT the best deals around – the best deals are still probably with the brokers. It’s still an “old boy’s club”, so don’t expect your broker to bring you these deals first time around … your first acquisition is unlikely to be your best!

4. Find a property that you like / can afford / that meets your criteria and put a refundable deposit down (subject to: finance, partner’s approval even if you don’t have a partner, and due diligence).

then approach the banks for funding.

Keep an eye on the Investment Clock …

You probably wear a watch … it tells you where you are (time-wise) and hints as to where you should be (running late for an appointment, of course!).

But, did you know that there’s also an Investment Clock?

The investment clock is one of the best indicators on the movement and condition of the finance, property and equities markets. It was first published in London’s Evening Standard in 1937 and showed the movement of markets within a decade cycle. Many people, however did not readily accept the probability of events turning out in a cyclical fashion so it took a while for some to warm to this new area of thought.

As late as last year, I was reading articles that said that we were at One O’Clock on the Investment Clock: rising interest rates and fear that stocks were on the verge of falling (and, fall they did) …

… then, something surprising happened: the clock did a ‘fast-forward’ to where I think we are today:

At the bottom of the cycle when fear and bankruptcy are abounding and interest rates are down, remember that this is the time to be positive. It is the time when there are bargains galore, ready for the taking.

The driving factor behind the business cycle is the capitalist system itself. Recessions are a way of ridding itself of excesses. Things like speculative lending by banks, high risk real estate trading and inflation. Society simply starts going a bit faster than the economy and places a lot of strain on resources. This means we are left with inflation and high interest rates. The bank then imposes a credit squeeze for a period, long enough for those excesses from the system to force inflation down.

Always remember that during a slump the price of most things will fall, but the value of cash does not. In fact, the value of cash goes up because it is measured by its increased ability to buy things more cheaply. This is the best time to hold cash and come out of those holdings when the economy is in the doldrums.

Nobody knows how long we will languish in the ‘doldrums’, and if you count the recent stock market rally as a ‘good news’ indicator it may be almost over, but it’s clear – at least to me’ … we are already in the cycle where assets are cheap … both stocks and real-estate with the added bonus that interest rates are also cheap …

… Bargain Hunter’s Heaven.

Here’s what to do:

1. Start looking for good quality companies with a strong history of earnings growth that are undervalued (did you know that GE has produced 10 years of 10%+ year-over-year earnings growth?) that are selling for low P/E (that’s the price compared to earnings … if you can pick up GE at P/E’s of 13 and hold for a long time, you have a sure-fire winner!) and HOLD. Don’t feel obligated to borrow to buy these, but increasingly, this will be a good strategy as stocks will be the first to rebound.

2. Start looking for good quality income-producing real-estate that you can afford to HOLD … these will be the last to recover (could be a 7 to 10 year cycle to fully recover) but, prices will begin to steadily increase. So, buy soon to lock in these yummy low interest rates before they, too, start to rise. The combination of low prices and low interest rates is equally a sure-fire winner.

3. Start a service business that helps large corporates – as they recover, they will need to outsource more and more services. It can be tough (corporates can be tough to deal with) but they can also pay off big and provide a ready exit strategy (as the outsourcing ‘fashion’ begins to swing back to ‘insourcing’ and your largest customers fight to buy you out).

Just don’t forget to always keep an eye on the clock …

The Lazy Way To Riches


I am indebted to KC for showing me the lazy way to riches

… well, I already live like this (have done so for years) and it hasn’t appeared to have hurt my bank balance – indeed, it seems to have helped!

But, it’s always nice to see all of these Great People of History who agree with me 😉

The reports of real-estate's 'death' are greatly exaggerated …

The reports of my death are greatly exaggerated

The text of a cable sent by Mark Twain from London to the press in the United States after his obituary had been mistakenly published.

Just like Mark Twain, I think that real-estate has been prematurely ‘written off’. Do you need proof?

