by Chad Massaker | Mar 15, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Flex, Industrial, Land, Leasing, Multifamily, Office, Retail
DSCR stands for Debt Service Coverage Ratio, which is a financial metric used to measure a company’s ability to pay its debts. It is a ratio of a company’s net operating income (NOI) to its debt service payments, which includes both principal and interest payments.
The debt service coverage ratio is calculated by dividing the company’s NOI by its total debt service payments. The higher the DSCR, the more capable the company is of paying its debts.
- A DSCR of 1 indicates that the company is generating just enough income to cover its debt service payments.
- A DSCR ratio of less than 1 means that the company is not generating enough income to cover its debt payments.
- A DSCR of more than 1 indicates that the company is generating sufficient income to cover its debt payments, with higher ratios indicating a stronger financial position.
Lenders use DSCR as a measure of creditworthiness when considering loan applications. A DSCR of 1.2 or higher is generally considered a good indicator of a company’s financial health, although the ideal ratio may vary depending on the lender and industry.
However, it’s important to note that DSCR is not the only factor that lenders consider when assessing creditworthiness. Other factors such as the company’s financial history, cash flow, collateral, and industry trends are also important in determining whether a company is creditworthy.
by Chad Massaker | Mar 15, 2023 | Commercial Real Estate Investment, Industrial, Land, Leasing, Multifamily, Office, Retail
“The Complete Guide to Real Estate Finance for Investment Properties” by Steve Berges: This book covers the financial aspects of real estate investment, including commercial real estate.
“The Due Diligence Handbook For Commercial Real Estate” by Brian Hennessey: This book is a comprehensive guide on how to conduct due diligence on commercial real estate properties.
“The Intelligent REIT Investor: How to Build Wealth with Real Estate Investment Trusts” by Stephanie Krewson-Kelly and R. Brad Thomas: This book explains how to invest in real estate investment trusts (REITs), which are a popular way to invest in commercial real estate.
“Real Estate Investing For Dummies” by Eric Tyson and Robert S. Griswold: This book provides an overview of real estate investing, including commercial real estate.
“The Millionaire Real Estate Investor” by Gary Keller, Dave Jenks, and Jay Papasan: This book provides advice on investing in real estate, including commercial real estate, and shares the strategies of successful investors.
“Commercial Real Estate Investing” by Dolf de Roos: This book provides a step-by-step guide to investing in commercial real estate, including how to find properties, finance deals, and manage properties.
“The ABCs of Real Estate Investing” by Ken McElroy: This book covers the basics of real estate investing, including commercial real estate, and provides tips for finding and analyzing properties.
Books to Read if You’re Considering a Career in Commercial Real Estate:
“Thrive: Ten Prescriptions for Exceptional Performance as a Commercial Real Estate Agent” by Blaine Strickland: Proven strategies to accelerate your commercial real estate brokerage career.
“Adapt: Disruption Is Coming to Commercial Real Estate Brokerage.” The nine forces that are poised to disrupt your world.
by Chad Massaker | Mar 12, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Industrial, Multifamily, Office, Retail, South Florida
The comparison approach, also known as the sales comparison approach, is a commonly used method for valuing commercial real estate. Here are the steps involved in using this approach:
- Identify comparable properties: Identify recently sold properties that are similar in terms of location, size, age, condition, and other relevant characteristics to the property being valued.
- Adjust for differences: Once you have identified comparable properties, you need to adjust their sales prices to account for any differences between them and the property being valued. For example, if the comparable property has more square footage than the property being valued, you would adjust the sales price of the comparable property downward to reflect the fact that the extra square footage does not add as much value as the rest of the property.
- Determine the value: After making adjustments for differences, you can determine the estimated value of the property being valued by averaging the adjusted sales prices of the comparable properties.
It’s important to note that there may not always be enough comparable sales data to accurately determine the value of a property, especially if the property is unique or located in an area with limited sales activity. In such cases, additional valuation methods such as the income approach or cost approach may be necessary to determine the value of the property.
by Chad Massaker | Mar 7, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Flex, Industrial, Leasing, Multifamily, Office, Retail
The cost approach to valuing commercial real estate involves estimating the cost of constructing a similar property from scratch and then adjusting that cost for depreciation and other factors that affect the property’s value. Here are the basic steps involved in using the cost approach to value commercial real estate:
- Estimate the cost of constructing a similar property: This involves estimating the cost of the land, materials, labor, and other expenses that would be required to build a property similar to the one being valued.
- Determine the property’s depreciation: Depreciation refers to the decrease in value of the property over time due to wear and tear, obsolescence, and other factors. The amount of depreciation can be estimated by considering the property’s age, condition, and other relevant factors.
