Book Review for Commercial Real Estate Finance by Winston Rowe

Free Book “Commercial Real Estate Finance”

Winston Rowe and Associates

Commercial Real Estate Finance by Winston Rowe – A Book Review

Rating: ★★★★★ (5/5)

Commercial real estate investment is a complex and ever-evolving field, requiring a deep understanding of finance, market dynamics, and risk assessment. In his book, “Commercial Real Estate Finance,” Winston Rowe provides a comprehensive and insightful guide that equips both novices and seasoned professionals with the knowledge necessary to navigate this intricate domain.

From the outset, Rowe demonstrates his expertise and experience as a real estate professional. His writing style is concise, clear, and approachable, ensuring that readers can easily grasp the concepts and principles discussed. Even complex financial topics, such as leverage, capitalization rates, and debt structures, are explained in a manner that is accessible to individuals without a finance background.

One of the book’s standout features is its systematic approach to commercial real estate finance. Rowe takes readers on a step-by-step journey through the entire process, from analyzing market fundamentals and property valuation to structuring debt and securing financing. Each chapter builds upon the previous one, creating a logical and progressive flow of information.

Furthermore, the book goes beyond mere theory and incorporates real-world case studies and examples. These practical illustrations provide readers with a deeper understanding of how various financial concepts and strategies are applied in actual commercial real estate transactions. This combination of theory and application ensures that readers are not only equipped with knowledge but also gain valuable insights into the challenges and opportunities they may encounter in the field.

What sets “Commercial Real Estate Finance” apart from other books on the subject is its focus on risk management. Rowe emphasizes the importance of thorough due diligence, identifying and mitigating potential risks, and understanding the macroeconomic factors that influence the commercial real estate market. By doing so, he helps readers develop a proactive and prudent approach to their investments, enhancing the likelihood of success and mitigating potential losses.

Another strength of this book is the emphasis on the evolving landscape of commercial real estate finance. Rowe acknowledges the impact of technological advancements, regulatory changes, and market trends on the industry. By staying up-to-date with the latest developments, readers can better adapt to the ever-changing dynamics and make informed decisions in an increasingly competitive environment.

“Commercial Real Estate Finance” is not a book you read once and put away. It serves as a valuable reference guide that you’ll likely return to throughout your career in commercial real estate. The clear organization, comprehensive content, and practical insights make it an essential resource for investors, lenders, developers, and anyone seeking to gain a deeper understanding of the financial aspects of commercial real estate.

In conclusion, “Commercial Real Estate Finance” by Winston Rowe is an invaluable guide that demystifies the intricacies of commercial real estate finance. Through its systematic approach, practical examples, and emphasis on risk management, Rowe equips readers with the knowledge and tools necessary to navigate the complex world of commercial real estate investment. Whether you’re a seasoned professional or a newcomer to the industry, this book is a must-read that will undoubtedly enhance your understanding and performance in the field.

Banks Pulling Back on Commercial Lending Nationwide

Office vacancies — plus the still simmering banking crisis — have us considering what a potential bust in the $6 trillion U.S. office property market might mean.

Why it matters: A deep downturn in property values is more than a problem for oligarchs, feuding billionaire clans and oil-rich foreign wealth funds.

It could touch normies, too, by hurting pension fund performance and city tax revenues.

If it gets bad enough, it may undermine banks, crimp lending and slow the economy.

State of play: Office utilization is still low compared to the before-times, with WFH and hybrid set-ups now standard for millions of former office drones.

By the numbers: Nearly 30% of companies still have remote or hybrid options — though that’s come down from 40% in 2021, the latest government data shows.

Utilization — how many people actually use the offices that their companies rent — is down roughly 50% from pre-COVID levels, according to swipe-card systems operator Kastle Systems.

Office building appraisal values were down 25% in February compared to a year prior, according to a Goldman Sachs note that cites research shop Green Street.

Office rents — especially in large cities with lengthy commutes — have fallen, too.

The latest: Signs of stress are picking up, with delinquencies on commercial office mortgages touching 2.4% in February, up from 1.5% six months ago, according to Trepp. Defaults are starting to appear as well.

Multinational real estate giant Brookfield last month defaulted on over $750 million in debt tied to two office buildings in downtown Los Angeles.

Pimco’s Columbia Property Trust office REIT defaulted on $1.7 billion in debt tied to a seven-building portfolio.

The head of RXR, another large New York office landlord, told the Financial Times last month it was preparing to stop debt payments on some properties, as it looks to renegotiate.

The impact: The value of commercial property produces anywhere between 20% and 40% of tax revenues for states and localities.

If those revenues fall, governments will have to cut services, raise taxes, or both, making cities less attractive.

Meanwhile, smaller banks are big lenders to real estate developers, putting them at risk if office defaults spike.

Goldman Sachs analysts estimate that banks hold roughly half of the $5.6 trillion in commercial property mortgages outstanding, with the overwhelming majority of that half held at small banks.

Many of those same regional banks have been under pressure since Silicon Valley Bank failed. With deposits migrating to larger institutions — or simply to higher-interest accounts like money markets — they’ll have less capacity to refinance loans on office properties.

Property loans typically need to be refinanced every five to seven years — and failure to refinance or pay off the loan can result in a default. When that happens, the debt gets renegotiated, and the lender often takes losses.

If defaults pile up, it could worsen the pressure on office building values and make banks leerier of making office loans — exacerbating the defaults and the banks’ losses.

Finally, pension funds have also sunk billions into real estate in recent years. The top 200 institutional managers owned about a half-trillion worth of real estate in 2022, according to trade publication Pensions & Investments.

“How those real estate portfolios of buildings are doing, will then affect, in the end, returns which these pension funds are getting. And that will also affect households which are dependent on these pension funds,” says Vrinda Mittal, a Ph.D. candidate in finance and economics at Columbia Business School who has studied private real estate investments.

The bottom line: We’re still in the early stages of the post-COVID era for offices, and how it will shake out is the trillion-dollar question.

While you were ducking out of the office early Friday afternoon for happy hour, the Federal Reserve released its weekly report on the U.S. banking system.

Why it matters: The figures showed that amid the turmoil that’s engulfed the banking sector, there was an outflow of deposits from smaller banks in mid-March — though not on a scale that appears overly worrisome.

Big US Banks Pull Back on Office and Apartment Lending

Big US Banks Pull Back on Office and Apartment Lending

Slowdown Seen in CoStar Data Could Extend Into 2023, With Possible Bright Spots for Retail, Data Centers

The nation’s largest banks that are most active in commercial real estate lending eased off their strong support for property purchases in the past several months, with CoStar data showing a particularly steep drop in financing for offices and apartments.

The trend is likely to extend into this year, based on comments from bank executives singling out office properties for weakness in their earnings reports this month.

While office building sales in 2022 made up 13% of total transactions, CoStar data shows, those sales fell 35% in the second half from the first half. The largest banks meanwhile financed 47% fewer office deals in the final six months of the year.

“The office market is showing signs of weakness due to weak demand, driving higher vacancy rates and deteriorating operating performance, as well as challenging economic and capital market conditions,” Mike Santomassimo, chief financial officer of Wells Fargo, said on the bank’s earnings call last week. “While we haven’t seen this translate to significant loss content yet, we do expect to see stress over time and are proactively working with borrowers to manage our exposure and being disciplined in our underwriting standards with both, outstanding balances and credits down compared to a year ago.”

The weakness is widespread even in the Class A properties on which Wells Fargo has originated loans.

“We are very watchful on cities like San Francisco, like Los Angeles, like Washington, D.C., where you’re seeing lease rates overall be much lower than other cities across the country,” Santomassimo added. “Those are markets that we’re keeping a pretty close eye on and making sure we’re being proactive with our borrowers to make sure we’re thinking way ahead of any maturities or extensions, options that need to get put in place to help manage through it.”

Largest Financed Deals

The data resulted from a review of 2022’s largest financed property sales by the biggest U.S. banks as tracked by CoStar, and additional lending activity could have occurred last year that wasn’t picked up in the data. Based on last year’s totals, retail and data center loans are shaping up to be possible bright spots for the finance industry in 2023.

In the analysis, Wells Fargo was among the most active bank lenders and tallied the largest loan total in both the apartment and industrial sectors. That is a focus that began for Wells Fargo in 2021, Nipul Patel, head of real estate banking within Wells Fargo’s commercial real estate group, told CoStar News in an interview.

The robustness of activity in the two sectors peaked in the first quarter of 2022, according to Patel.

Nipul Patel of Wells Fargo projected weaker lending activity in apartment, industrial and office properties. (Wells Fargo)

CoStar data shows that apartment property sales were 18% lower in the second half of the year than the first half. The largest banks financed 42% fewer apartment deals in the back half.

“The second half of the year for the most part was pretty dormant in regard to new origination activity both in the multifamily and industrial sector,” Patel said.

That pause is likely to continue early this year given elevated interest rates and price discovery going on with those property types, he said.

Apartments on Watch

Some of the nation’s other large banks reported increases in some types of apartments during their earnings calls.

JPMorgan Chase’s commercial real estate loans were up 2% quarter-over-quarter, reflecting a slower pace of growth from earlier in the year because of the higher rates, which affects both originations and prepayment activity, the bank said.

“The vast majority of loan balances in commercial real estate are for affordable multifamily housing, which is really quite secure from a credit perspective for a variety of reasons,” Jeremy Barnum, JPMorgan’s chief financial officer, said on the call. “So, we feel quite comfortable with the loss profile of that business.”

First Republic Bank, based in San Francisco, backed more apartment deals in 2022 than other property types. The bank reported achieving record apartment lending volume in 2022.

First Republic said it expects to continue that loan growth in 2023; however, it is maintaining conservative underwriting standards. The average loan-to-value ratio for all real estate loans it originated during the year was 57%, the bank said. Loans with that approximate LTV ratio are generally considered low risk.

Property Types With Promise

Where the financing outlook is brighter by property type is in retail, particularly such properties as grocery-anchored centers, and also in data centers, Patel of Wells Fargo said.

CoStar data shows that financing started picking up in the second half of 2022 by the largest banks in both the retail and specialty sectors. Retail loans by the largest banks were up 63% in the second half of the year, even though transaction activity was down 26% in the sector.

For specialty properties, such as data centers and self-storage properties, lending was up nearly 174%, according to CoStar data. Specialty property sales were up by nearly the same percentage in the second half of the year over the first half.

What interest rate hikes mean for multifamily property investors

As the Fed continues to ramp up interest rates, find out how increases could impact real estate investors.

Inflation—and rising interest rates—are at the center of the American economic conversation. And for good reason. In 2022, the Federal Open Market Committee (FOMC) raised rates by 75 bp four consecutive times between June and November.

In December 2022, the Fed raised rates by 50 basis points, bringing the target federal funds range to 4.25% to 4.50%.

While inflation has slowed in recent months, it remains near 40-year highs. Combined with historically tight labor markets that are driving higher wages, “we’re in uncharted territory,” said Ginger Chambless, Head of Research for Commercial Banking at JPMorgan Chase. “As a result, the Fed is currently tightening monetary policy as rapidly as ever.”

Rate hikes may not impact all financing structures

Interest rate hikes may impact short-term and adjustable rate loans more than long-term, fixed-rate ones.

“The Fed’s actions on short-term rates don’t directly translate to a like effect on fixed rates underlying commercial real estate mortgages. After any Fed rate hike, it’s possible that fixed rates might rise or fall depending on circumstances,” said Mike Kraft, Commercial Real Estate Treasurer for Commercial Banking at JPMorgan Chase.

For investors with fixed-rate loans, you may also want to keep an eye on the Treasury yields, which help determine mortgage rates. The Treasury yield is viewed as a sign of investor sentiment about the economy. Yields are driven by the market and aren’t directly under the Fed’s control. “Treasury yields depend on long-term inflationary expectations, on the market’s assessment as to whether an economic downturn is impending,” Kraft said.

As of December 2022, yields are near the low end of that range. “While they will certainly continue to move about, they are not likely to take off in the immediate future,” he said.

What interest-rate hikes mean for multifamily investors

“As one of the most sensitive sectors in the economy to changes in interest rates, housing activity has weakened significantly in the last few quarters of 2022,” Chambless wrote in her 2023 Outlook. “However, demand for multifamily housing has held up amid tight single-family home supply and affordability challenges, with multifamily housing starts still close to the highs of the cycle.”

The Fed anticipates more increases in early 2023. While multifamily property owners and investors may feel the negative effects of rising interest rates, there may also be some offsets.

Higher interest rates could price would-be homebuyers out of the single-family housing market, causing them to remain renters for longer. Inflation, along with rising costs and construction delays may increase existing properties’ rents.  

Multifamily property owners and investors with fortress balance sheets in particular can benefit from the current economic environment, offering an opportunity to grow their portfolio at a lower cost. 

Looking beyond interest rates

For those looking to purchase a multifamily property or refinance their apartment complex, there’s more to look at than interest rates. Consider other factors, including:

Supply, demand and demographic shifts: The housing inventory—especially affordable housing—is low, with demand outpacing supply. Likewise, more people have moved to the center of the country and are seeking workforce housing. Investors may also want to weigh the merit of a shift from suburbs to cities.

Local market: Real estate is a largely local business, so investors may want to take a close look at the specifics of the market before purchasing or refinancing. It’s also important to evaluate each property individually, including its capitalization rate, which generally goes up when interest rates increase.

What’s next for interest rates, inflation and the economy

“While inflation is likely to remain somewhat elevated through the end of 2023, we see signs that a moderation is already underway and that this cooling will become more prominent over time,” Chambless said.

Interest rate fluctuations could correspond. “The Fed’s own projections indicate that the target would top out at 5.25% by the end of 2023,” Kraft said. “Markets have treated this forecast with skepticism, with futures implying a maximum 5.00% target by May. Shortly after that, markets imply a ‘pivot’ by year end—at some point, the Fed could begin easing to accommodate a possible economic downturn. The Fed itself doesn’t project such a pivot, maintaining that it will be necessary to hold rates at a higher level for a while to bring inflation in check.”

Unexpected national and international geopolitical uncertainties may continually arise, resulting in market volatility and interest rate fluctuations.


How To Make A Real Estate Investment Business Plan, And Why It’s Important

A real estate investment business plan is an important step if you’re looking to get started in the industry. A real estate development business plan can help you decide what form of real estate you’re looking to invest in. Real estate has a wide array of opportunities, so it’s important to narrow your focus. It’s very difficult to be successful in several different areas of real estate at the same time. A business plan can help you decide what it is specifically that you’re doing.

What Is A Real Estate Investment Business Plan?

Put simply, a real estate investment business plan is a document that lays out how a real estate investor intends to run their business. The plan should illustrate the investor’s goals for investing in real estate as well as business strategies and timelines they intend to implement to achieve those goals.