Just check this often-cited graph (I think that it’s from Irrational Exuberance by Robert Shiller) floating around the internet:

It purports to cover a period from 1900 to 2005 in a linear fashion … a clear bubble-spike, right?

What could one reasonably conclude from this?

A long downward trend and/or an even longer flattening until house prices catch up with, say, 3% – 4% inflation?

Now, take the period covered by the red line beginning roughly in line with where the ’10’ starts in the phrase on the graph that says “Yields on 10-Year …” – got it?

That’s roughly 1987 until today …

Now, let’s look at an a national index of housing prices covering that same period from a source that I trust – Standard & Poors (the same rating agency that produces the S&P500 stock price index):

This picture tells a slightly different story, doesn’t it?

One reason is that this one, I don’t think, is inflation-adjusted whereas I believe the Schiller one is (or at least ‘adjusted’ for something … any of our readers know what that might be?). In either case, a definite ‘bubble’ can be clearly seen in both charts from, say, 1999 to 2007.

But, have a look what happens when you break this second chart into three sections:

1. We see the tail end of a rise from (we don’t know when, because S&P apparently only started collating this data in 1987) to the end on 1989 … the extent of this rise is pretty important, because we then see …

2. … a ‘flat’ line (or worse) from the end of 1989 to roughly the end of 1998, then …

3. … all hell breaks loose from the beginning of 1999 to somewhere towards the end of 2006 when a clear crash occurs.

So, was the flattening in 2. a correction for 1. OR was the growth in 3. an over-correction of 2.?

I can’t say for sure, but I can say this:

If you draw a compound growth curve between two points: a 20 year period when the market moved from an index of 75 (roughly at the end on 1987) to an index value of 200 (roughly at the end of 2007), we can see that that represents an average compound growth rate of just on 5%

Given that real-estate compounds at 3% to 6.5% annually, depending upon which source you believe (I’m firmly in the 6%+ camp), here’s what all of us as investors have to decide …

Buy now (or soon) while the going is cheap (particularly, if you think that interest rates will also start to go up soon), or wait because you believe that real-estate is still overpriced.

Be warned: if you wait too long (is that 6 months or 6 years?), the ‘real estate discount party’ might be over!

Special Announcement!


I have been working on a project … call it a labor of love (when you find out what it is, you’ll decide that if this is my idea of ‘love’, I need psychiatric treatment) … and, I want you to participate!

Let me take you back to where this project had it’s genesis:

In 1998, I was struggling financially and directionally … I had my two break-even businesses, a lovely wife and two babies, but no money and no major prospects: it would take a miracle to get the businesses above break-even.

Then I came across the concept of the Number.

A simple idea: your Number is the amount of money that you need to have set aside (by whatever Date you happen to decide upon) so that you can be financially free to [insert goal of choice: retire; play golf professionally; write a book; volunteer abroad; move into the old-people’s home or Florida, which pretty much amounts to the same thing; etc.].

At the same time, I found my Life’s Purpose: to be constantly traveling mentally, physically, and spiritually …

… which means nothing to you, but meant everything to me (which is all that counts, right?).

Understanding my ‘life after work’ dream (in my case, it meant discovering my Life’s Purpose) told me that I needed $5 Million within 5 years. A major wake-up call considering that, at the time, I was $30,000 in debt!

If you’ve read my $7 Million Dollar Journey you will know that, because I found my Number, I made it.

I decided that I had to give back, by helping others to understand, find, and achieve their Numbers, as well …

… so, to help you figure out your own Number (and, Life’s Purpose … if you so desire) I have created a new web-site.

I have also created a unique home for you on the Internet, a place where you can Share Your Number with like-minded people … hopefully, you will connect with others who can help you on your way, and you may even be instrumental in helping them!

Take a look at these sites, then join up and Share Your Number … it’s easy, fun, and could be very, very rewarding for those who actively participate.