- Calculate the property’s value: Subtract the estimated depreciation from the estimated cost of constructing a similar property to arrive at the property’s current value.
- Consider other factors: In some cases, adjustments may need to be made to account for other factors that affect the property’s value, such as changes in zoning laws or the availability of financing.
It’s worth noting that the cost approach is just one of several methods used to value commercial real estate, and it may not be appropriate for all types of properties or in all situations. It’s important to consider a range of factors, including market trends, comparable sales, and income potential, when determining the value of a commercial property.
by Chad Massaker | Mar 2, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Industrial, Multifamily, Office, Retail
The income approach is one of the most common methods used to value commercial real estate. This method is based on the idea that the value of a property is directly related to the income it generates. Here are the basic steps to valuing commercial real estate using the income approach:
- Determine the property’s net operating income (NOI): This is the annual income the property generates, minus any operating expenses such as property taxes, insurance, maintenance, and management fees.
- Estimate the property’s capitalization rate (cap rate): This rate is used to convert the property’s NOI into an estimated value. Cap rates vary depending on the property type, location, and market conditions. The cap rate can be estimated by researching recent sales of similar properties in the area and analyzing their cap rates.
- Calculate the property’s value: Once the cap rate is determined, the property’s value can be calculated by dividing the NOI by the cap rate. For example, if the property’s NOI is $100,000 and the cap rate is 7%, the estimated value would be $1,428,571 ($100,000 / 0.07).
It’s important to note that the income approach is just one method of valuing commercial real estate, and it should be used in conjunction with other methods such as the sales comparison approach and the cost approach to arrive at a more accurate value. Additionally, market conditions and other factors can affect the value of a property, so it’s always a good idea to consult with a professional appraiser or real estate agent to ensure an accurate valuation.
by Chad Massaker | Feb 20, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Ft. Lauderdale, Industrial, Miami, Multifamily, Office, Palm Beach, Retail, South Florida
A Delaware Statutory Trust (DST) is a legal entity created under the laws of the state of Delaware, USA. It is a type of trust that allows investors to hold an ownership interest in income-producing real estate assets, such as commercial properties, multifamily apartment buildings, and industrial facilities. DSTs are commonly used in real estate investment, especially in 1031 exchanges, which allow property owners to defer capital gains taxes by reinvesting the proceeds from the sale of one property into another.
DSTs are similar to traditional trusts in that they have a trustee who manages the trust and its assets on behalf of the beneficiaries, who are the investors. However, the key difference between a DST and a traditional trust is that a DST is a separate legal entity, which means that it can own and operate property in its own name. This provides the investors with limited liability protection, as they are not personally liable for any debts or obligations of the trust.
One of the advantages of investing in a DST is that it allows investors to own a fractional interest in a large, professionally managed property, without the hassles and responsibilities of direct ownership. Investors receive regular income distributions from the rental income generated by the property, and the trust can also sell the property and distribute the proceeds to the investors upon the termination of the trust.
DSTs have specific requirements to meet the legal definition, including having a trustee, a beneficial interest, and being managed by a business trust entity. They are regulated by the Delaware Statutory Trust Act, and investors should consult with an experienced attorney or financial advisor before investing in a DST to ensure that they understand the risks and benefits of such an investment.
What is the Difference Between a Deleware Statutory Trust vs a Deferred Sales Trust?
A Delaware Statutory Trust (DST) and a Deferred Sales Trust (DST) are both types of legal structures used in real estate investing, but they are distinct from each other in several ways.
A Deferred Sales Trust (DST) is a strategy used to defer taxes on the sale of a business or investment property. It involves setting up a trust and transferring the property to the trust in exchange for a promissory note. The note is then sold to a third-party buyer, and the proceeds are held in the trust. The property owner can receive payments from the trust over a period of time, and the taxes on the sale of the property are deferred until the payments are received.
While both DSTs and Deferred Sales Trusts use the structure of a trust, the main difference between them is the purpose for which they are used. DSTs are typically used for real estate investing and can provide investors with regular income and potential appreciation, while Deferred Sales Trusts are used to defer taxes on the sale of a business or investment property.
“The Complete Guide to Real Estate Finance for Investment Properties” by Steve Berges: This book covers the financial aspects of real estate investment, including commercial real estate.
The cost approach to valuing commercial real estate involves estimating the cost of constructing a similar property from scratch and then adjusting that cost for depreciation and other factors that affect the property’s value. Here are the basic steps involved in using the cost approach to value commercial real estate:
The income approach is one of the most common methods used to value commercial real estate. This method is based on the idea that the value of a property is directly related to the income it generates. Here are the basic steps to valuing commercial real estate using the income approach:
