• About Frank

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  • Frank Rizzi manages Bos Commercial in West Covina and has been in real estate since 1988. Since then, he has made millions for his investors over the last decade.

    With his team of experts, he has built a solid reputation as a responsive expert with in-depth market perspective of a local firm coupled with the sophisticated capabilities of a national company.

    BOS Commercial has positioned itself to handle every aspect of your commercial property
    investment whether it be purchases, management, leasing, renovations, or sale of your property.

Tax Deductions – Tax Write-Offs – Income Property

For those of you who are new to real estate investment, it is important to have a good understanding of the following tax deductions ( tax write-offs) associated with income producing properties.            

                   All Operating Expenses incurred via the operation and maintenance of an income    producing property are tax deductible.  They include such things as accounting fees, advertising costs, legal fees, insurance premiums, janitorial service, lawn maintenance service, leasing commissions, license fees, office supplies and expenses, pest control, property management fees, property taxes, repair costs, salary and wages, snow removal service, misc. supplies, telephone, trash removal, vehicle mileage expenses, utilities, etc.

    AllMortgage Interest paid on any loan or loans secured by income property is tax deductible.

    All Points paid on any mortgage or loan secured by an income producing property are deductible over the life of the loan.  For example, if you obtain a $100,000 loan with a 20 year term and you pay 1 point to obtain the loan, you can write-off $50 a year over the 20 year period for a total of $1,000.  If you sell the income property and pay off the balance of the mortgage early, you can deduct all unused points in that year.

    Miscellaneous Closing Costs connected with obtaining a loan for an income producing property such as mortgage insurance premiums, fees for an appraisal required by a lender, title search fees, loan origination fees, recording fees and abstract fees are deductible over the life of the mortgage.

    Depreciation is the loss in value of an asset or building over time due to wear and tear, physical deterioration and age.  The IRS allows you to depreciate income producing properties over their useful life which is determined by law.  Current law stipulates that residential income properties must be depreciated over 27.5 years and commercial income properties over 39 years.  For example, you purchase a warehouse for $900.000 in January.  The land where the warehouse resides is valued at $120,000.  The building is valued at $780,000.  Commercial property is depreciated by equal amounts annually over the 39 year period.  Since you purchased the income property in January, the IRS rules allow you to write-off 11 1/2 months of depreciation in the first year or $19,167, 1/2 month of depreciation for January and 11 full months of depreciation for the remainder of the year.  For the next 38 years you would deduct $20,000 a year and in the 40th year, the final year, you would write-off the remaining 1/2 month of depreciation , $833.

    Capital Improvements are subject to the same depreciation method as the building above.  Capital improvements include a new roof, new siding, a new addition to a building, etc.  Capital improvements to a residential income property are depreciated over a 27.5 year period.  Capital improvements to a commercial income property are depreciated over 39 years.

     Personal Property includes such items as furniture, appliances, lawn mowers, snow removal equipment, etc. which are not permanently attached to the land.  Depending on the type of property, a recovery period of 3, 5, 7, or 10 should be used.  Check with your accountant to determine the appropriate recovery period for a specific type of personal property.

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Commercial Real Estate Lesson to Pass on to Your Kids

One of the things that “us parents” want to do is pass down as much knowledge as we can to our kids to give them as many advantages when they are adults as possible. Not surprisingly we want the best for our kids.

But, how do you have kids involved in your Commercial Investment Real Estate Wealth Building without turning them off?

Lets face it, what you think is important, your kids think is boring. What you think they should know and what lessons they should be learning…they are thinking about who they want to instant message.

You get the picture.

I will tell you what has worked for me.

This is a lesson I hope that you will take and pass on to your kids, as well, because it will be instructive for both you and them.

Here it is:

I have my kids read important books regarding wealth, self improvement and real estate and I pay them money to do it. What I require from them in order for them to receive any money is a one page single spaced typed report of what the book was about.

I learned this from a very astute Mentor of mine – and it works very well. You see, I could have them do chores, or pay them allowance, etc. but I like this as a nice add-on with these activities.

Think of it as an investment in your kids’ financial and self-improvement education. I am willing to pay them to help provide the incentive, but the pay-off will be seen for years to come. It is a great system, and I hope you give it a try with your kids.

How to Find the Right Commercial Real Estate Broker

One of the things that can really catapult your success investing in apartments and commercial real estate is working with the right commercial broker. Finding a great deal is really all about the numbers, and getting more deals across your desk. Working with the right commercial broker will not only save you time, but make you a lot of money by getting opportunities in front of you.

