What is industrial Real Estate and what does it entail?

The industrial real estate sector is a little bit more sophisticated as compared to other sectors for example residential and commercial sectors. The kind of sophistication that is required to get into this space most of the time comes about because developers have the financial muscle to fund industrial estates and they go in all-cash making it very competitive. If you are looking at securing loans to purchase any type of industrial property or land (manufacturing plant, warehouse, assembly buildings, production properties, storage, and distribution) then you need to find a good funding rate in order to keep your business/ businesses afloat. 

What options do investors have for financing industrial properties?

Investors have an option of using leverage (using borrowed capital as a funding source) and this would be about 60%- 70% financed by borrowed capital. This represents a significant interest payment cost. The balance of around 30%- 40% would typically be financed by equity. 

Is the Industrial Real Estate sector appropriate for risk-averse investors?

The industrial real estate space is an amazing niche to explore for investors who are comfortable using leverage. That said, this sector is definitely not for risk-averse investors. It requires a lot of dedication and building relationships with lenders in order to get started. 

What is the future of the industrial space?

The good news is, there seems to be a growing demand in warehouse space which is driven by the growth of the e-commerce sector. Industrial real estate demand is expected to increase by 850 million square feet to 14.8 billion square feet by 2023. Investors in the industrial sector can therefore expect more development opportunities in the coming years.

How To Succeed In Real Estate & Importance of Social Media For Real Estate W/Ryan Pineda!

Tell us a little bit about yourself

I got out of college from Northridge then went straight to Real Estate and at the time, every buyer's agent’s dream was to become a listing agent. Then I built a capable and motivated team and the last 4- 5 years have been great!  I've kind of hit a plateau where the realty has been selling anywhere from 100 to 130 homes a year.

Has it been difficult breaking the plateau? Do you want to do more?

It’s a couple of things- having access to the right information which involves getting certain people in your life who can mentor you to take your business to the next level. So I have continued to do the same things and implement the same processes over and over and expecting a different result. I'm at a point now where I’ve started really investing in the business and hiring a lot more people and doing a lot of work on Social Media and I would say that getting access to different information will definitely allow you to get a breakthrough in your career.

When you speak about information, what are you referring to? 

When I started real estate I went the first six months without selling any property and I had somebody approach me and he said ‘I will mentor you and teach  you everything that I know but I will take 50%  of your commission on top of whatever your broker split is.’ I was hesitant at first but then I went six months without closing a single deal. He approached me again after six months and told me I had talent and that I could succeed in the real estate business because I had the work ethic. 6 months later, I was closing deals on properties with his guidance. So essentially, a good mentor guides you on the right track to getting to your goals a lot faster.

Let's talk about your 56 stores and the real  reason you're buying 56 stores

When I started as an investor, investing in real estate all I would look at was cash flow. This has since changed. I'll give you an example. I bought a 25 unit building in 2019 and basically, I got a million-dollar write-off on that building. I couldn't believe it! I literally emailed my accountant two or three times asking if he was sure that it was not illegal. As it turns out, I didn’t have to pay any federal taxes. This is the power of having access to the right information, getting connected to the right people, and reading the right books. As we speak, I always look at more than cashflow, I look at the ROI (return on investment), the depreciation that I’m getting from the asset to see if I can minimize my tax liability and pay fewer taxes so that I can continue to reinvest back into my business and in real estate.

Making money as a realtor is not enough, you have to look at ways of getting active income for example from rental properties can prevent you from paying so much in tax plus build your long-term wealth and net worth. 

Also, I never want to invest in something where my money just sits there I know when you're in the real estate game we come across deals all the time. If I can put the money towards a deal and then get it back out because I got such a good deal and go buy another deal and another deal. That’s a no-brainer! 

What lessons have you picked up so far from social media?

Social media is so powerful and having a great social media strategy is important. I’ve taken a couple of courses on social media and also watching how people produce their content has helped establish my own template for producing my own content. If you want to be successful in this space, you have to be consistent and always add value to your audience. Do this over and over again and for sure you will be successful. 

I started focusing on social media 2 months ago, and already I have 310 hours of watch time in a month, which averages out to about  11 hours a day, and to me, that's amazing that people are watching my content for that long!

I am already on Instagram and plan on getting into TikTok as well as planning to grow my YouTube channel to a million subscribers- both of these I would classify as big hairy audacious goals. I know I have this higher purpose in life and I feel like my higher purpose in life is to help people and educate people and give them access to the right information as it pertains to real estate.

I’ve also learned a lot about the power of social media marketing. Using ads can allow you to reach more people than those who were initially following you and this is important if you are looking to grow your audience.

What advice would you give to someone looking to become a realtor?

Obviously, you have got to get your license first. Secondly,  for me, mentorship has played the biggest role in my life. From the guy that taught me how to sell 30 homes to the guy that taught me how to make a million dollars a year and sell real estate in a very efficient way.  

There are a lot of people who will tell you that they can teach you how to make a million dollars a year selling real estate but they've never done it. Essentially, what they're talking about a lot of theory. You should always verify people in your networks looking to become your mentor and it’s so easy to do this nowadays, use Google, Zillow track and find out how many properties they're actually selling. There's a lot of big talkers and so you have to be really careful who you get advice from.

What does your future look like? What’s next?

What keeps me motivated is my family. I’ve had a lot of success as a realtor, I have 56 stores and now setting foot into the social media scene. At the back of my mind, my family is the center of everything I do. A little bit about my family- I named my 2-year-old son Jose Luiz III because I wanted to say thank you to my dad who taught me everything I know. My wife is expecting our 2nd boy Diego Morales and I can’t wait to meet him this coming September. At the end of the day, I want to have the sort of freedom that will allow me to not necessarily have to go and sell a property that’s why I’m focusing so much on residual income today. I do not want my income to be dependent on activity.

In this day and age,  if you can build a business plan that makes you money while you sleep, if you can build up a team that does the things you used to do then you get time freedom and it's so valuable to have time freedom because there's only so much you can do with money. When my wife told me she was pregnant with my second child, I shifted gears. I basically have a three-year vision whereby in three years I would like to have even more residual income- close to a million dollars, that's the goal! 

The Interviewee- Jose Luiz Morales, Top Real Estate Agent in Camarillo, California.

The Interviewer- Ryan Pineda, CEO of Future Flipper, Youtuber, and Entrepreneur.

Hiring a contractor is the most important step in making the vision of your dream home finally come to life. With that said, it is extremely important to vet a contractor thoroughly by asking them questions related to your project before you take them on to start working on your home.

Choosing a good and well-qualified contractor not only means that your project will be exactly what you envisioned. It also means that the project you are contracting for will go smoothly and in a timely fashion. 

Below are some guidelines for choosing a reputable contractor

• Use Google/ any search engine. This is the first step in doing due diligence. What to look for when doing desktop research may include- litigation history and bankruptcies.
• Find the type of house you want to build, then get referrals from those homeowners. Word of mouth is the best way of getting first-hand information about the quality of work of any general contractor.
• Talk to references- consider getting the names of customers whose projects are similar to yours then ask important questions about how the contractor responded when things didn’t go right, how easy it was to work with the contractor, etc.
• Find out how many homes the contractor is working on currently before they take on your project. This is important information to have depending on the kind of relationship you want to have with your contractor. If he/ she is working on more than 4-5 projects, then it’s possible that they will use other subcontractors. Keep in mind that you always want to make sure that top-notch contractors handle each part of your project. 
• Review the contractor’s experience by finding out how long the construction company has been in business and whether they have worked in homes similar to yours. Never be afraid to ask as many questions as you may need to.
• Speak to the material supplier. A good way to evaluate a contractor is to also speak to the contractor’s material supplier and people they work with on a day to day basis and if they have a good reputation then that will be a good indication that they are perfect to work on your project as well
• Consider getting a construction bond to protect yourself in case any problems develop in the duration of the project. A performance bond in particular will protect you in case the contractor you choose does not perform as expected.

You will certainly be glad if you go the extra mile and do research before hiring your next contractor or contractors if you are working on multiple projects. The useful guidelines/ tips mentioned above will help you get started in finding the right contractor that’s perfect for you.

Our guest Sam Weaver, President of Fortune Weaver sat down to speak about his experience when he started out in Real Estate Investment. One of the most important lessons he spoke about was that he really learned to listen especially when dealing with distressed homeowners. There are many homeowners in the country dealing with hardship and learning to not speak so much and listening more was a huge lesson for him because a lot of times it is common for people to always want to talk and get their messages across but really getting to understand where the other person is coming from and being able to solve problems is key. 

Another lesson we picked from Sam Weaver on ways to invest and flipping housing was- do not be afraid of major flips on houses. It is possible to spend money and buy a house and have the house flipped and then sell the home to make money. Utilizing fix and flip loans from financial institutions is one of the most important key investing basics when it comes to properties. Some developers implement a buy and hold strategy which is a great long term investment strategy. One incident in particular he spoke about a property that had been involved in a murder scene, it was gory, and he did not think he could get on with working on the property. So he declined the opportunity and his partner, later on, did the flip and made a profit of over $100,000. The lesson here is simply- unlike green investments from traditional investment vehicles such as stocks, mutual funds or endowments, in flipping properties, the best deals/ investments are the ones you may be walking away from!

Subscribe to our YouTube Channel

Financing of Land

If you are planning to buy a piece of land and then build your dream home, getting a construction loan from the bank may be the right direction to take. A common misconception among many homebuyers is that it is not possible to get a loan to buy a piece of land. This is not the case!

The basic parameters when it comes to lot loans (also known as home loans) are as follows:

• The piece of land can be up to 10acres
• Conventional mortgage financing
• 3/1 Adjustable-Rate Mortgage (which means that the initial interest rate is fixed for a period of time. With the US Bank, the rate is fixed for 3 years then it becomes variable after that. Homebuyers can therefore come back and refinance the loan again)
• Loan sizes of up to $300,000 (there are exceptions for higher loan sizes, please consult your loan officer regarding this)

What do banks look for when financing land?

The bank does an appraisal and it comes back and tells the buyer whether the lot is an improved lot or an unimproved lot. Unimproved means it does not have access to electricity/ water. Improved means the lot has access to city water, county water, and electricity. If the lot happens to be unimproved, the bank lowers the loan to value by 5% and the homeowner would have to pay the additional expense of providing city utilities to the property.

What is the loan-to-value ratio on a piece of land?

The larger the value of the loan the higher the down payment but there’s still a lot of factors that the bank considers. For example if the loan size is between $300,000- $400,000 that would be 80% of loan to value.

In terms of payments, once you get the lot loan, you will be paying principal and interest the moment you close. On the piece of land, you make the payments on the construction loan.

What should potential home buyers look for when looking for land

There are certain factors that need to be considered by home buyers before deciding to place an offer to buy a piece of land. The main reason why you should consider these factors is because they will help you establish whether the piece of land is buildable or not.

We interviewed Lora Fisher, who is a Loan Officer at the U.S Bank and she stressed on doing a CSI- Client Scene Investigation. This can be performed by doing a thorough investigation on the property first of all by speaking to the listing agent.

Some of the questions that you should ask the listing agent include:

• Are there any issues with the land that you should be aware of?
• Why is the owner selling the land?
• What are the ground conditions like? Can you construct a house on the land?
• Are there existing planning permissions in place?
• Has someone already gotten building permits and decided not to build?
• What’s the history of the property?

Also, speak to a contractor and ask them to take a look at the property to determine if it is buildable. It is also advisable to visit the city or county offices and get as much information on the land as possible.

Recommended Inspections in land transactions

It is common for a loan closing to take time to close due to the need for additional environmental testing by the bank. The bank will carry out due diligence on the parcel of land by doing soil inspections & percolation tests (which measures how quickly the soil drains) among other tests. The bank will not accept your property as collateral until these test results are out.  

Would the bank ever lend on land that is not buildable?

The bank is very keen on doing the tests mentioned above to determine whether the land is buildable or not. In special circumstances, for example, the bank will not loan on a parcel of land that used to have a fire station.

That is why the importance of due diligence cannot be stressed enough! Remember, It is still your money so don’t expect the bank to do all the work for you. It is also advisable for the buyer to always get home insurance-  it’s not a requirement but is good to have.