There’s not a specific format you have to follow to create a real estate investment business plan. Instead, you can pick and choose sections that are important to you. A business plan is primarily a document that can help you decide what your business is going to focus on, whether that’s rental properties, investment properties or flipping houses. You can also use a real estate investment business plan to help secure funding from investors or business partners.

Why Do You Need A Real Estate Investment Business Plan?

Having a plan is important because it can act as a blueprint or road map when starting a new business. It can also give it a sense of legitimacy when talking about your business with others. This is especially crucial when trying to attract business partners and investors or getting a small-business loan.

11 Essentials For A Real Estate Investment Business Plan

As we mentioned earlier, there isn’t a specific format you must follow when creating a real estate investment business plan. Plans can be as unique as each company they outline. Here are a few sections that you might consider including in a real estate investment business plan.

1. Executive Summary

An executive summary should illustrate things like the company’s mission and vision statement. Depending on how long your real estate investment business plan is, most people are not going to read the entire thing. So, an executive summary should sum up the investment company as a whole and provide a snapshot of the company’s financial plan, marketing plan and other key factors.

2. Company Description

A business plan should include a description and history of the company as well as the target market. This lets people who read the plan know basic information about the company as well as its principal members. The company description section is a great place to give biographical information about each member of the company’s leadership team.

3. SWOT Analysis

A SWOT analysis looks at a company’s strengths, weaknesses, opportunities and threats. Analyzing each of these categories is important to include in a business plan. This will help you make sure you’ve adequately considered each of these categories, and these are things that potential partners will definitely ask about before investing in your company.

4. Investment Strategy

Detailing a company’s intentions with investment properties is another important part of a real estate investment business plan. Real estate is a broad term that covers a wide variety of different activities. Each of these real estate activities is different and will take a different strategy to be successful. This section will stipulate if you intend to invest in rental properties, flip houses, etc.

5. Market Analysis

You’ll also want to include a market analysis in your business plan. This shows potential investors that you know the real estate market. The three most important words in any real estate plan are “location, location, location,” and including a market analysis will show what conditions are like in the areas where you’re looking to invest. Investing in a high-priced area like New York or San Francisco is much different than investing in a rural area with much lower market prices.

6. Marketing Strategy

Most business plans will also include a marketing strategy. The marketing strategy will show how and where you plan on marketing and attracting new clients. The specific area of real estate you’re focusing on will drive how much you focus on marketing. Someone looking to become a real estate property manager will need to do more marketing than someone who’s buying rental real estate to hold.

7. Financial Plan

Your financing strategy and financial plan might illustrate income and cash flow statements. This could include historical records like bank statements or profit and loss projections. You might also include a balance sheet showing the company’s assets and liabilities. The financial plan section is intended to give potential partners or investors a snapshot of the company’s overall financial health.

8. Organization And Management Structure

A business plan should also include a company’s organizational structure, management team and ownership details. These items are mentioned in the initial executive summary; in this section you can go into more detail about each member of the management team. One thing that is good to include here is a listing of the various qualifications, licenses and/or certifications that each member of the team holds.

9. Real Estate Acquisition Strategy

A business plan should include a strategy for acquiring investment properties, if that’s something that the company plans on doing. There are many different ways to buy real estate, so you’ll want to detail which strategy or strategies you plan on using in your real estate investment business plan. Some strategies may include going through a real estate agent or broker, as well as wholesaling and target marketing.

10. Goals And Timelines

A business plan should clearly state a real estate investor’s goals for their company. One way to show this is to make a 1-year, 3-year or 5-year plan. Detail your plans for the business over a variety of different timelines. You’ll also want to include some strategies and details for how you plan on meeting them.

11. Exit Strategy

Having an exit strategy is important for a business plan. This can include items such as knowing if and when to sell an investment property.

The Bottom Line

Having a real estate investment business plan is an important part of owning a business. Creating a written business plan when you’re starting a business will make your business feel more real.

Rising Interest Rates and Commercial Real Estate

Investors are keeping a sharp eye on interest rates as they are a major factor to leverage returns. Rates have rapidly climbed over the last few months, and it is expected this trend will continue through 2022 and well into 2023. At the start of the year, interest rates for investment properties were between 3.5% and 4%. In four short months, we are seeing rates inching closer to 8%.

What does this mean for real estate?

Increasing interest rates make borrowing more expensive, therefore impacting investors’ desired return. Investors are forced to offset the higher cost of financing with a lower purchase price on real estate. As rates climb, cap rates usually follow, which puts downward pressure on pricing. Unlike the 10-year treasury and interest rates, cap rates do not see daily volatility. There is usually a lag between the time it takes the market to see cap rates increase from interest rate hikes alone.

The aggressive interest-rate increases are a direct move to combat inflation, the highest we’ve seen in four decades. The general rule of thumb is that higher interest rates are usually a response to higher inflation, which could have a positive impact on real estate income growth. Even though rates are trending upwards, which impacts what investors can pay, they will be focused on pushing rents to keep valuations high.