As readers of this blog, and ‘charter members’, your membership will always be free. And, tell your friends, they can be charter members, too 🙂

The only ‘catch’ is that I have not officially launched this site, yet, so you will be the ‘beta testers’ … try it out and let me know what you think using the form, below (just type then ‘submit’):

The Art of the Pitch …


“Everybody is selling something all the time” [Anon.]

I don’t know who said that (probably me!) but it’s true; everything is a sales pitch:

– asking a girl/guy out on a date

– a marriage proposal

– a loan application

– a job application

– a promotion request

– a sales visit

– a venture capital ‘pitch’

Guy Kawasaki outlines a great approach to ‘pitching’ for anything in his masterpiece for budding entrepreneurs, The Art of the Start.

And, consummate VC, Chris Rose, fills in some of the blanks in this great 14 minute video … watch it, bookmark it, you’ll need it (one day) ….

Blogs, blogs, and more [bleep'ing] blogs!


It seems like I am embroiled in a torrent of writing; even my 11 year old daughter asks why I am working at my computer all day on something that makes me absolutely no money … she suggests that I go out and get a ‘real job’.

I guess neither my daughter nor I actually understand the concept of ‘retirement’ 🙂

Which leads me to Dustbusterz’s e-mail opinion, which may be shared by others, hence my posting it here:

You post on too many places, and it becomes confusing and difficult to keep up with the concept. It seems you go to one site, get a little info, then go to another site, get a little info , then get a bit of info in email. And trying to tie it all together just wracks the mind. I believe it would be much simpler for everybody if you chose one concept(such as video posting every day) instead of this post here post there kind of treatment.

Thanks for sharing, Dustbusterz!

If it helps, here’s how it works:

Blog 1: – This is my main blog where I share ideas and strategies on Personal Finance. The rough framework is sketched out via the tabs across the top (eg Road Map to Riches; Making Money 101; etc.).

Blog 2: – Because blogs (yes, even mine!) can be ‘theoretical’, I thought that I would start a 7 year ‘experiment’ by helping 7 volunteers (and as many of our readers as want to participate) to make their Number (hopefully, in the millions). This is a sequential process, albeit tailored to the needs of each of the 7 … making money takes time, so the ‘lessons’ will inevitably be spaced out over a long period of time.

Blog 3: – This is not really a blog at all, but my live Internet chat show … my son’s idea; not sure why I am doing it, but I enjoy the ‘real time’ aspect. And, my Youtube videos (posted at yet another site: get multiple viewings. I guess some people like to hear an Aussie with a funny voice/accent speak!?

Whereas Blog 1 is random/theoretical, Blog 2 is paced/practical and centered around the needs of each of the 7 MITs.

Blog 4: (which has taken a pause, while I set about launching Blog … actually, Site … 5) – This is purely for fun and to see whether it’s possible to make money online … with this blog it’s ME who is the subject of the ‘experiment’!

Blog 5: There isn’t one (officially) yet … but, I will be making an announcement very shortly! In the meantime, you can get a ‘sneak peek’ here.

Read one or all blogs/sites, together or independently … it doesn’t really matter as long as we can all get something out of it.

Thanks for your suggestions, Dustbusterz, I’ll see what I can do (like this post for example) to make it all easier to navigate!

Now, hear the word …

I don’t normally chain my video-on-Sundays (too much hard work for both you an me on ‘day of rest’ Sunday) …

… but, I showed a video that explained how important marketing is, to which Scott responded:

I completely agree that marketing and being a good marketer is one of the most important wealth building tools you can have. A definite and powerful Money Making 201 skill, but one I personally don’t enjoy, lol.

It’s not that it’s so bad, it’s just the part of my practice that goes into the “work” category, along with paperwork and dealing with insurance reimbursement, when I would rather be focusing on my ‘life’s purpose’ part of my practice, which is helping patients.

However, it’s only when I step it up and be more of a marketer and insurance master that my income goes up.