Types of interests when financing land

Interest from the U.S Bank is around 5% and that’s the rate that has been there for the past 2-3 years even with the ups and downs in economic performance. 

The escrow typically can close in 30 days! But on average for many banks, it can close between 30 - 45 days depending on whether all the appraisals and tests have to be done prior.

Construction loan process

The process can be broken down as follows; 

• you find the piece of land
• you get financing, 
• you start going through the permitting process where you get all the permit forms you need and approvals from the city

Typically the loan process takes about 3- 4months from beginning to end. Unlike a regular mortgage, the lot loan is detail-oriented and that’s why it takes that long. The bank also tries to time the process so that as soon as you get the permits then you’re not too far from closing the deal. 

At what point does the lot loan get paid off?

Once you have the lot loan, the bank goes back and takes a look at the construction loan. Construction loans from the U.S Bank are single close construction loans which means that the bank has to be in the first position, which means that the bank pays off any pre-existing loans on the property.

If you have a half-million-dollar lot, and half million dollars in construction, the all-in expense would be 1 million dollars, the bank would go up to 80% financing as the baseline so in this case 800k of which 300k goes straight away to pay off the bank and the remaining balance would be used for the construction of the property.

Expected approval time on loans

On average, the turnaround is between 1- 3 years. However, this also depends on the location of the property. If you're on the Coast it can take up to 6 months to get permits alone which takes a shorter duration in cities where there is more housing development. 

Process of Construction Loans

The bank uses a fund control company to disburse the funds. It’s important to ensure that when vetting the builder there's no history of lawsuits because, in essence, all the funds go to that particular company. The banks will do a monthly draw on the construction loan using descriptions of cost breakdown.

Once the builder decides to ask for a draw request it takes about 40 to 72 hours to get the funds disbursed.

Advice when looking for a contractor

Below are some guidelines for choosing a reputable contractor

• Use Google/ any search engine. This is the first step in doing due diligence. What to look for when doing desktop research may include- litigation history and bankruptcies
• Look for the type of house you want to build, then get referrals from the household or householder
• Talk to old references- creating a list of names of customers whose projects are similar to yours then asking important questions about how the contractor responded when things didn’t go right, how easy it was to work with the contractor, etc.
• Find out how many homes the contractor is working on currently before they take on your project. This is important information to have depending on the kind of relationship you want to establish with your contractor. If he/ she is working on more than 4-5 projects, then it’s possible that they will use other subcontractors. Keep in mind that you always want to make sure that top-notch contractors handle each part of your project. 
• Review the contractor’s basic experience by finding out how long the construction company has been in business and whether they have worked on homes similar to yours.

Timeline For A Construction Project

The timeline of a construction project largely depends on the size of the project and the contractor you work with. For the majority of new homes you probably are looking at between 12 to 18 months. However, always factor in delays and add a couple of months (3-4 months) from when the contractor says the construction will have been completed. 

How does the payment for construction loans work?
Just like any other mortgage you owe it every single month during the course of construction, it'll be Interest-only and then after the house is completed it converts automatically to Principal + Interest. 

Upgrading Properties - Remodeling Loans

The U.S bank can do remodel loans too and that’s similar to a construction loan. There are options for remodeling or if you're looking to buy a house and you think the house would be perfect but it needs to be a little bit bigger the bank can come in, buy the house, get your plans and permits, and make the vision of your custom house come to life. 

What happens to the construction loan after a project is done

After the project is done, there are two main products- either a 30-year fixed or a 10-year fixed ARM. The most popular is our  30-year fixed ARM. One of the best things about getting your construction loan from the U.S Bank is that there are no prepayment penalties after you're done with the construction.

What’s cheaper: building a house or buying a house?

Technically, it would be cheaper to build a house but where the caveats are-  it goes all the way back to experience,  knowledge, cost overruns there are all those factors and time. You really have to dedicate a lot of time when building your house and it may seem like a full-time job for the homeowner.  You will want to dedicate the time the money and the energy to build a house and for many people, it is worth it because they can build exactly what they want, but it's not for everyone!

How is the final value of the property estimated?

The bank will use the description of materials and cost breakdown. The bank also uses a licensed appraiser to determine the current price of a home after construction. What the appraisers will consider are- the square footage of the home, the size of the lot, how many bedrooms and bathrooms the home has as well as any extras such as a pool or shed.