Economists expect rates to continue rising over the next 1-2 years, potentially reaching the 6% – 8% range. This could have a drastic impact on cap rates. Luckily, with low vacancy and little new construction in commercial real estate, it doesn’t create the same problem we saw during the Great Recession with over-supply. Investors will be more focused on increasing rents than being cap rate driven for values, which caused cap rate compression over the last few years.

An increase in values over the past twelve months have forced lenders to tighten their underwriting — the loan-to-values (LTV — amount of a loan compared to appraised value) we have seen in the past no longer worked! Currently we are seeing 55% – 65% LTV rather than the 65% – 75% during the last few years. Lenders are being more cautious with rising rates, cap rate compression, increased values, and the changing environment we face with headwinds in the debt markets.

Increasing interest rates make borrowing more expensive, therefore impacting investors’ desired return.

Positive vs negative leverage

Sellers can anticipate investors showing more caution and patience if they need debt until 2022 unfolds and the impact on values is revealed. It becomes difficult to use debt today if it creates negative leverage, meaning debt is at a cost that eats into cash flow, reducing the cash-on-cash return compared to an all cash return. Typically, debt is used to maximize the return, which means investors need positive leverage. That doesn’t happen when you are buying at a 5% cap rate and borrowing at a 4.75% interest rate. To determine positive or negative leverage, you divide your annual loan payment by your loan amount to generate a loan constant. Based on the loan constant, you will know the minimum cap rate needed to generate positive leverage.

For example, if you bought a $5,000,000 property with 60% LTV, your loan would be $3,250,000. If you had a 30-year amortization with a 4% interest rate your annual debt service is $186,192 [$186,192 debt service/$3,250,000 loan amount = 5.73% loan constant]. This means you must buy a property at a higher cap rate than 5.73% to get positive leverage.

A 5.50% cap rate on $5,000,000 generates $275,000 of net income, less the $186,192 debt service, would leave you with $88,808 in cash flow. Take that $88,808 and divide it by your down payment of $1,750,000 and you have a 5.07% cash-on-cash return – which is less than the 5.50% cap rate, meaning that loan generated negative leverage.

On the other hand, a 6.00% cap rate on a $5,000,000 property would generate $300,000 of net income, less the $186,192 of debt service and you have $113,808 in cash flow. Divide that by the $1,750,000 down payment and you have a 6.50% cash-on-cash return – which is more than the 6.00% cap rate, meaning that loan generated positive leverage.

This concept is important to understand because it is what drives buyers to pay lower prices and have higher cap rates – making debt work to get positive leverage. Otherwise, bringing debt into a deal may not be advantageous to the borrower at current pricing and interest rates.

As we move forward in 2022, we may not see the movement in values right away, but sellers and buyers will soon enough find themselves at a crossroad of having to understand debt market pressure of increased interest rates and what buyers can (and will) actually pay. Sellers still find themselves in a great position to sell, as the amount of capital in the market is aggressively looking for real estate to hedge inflation. Today’s environment of changing rates and inflation causes uncertainty in stocks, cash, and other alternatives, whereas real estate is viewed as a much safer investment alternative.

Building Your Real Estate Investment Team

Whether you like it or not you can’t do it all by yourself. Investing in real estate requires many different professionals. There are realtors, appraisers, inspectors, builders, remodelers, mortgage companies, banks, property managers, attorneys, partners, accountants, sign companies, printing companies and yes even mentors, buyers, sellers and tenants.

I have heard in business that you are only as good as your weakest link. I want to suggest that you choose your team carefully. You may even want to go as far as interviewing your team players.

After all this is a business and the dollar amounts can be substantial so you want to make sure that your team members have the same morals, ethics, business philosophy and personality as you. This is not to say that you will not make some mistakes and or changes along the way but when you start out with a list of the qualities that you are looking for in your team it makes the decision process much easier. Yes I did say qualities and not experience or education. It’s easy to find someone who knows the business or has experience but it can be a challenge to find the right qualities and personality in the person you are looking for.

I would start my search by seeking a referral from someone who is already in the business and is successful. Make sure you know the person you are seeking the referral from well enough to know that you will be well received when you contact whomever they referred. Notice that I indicated that you seek a referral from someone who is not only in the business but is “successful”.

It doesn’t do any good to contact a banker for a line of credit when you have been referred by someone the banker just turned down nor does it look good to contact a realtor referral from someone who just backed out of the last deal they had under contract.

I think it is only appropriate to note here that if you are making a referral to someone who is building their team, make sure you know a little about this person also. It doesn’t help you by referring someone to your banker who just got out of bankruptcy and has a history of shady deals.

Once you establish your team players you should be loyal to them. Let me give you an example. Who are you going to call when you find a listing online or another realtors listing while driving the neighborhood? Most people would say I call the listing agent. I used to do the same thing. Let me suggest you call your team player and let them go to work for you.

If you call the listing agent it and buy the house it may be the only sale you give that realtor this year. By calling your realtor that closed 30 transactions for you last year they will go to bat for you to get you the price and terms that they already know you are looking for.

Not to mention the fact that you will be the one they call when they find a deal that has to be sold fast. Trust me on this, as I know from experience.

I hope that this will help you in building your team.