It’s funny, in school I thought the opposite would be true, that I would be more financially successful if I focused on being a better, more caring and more compassionate doctor.

Scott, you’re a doctor so, just remember:

Your marketing bone is connected to your income bone … your income bone is connected to your investing bone … your investing bone is connected to your Number/Date bone … your Number/Date bone is connected to your Life’s Purpose bone …

… Now, hear the word!

When you truly understand this (through trying it and beginning to see results), you will magically shift your thinking:

Marketing will no longer be in the “work” category (along with all of that other boring stuff like “paperwork and dealing with insurance reimbursements”) …

… it will pop into it’s own “enabling me to truly live my Life’s Purpose” category and you will grow to LOVE it 😉

The correct way to look at debt …

BradOK asks:

What’s a better use of my money – pay down debt or invest it in the market?

To which JillyBean responded:

At what rate of interest is your debt? How much debt do you have? Do you have an emergency fund? If you invest your money, what is the purpose for the money — short term or long term? The markets are on a downward spiral and very volatile — it might be more prudent to answer the above questions to determine the answer for the actual question.

You could always compromise and do both! It never is bad to pay down debt.

But, I am always working from the assumption that you want to get rich /stay rich …

… if that’s also your mindset, you might have more clarity if you rephrased the original question as “what’s better, to INVEST in debt or INVEST in the market?”

Once it’s clear that you are making an INVESTMENT every time you pay off debt – even personal debt – or, decide not to, then you will realize that you simply need to consider relative returns.

Then it will suddenly become clear that INVESTING in debt returns you a guaranteed rate equivalent to the interest rate (plus ongoing fees, if any) being charged. On the other hand, investing elsewhere MIGHT return more, over the long-term.

So, your real question that you need to answer is: “What investment will give me a greater AFTER TAX return than my highest interest rate currently outstanding debt?”

If you can find one (and, you have the required skills/interest/knowledge/stamina) then invest in that, otherwise pay down some debt.

Naturally, start with the highest interest rate debts first and work your way down (remember the ‘debt avalanch’?)

Numbers, Numbers, and more Numbers!

I’m leaving this post running until Sunday to allow time for more comments … to read the really detailed comments that have been left already (they are like ‘mini-posts), just scroll down to the bottom (once you click on the title/link so that you can see them) … and, please feel free to throw your two-cents in as well!


If you have been following this blog for some time – and, if you have also been following the exploits of our 7 Millionaires … In Training! – you will see that I have an obsession with ‘helping’ you to understand your Number.

This is because simply understanding my Life’s Purpose, then quantifying that ‘purpose’ into a Number, had such a big impact on my life …

… I truly believe that I would not be sitting here, writing this very post today, had it not been for that simple act.

It’s a process that should only take a couple of hours – more, if you get the urge to dive deep into what your first cut throws at you.

What’s wrong with having no Number?

Nothing, if you like to fly blind; it’s like embarking on a journey with no destination: any road will get you there … which is OK for some, but not me.

My ‘no destination’ journey took me to a lot of work, two so-so businesses (together, they just managed to break even … and this is after YEARS of operation), and $30k in debt.

Yet, as soon as I realized my destination and found out how much it could ‘cost’ me to get there, it was like suddently letting off the parking brake: things almost magically started to fly.

Don’t get me wrong, there was even more hard work and major risks and decisions to undertake (not many people move country to pursue their dreams AND keep their businesses in the ‘old country’ going).

So, if having no Number is ‘bad’ what’s wrong with picking a number out of thin air?

Again, nothing, but have a look at what our 7MITs came up with after a couple of revisions … and, compare that to their starting Number – their first ‘guess’:


Let’s ask them: what changed and why? Why did your Number go up/down or (in only a couple of cases) stay the same? And, why is this exercise better than just picking a Number and going with it?

And, let me ask you … if you have a Number in mind, how did you come up with it? And, why?