In doing the appraisal, the appraiser is going to look at comparables in terms of what houses have been built recently that have been sold and then what have those gone for.

Having cash on the side just in case there are cost overruns or having access to cash is going to be critically important when you're looking at a construction loan. It is also wise to pay a little bit extra for an experienced contractor as opposed to going with the cheapest one as this will save you time and money in the long run.

Has covid affected construction lot loans?

Due to Covid, the process of getting construction loans has become slower and there are fewer houses being built. Some small banks have even stopped doing construction loans but the U.S Bank has stuck with it. Being one of the top 5 banks in the U.S helps because they have a lot of financial muscle behind them so it's a very competitive product for the bank and they are very committed to providing it.

Final message

Thank you to our guests- Lora Fisher and her partner Anish for joining us on this interview. Apply now for a lot loan by visiting www.usbank.com or call 805-245-9678.

Subscribe to our Youtube Channel

There are certain factors that need to be considered by home buyers before deciding to place an offer to buy a piece of land. The main reason why you should consider these factors is because they will help you establish whether the piece of land is buildable or not. Home buying may come with certain hidden information that requires you as the homebuyer to do further investigation as there are certain things to know before an acquisition that can save you the heartache of doing purchases on land that are not buildable. It is only possible to find this out by digging for information and exchange of information with other home buyers interested in the property, contractors, developers and real estate agents.

We interviewed Lora Fisher, who is a Loan Officer at the U.S Bank and she gave us tips on doing a CSI- Client Scene Investigation. This can be performed by doing a thorough investigation on the property first of all by speaking to the listing agent.

Some of the questions that you should ask the listing agents include:

• Are there any issues with the land that you should be aware of before buying?
• Why is the owner selling the land? i.e- reasons for sale by the landowner
• Why is the land currently vacant?
• What are the ground conditions like? Can you actually put up a building?
• Are there existing planning permissions in place?
• Has a buyer already gotten building permits and decided not to build?
• What’s the history of the property? Was it purchased before?

Then also speak to a contractor and ask them to take a look at the property in order to determine if it is buildable. It is also advisable to visit the city or county offices and get to learn as much information on the land as possible before committing any money to purchasing or doing any improvements on the property.

The bank that will finance the land by doing the payment of the lot loan also does an appraisal and asks for tests such as a percolation test to ensure the property drains properly. Although the bank has a role to play in doing due diligence, it is still highly up to the land buyer to do their homework which includes investigating the property to ensure it meets their criteria. In this entire process, information is power as it will guide the buyer and patience pays!

Subscribe to our YouTube Channel

How to Finance Buying Land & Building a House

If you are going to buy a parcel of land and then build your dream home, acquiring a construction loan from the bank may be the right direction to take to finance this goal. A common misconception among many home buyers is that it is not possible to get a loan for purchases of parcels of land. This is not the case! Banks do fund land loans and this is a huge financial relief for many upcoming homeowners.

Banks like the U.S Bank do offer lot loans which are short- term, interim loans that can be used for home construction by homeowners looking at buying land. This is a big relief for many homebuyers as the banks are creating opportunities for financing meaning they do not have to rely heavily on hard money in order to begin building.

The basic parameters when it comes to lot loans are as follows (may vary from house to house):

• The piece of land can be up to 10acres
• Conventional mortgage financing for buildings
• 3/1 Adjustable-Rate Mortgage (which means that the initial interest rate is fixed for a period of time. With the US Bank, the rate is fixed for 3 years then it becomes variable after that. Home buyers can therefore come back and refinance the loan again)
• Loan sizes of up to $300,000 (there are exceptions for higher loan sizes, please consult your loan officer regarding this)

The bank will of course perform a credit analysis on the potential lender using a combination of qualitative and quantitative finance as well as margin finance to determine the ability of debt repayment.

So, this means that as a home buyer you have such a great opportunity to build your dream home simply by approaching a bank that offers land loans (lot loans) that offers financing options for property. Take advantage of this to pay off your land loan and begin the process of purchasing that property that you’ve wanted for the longest time and build your dream home!