Landlords Steps To Prevent Tenant Lawsuits

Rental property ownership can be a rewarding path to financial freedom. However, whether the property is a vacation rental property that has tenants only renting for short periods of time, or an apartment building with year-round lessees, managing an investment property can also be intimidating,

Without prudent safeguards in place to shield against lawsuits from tenants, the landlord can be held personally liable for lawsuits stemming from the property ownership.

Landlords can protect their investment property from tenant lawsuits if they set up their business under the protection of a Limited Liability Corporation or LLC. This will protect any personal assets against a lawsuit from a tenant against the property.

A carefully drafted rental agreement, or lease, dictating precisely how the tenant is expected to treat the property is a necessity. Adding a clause that would make it necessary for arbitration instead of court is advisable.

Another layer of protection is an insurance policy for the property that includes liability coverage. That way, it is quite possible that the insurance company will show up in court to defend the lawsuit, should one occur.

To avoid premise liability lawsuits, landlords should also comply with all local fire and building codes. Routine inspections with local inspectors of all systems (think: fire alarms, CO2 alarms, hot water heaters, etc.) are advised to have on record annually. Being aware of any hazards such as trip hazards, lead paint, or chemical leaks, and not warning the tenants or removing the hazard can also lead to a lawsuit.

Discrimination is another area that can lead to lawsuits. Be familiar with the Fair Housing Act, or FHA, which not only states that landlords cannot refuse to rent based on race, religion, nationality or gender but also based on disability status.

Multifamily properties must also be accessible to all disabilities, per the FHA. Any requests made for disability modifications (within reason) must be granted.

Security deposits can be a major dispute between tenant and landlord. When a tenant leaves their rental property, they are expecting a quick return of their security deposit. Disputes over the cost of damages or repairs could lead to the tenant suing a landlord.

Doing a pre and post rental walk-through with the tenant and providing an itemized list of the damages and necessary repairs can minimize the risk of litigation.

Another important strategy to avoid tenant lawsuits is compliance with state laws and what they say about security deposits.

Investing in rental property can bring a lifetime of reliable income. Capable property management is important to protect that income from tenant lawsuits. If overwhelmed, to help with the day to day management, there is the availability of property management companies to assist.

With the right systems in place, the proper compliance techniques, and the best business practices, a landlord should be able to operate a successful and litigation-free property for many years.

EBIT and EBITDA – Shortcut to Cash Flow

EBIT and EBITDA – Shortcut to Cash Flow

While there are several factors that go into qualifying for a variety of business loans, there is one metric upon which banks heavily rely, but is unfamiliar to most applicants.

It is the Fixed Charge Coverage ratio (slightly modified for pass-through entity accounting), and it measures your projected ability to pay back the loan with interest better than any other calculation or ratio.

EBIT and EBITDA – Shortcut to Cash Flow

The bank wants to know how many times your cash flow can cover your loan payments. The way they determine cash flow is EBIT, or calculating your earnings before interest and taxes.

Your may have heard of EBITDA, which adds Depreciation and Amortization back to EBIT, and I have always contended that this is the lazy man’s formula to derive free cash flow.

The investment and banking community have established this standard.

Pass-Through Entity Hides Cash Flow

But the problem with EBIT, or even EBITDA, is that it leaves out a significant decrease in cash flow inherent to S-corps and most LLCs — owner draws or dividends.

Due to tax and other reasons, owners of and partners in S-corps, and most LLCs, often receive a large portion of their income as draws or distributions, for which EBIT and EBITDA do not account.

A bank, therefore, is possibly seeing a prospective borrower too favorably without accounting for this form of owner compensation.

Modified Fixed Charge Coverage Ratio

Banks have gotten smart. They have taken the Fixed Charge Coverage ratio, which was derived to more accurately determine a company’s wherewithal to make its loan payments than the Interest Coverage ratio, and added the owner draws/distributions to the formula.

It is focused on assessing all of the company’s fixed financing commitment, in which fixed distributions to owners should be included. Here is how it works:

[EBIT + Lease Expense + Owner Draws]

[Interest Expense + Lease Expense + Owner draws]

Don’t feel overwhelmed by all of the inputs into the formula; it’s not that hard to pull together.

What’s good?

A ratio of exactly one means the business is running on tight cash flow but it will be able to make all of its obligations.

A ratio greater than 1.2 is a comfortable place for a bank to lend, and a ratio over 3 means the company may not be using leverage to its maximum potential.

Here’s an example:

Saul’s Deli generates EBIT of $80,000 annually. Saul has fixed leases in place of $20,000 and takes another $60,000 out of his company every year as a dividend (he is an S-corp). He pays $15,000 per year in interest. Here is his Fixed Charge Coverage ratio:

[80,000 + 20,000 + 60,000]

[15,000 + 20,000 + 60,000]



Fixed Charge Coverage ratio = 1.68

This means that Saul’s Deli can cover his existing debt and obligations by 1.68 times.

A bank would likely feel comfortable with this ratio if he meets the other loan underwriting criteria and the new loan does not decrease this ratio too much. Interestingly, the interest coverage ratio would have come back over 5, not nearly as realistic as the fixed charge coverage ratio in determining Saul’s ability to service his existing and potential new debt.


Applying for a loan can be intimidating. You should know your ratios, including your fixed charge coverage ratio, before you even start the application.

Not only will the EBIT and EBITDA coverage ratio, along with the modified fixed charge coverage ratio help you think like a banker, but it will also help you determine if asking for a loan will help or hurt your business.

Things To Consider When Applying For A Commercial Loan


A commercial loan has a more in-depth application process and its specifications are much more thorough when compared to personal loans, as commercial loans need details and financial data from not only the borrower but the business too, though personal loans only call for information from the individual borrower.

When applying for a commercial loan, there are many significant elements to consider for example credit ranking, financial history, and other factors, and each commercial lender focuses on different factors when making a loan decision.

There are two main general commercial loan collateral types, the secured and unsecured loan. For people with a powerful company an outstanding credit rating, unsecured loans can be a great option as the borrower will not have to present any collateral to secure the loan.

The only problem with unsecured loans is that the interest levels are normally higher because of the increased risk to the commercial lender, and they’re usually harder to get.

A secured commercial loan is where the loan is backed by the pledging of collateral like a residence, commercial property, or business asset(s). The risk of a secured loan is that the asset(s) pledged are at risk need a default happens. But because commercial lenders prefer to do secured loans, the interest rates and terms are usually much better along with secured loans.

The type of commercial real estate and loans the amount of paper work of which the commercial lender will need you to complete and this could even more increase the processing time. But you don’t have to go through the lengthy process of doing your commercial loan application on your own.

You need to work with a professional firm, such as Winston Rowe & Associates that understands the processes and underwriting guidelines that the various lenders use.

A firm like Winston Rowe & Associates will submit a summary to potential commercial lenders and investors to get the process started and to gauge their interest level.

The summary will include details such as the loan quantity requested, purpose, and your ability to repay the loan, requested interest rates, fees, and terms. Commercial loans really have their positive aspects, however there will also be disadvantages based on the nature of the loan that must not be ignored.

Why use a firm like Winston Rowe & Associates, because many traditional banks and lenders only offer one or two loan programs with limited options.

Borrowers often do not get the best financing solution or are constrained with terms that are inadequate because the lender is inflexible. Getting the “right” loan requires a lender with multiple program options and the willingness to be creative in its approach. With multiple alternatives available,

Winston Rowe & Associates customizes each loan to meet the specific needs of the Borrower.


Tips For Finding Off Market Real Estate Investment Deals


Off market real estate deals whether you’re looking for real estate for sale by owner or bank-owned properties, off market deals are frequently the best ones. Here are some strategies that can help you find them:

Off Market Real Estate Tip #1: Property for Sale By Owner

While FSBO pricing has improved with the availability of Internet data sources, it still isn’t always as spot-on-the-market as the list price that a qualified real estate agent will come up with. As such, you might find some FSBO deals that are under priced relative to other properties in the market.

Dealing directly with the owner may also give you additional negotiating leverage that you can use to turn even an overpriced property into a great deal.

Off Market Real Estate Tip #2: Expired Listings

When real estate that was listed expires, sometimes, the owner still wants to sell it. Furthermore, once real estate goes off the market, you can go directly to the owner and make an offer that is less than what he needed to get when he had to pay an agent.

These properties can turn into very good deals just on the basis of that discount alone.

Off Market Real Estate Tip #3: Know Area Lenders

While most conventionally-mortgaged homes end up going through Fannie, Freddie or Ginnie Mae’s sale process, properties that have loans held by local banks or private lenders have a much less predictable sale process.

Sometimes, you can contact the lender directly while the property is in foreclosure and carve out a position for yourself before the real estate goes on the market. Getting to know the realtors that work with private lenders can also give you a leg up.

Off Market Real Estate Tip #4: Contact Owners Directly

Another way to find property for sale by owner is to contact owners directly. When you do this by calling or writing and delivering the straightforward message that you are willing to buy the property, you can not only potentially avoid brokerage fees, but you can also avoid competition and maybe save money.

How to Become a Success in Real Estate

How to Become a Success in Real Estate

Create a Strong Real Estate Team:

Though it is possible to have some success in real estate as a one-person business, you’ll eventually need to build a team around yourself in order to scale up.

Your team of people can include direct employees to find and negotiate property sales for you, as well as well-liked contractors to handle repairs on the properties you acquire.

By surrounding yourself with talented and driven people, you will be able to focus in on only the most important aspects of your real estate investment business.

Balance Flipping and Rental Properties:

In real estate investment, there are two basic ways to make money.

The first is to realize a large sum by buying a property, improving it in some way and then reselling it for a higher price.

The second method is to create a flow of passive income by acquiring and then renting out properties.

Though both of these are great ways to make money in real estate, truly successful investors typically include both in their businesses. By flipping and renting at the same time, you will be able to create a more stable financial situation for yourself and your business.

Commercial Insurance Options That Apartment Owners Should Consider


Having the right knowledge and some basic management skills are essential, but even seasoned landlords might be missing out on some crucial coverage.

You can minimize some of the risk by requiring your tenants to carry renter’s insurance; however the bulk of the insurance side of things is squarely on your shoulders.

Winston Rowe & Associates, a national advisory firm that structures apartment and multi-family financing solutions nationwide.

Commercial Loan Due Diligence Review


Winston Rowe & Associates utilizes a best efforts approach to perform the necessary due diligence for their clients, pursuant to our executed Letter of Interest.


Winston Rowe & Associates initial due diligence is a client driven process. It’s important that requested supporting documents be submitted in a timely manner.

Prospective Client’s must request a transaction summary, from Winston Rowe & Associates that must be submitted via email in a MS Word format for Winston Rowe & Associates to consider you as a client.

Incomplete transaction summary documents will not be processed.

It’s important to note that if you are a broker, consultant or intermediary submitting a transaction, that it includes the prospective clients contact information.

Without it, Winston Rowe & Associates will not process your transaction.

Upon acceptance of the transaction summary, the ensuing steps are an overview of the process.  Please note; private equity transactions require different engagement and due diligence procedures.

Step 1 Transaction Summary:

Upon receipt of the transaction summary, it will be reviewed by Winston Rowe & Associates. If the proposed transaction appears to meet Winston Rowe & Associates pre-determined capital source(s) lending criteria it will be submitted for review.

Step 2 Processing & Due Diligence:

If there is an interest from the pre-determined capital source, Winston Rowe & Associates will schedule a conference call and then provide to the prospective client a list of supporting documentation needed to begin the initial processing and due diligence to prepare the proposed transaction for underwriting.

The initial due diligence will include the collecting and analyzing the supporting documentation pursuant to the transaction.

Winston Rowe & Associates utilizes a global approach during the initial due diligence. This approach includes the review of all business and personal financial documents.

If it is found that there is a material misrepresentation of the transaction by the client’s representative or the client. The transaction will be terminated.

Step 3 Submissions For Underwriting:

Once Winston Rowe & Associates completes the initial due diligence of the proposed transaction it will be submitted to the pre-determined capital source for underwriting.

During the underwriting phase of the the proposed transaction. Winston Rowe & Associates may require additional supporting documentation.

Upon completion of underwriting the pre-determined capital sources will issue general terms and conditions defined within a Letter of Interest or conditional Commitment Documents.

Step 4 Commitment Documents, Reports & Loan Closing:

The client will be placed in direct contact with the capital source to finalize the transaction.

Once the proposed transaction has completed underwriting; property reports are then ordered.

These reports are paid for directly prior to funding by the prospective client which include; appraisals, surveys and studies. Report types vary according to real estate type.

When the necessary property reports are completed. The title work is ordered and a closing is scheduled.

Apartment Buildings & Complex Investment Loans No Upfront Fees

Real Estate Investing

Apartment Buildings & Complex Investment Loans No Upfront Fees

There are many investments out there that can create wealth and security. People invest in stocks, bonds, and single-family homes, but multifamily and apartment properties, make the best sense.

Savvy investors are turning to Winston Rowe & Associates, a no upfront fee national commercial finance specialist for apartment and multifamily investors.

Why consider apartment buildings instead of single family homes? Well – many other real estate investments have some of the following attributes, but only apartments and multifamily properties have all five.


Multifamily properties produce income. Unless you receive dividends, most stocks don’t give you income, and although single-family rentals might bring a little cash flow, the income is usually not substantial unless you’ve held the property for many years. Receiving regular income from your investment frees you up to do other things.


Although multifamily properties increase in value over time, for tax purposes they depreciate. The tax benefits of depreciation are substantial, and many investment vehicles lack this significant attribute. Stocks and bonds bring zero depreciation. You can use depreciation when flipping single-family homes, but because the transaction is temporary, the tax benefits will not be as great.


The property will increase in its equity value every month just from paying the mortgage. The rent your tenants pay you goes toward the mortgage every month, so your equity increases as others pay your mortgage. Real estate investments have the advantage over stock-related investments when it comes to equity.


Over time, real estate investments appreciate, meaning they are worth more now than they were in previous years. The land beneath your property becomes more valuable over time as the city around it grows. In addition, you can increase appreciation by raising rents and cutting costs. Single-family homes appreciate as well as multifamily properties, but the scale is larger with multifamily properties, and there is more room with multifamily properties to raise rents and cut costs.


Multifamily properties can be bought without any of your own money. When you sell a property, the equity you’ve gained in it can be applied five-fold to purchase a bigger, more expensive property.

Generally, you need 20% down on properties, so $100,000 in equity on one property means you can leverage that equity to acquire a $500,000 property. Every time you sell a property your leverage becomes greater.

Investors seeking apartment building financing should turn to Winston Rowe & Associates because or their efficient, end-to-end commercial real estate financing solutions that provide commercial mortgage capital to owners of all commercial property types, nationwide.

With flexibility and speed of execution, they are able to offer a broad range of financing capabilities. In most cases they can close your loan within 30 days.

You can review Winston Rowe and Associates by clicking this link.