So the question is, “How do you find the right commercial broker?”

I will “bottom line” this for you and make it easy. Make sure you find a broker that does nothing but investment real estate and specializes in it. DO NOT use a broker that is a “jack of all trades,” meaning going from an open house on a Sunday to chatting with you about the 320 unit property on Monday.

You want someone that does nothing but spends time in the investment real estate world.

Why?

The specialized knowledge that a commercial broker has will be able to get you more GOOD opportunities to look at and because they know the market will be able to identify properties that can be very profitable. A good broker can also assist you in developing ways to purchase the property where you are making money at the closing table too. Plus they will help you avoid some of the common investment mistakes, as well.

This, more than any other of my “rules” is violated, and the investors that do violate this many times pay for it too. Make sure that you are not one of them.

Commercial Real Estate Investing – Getting Out of Your Comfort Zone

“The difference between the impossible and the possible lies in a person’s determination.” — Tommy Lasorda

Investing in commercial investment real estate can be one of those things that gets you out of your comfort zone.

The main reason is most of us have not had a lot of practical experience with investing in commercial real estate. Especially over a long period of time.

I remember when I was a little kid the piggy bank. I went from the piggy bank the the Savings and Loan (Remember those?) and then to a CD, and then to a money market account and then to a mutual fund, etc.

Out of your comfort zone investing.

It was a number of years before I considered commercial investment real estate. Or was even exposed to the possibilities of building my wealth through commercial investment real estate.

It all starts with your first commercial property – whether it be an apartment building, mini-storage, office building, strip mall…as long as the net income and property type fits your goals, it doesn’t matter. But you’ve got to get started with number one, then focus on the next steps.

This will involve getting out of your comfort zone, and you 100% need to get out of your comfort zone to be successful. To be a successful commercial real estate investor especially.

Here are a few tips to get started and break out of your comfort zone:

1. Take the time to write out your goals and put together a business plan for your investment business. I did say “investment business”. That is what this is and you should treat it as such. Now, you don’t need a 100-page business plan with charts, graphs, photos, etc. Keep it simple, and make it very goal-oriented.

2. Get around other like-minded investors through mastermind groups, investment associations, and other success-minded groups. This will give you the edge you need to break out of your comfort zone – possibly more than anything else. When you see what other successful investors are doing at different levels, it will automatically bring your game up a notch – just by association. I cannot emphasize this step enough.

3. Continue your commercial real estate education. Reading this article is a great start, but keep going with your investment education. Every successful investor I know can tie their success back to several courses, books, or live events that were key in their ability to leap-frog beyond their investment obstacles…and they continue to educate themselves in the business. It’s a profession, and you should treat it as such.

It really does come down to “No Pain No Gain” investing. The pain is getting out of that comfort zone. This means participating in mastermind groups, getting educated, and working on your goals, and thinking about the benefits that you’d like to achieve through investing in commercial real estate.

Apartment Investing – Where Are the Best Buying Opportunities in 2010?

“A wise man will make more opportunities than he finds.” — Francois Bacon

As I write this article we are well into 2010. There is still a fair amount of uncertainty in the U.S. in regards to the economy, banking, job market, etc. I have to say, this state of affairs is presenting us with some of the best opportunities I have seen in the past 18 years. Here’s why…

The current situation also creates a great deal of uncertainty in the market. I have had a number of investors – even many that have been in the apartment business for a while – asking, “Is this the right time to invest?”

It is.

In fact…It is ALWAYS the right time. No matter what the economic conditions are you can always find property, especially commercial, that will be a good find. Why? Because in most situations one person’s problem can become your opportunity.

Right now, there is an abundance of apartment property deals where:

A. The property is performing well. And…

B. The owner’s personal finances are having trouble.

There is a large number of apartment property owners having personal financial issues that are OUTSIDE of their apartment business. In many cases, these owners are looking for is a quick way to generate cash.

Their problem is your opportunity.

Take 2010 and do the opposite of what the masses are doing. Most are in the mode of waiting things out. Most will not move forward with a purchase this year, maybe ever in some cases, because of their own uncertainty. Do the opposite. Take charge and move forward on some of these opportunities in 2010. You will be glad you did.

“If It Ain’t Broke…Fix It…Fast…”

No, it is NOT a typo. In our business of investment real estate, particularly commercial investment real estate, you need to have a method of always working on the properties that you own – or the person in charge of managing then needs to be doing this. Let me emphasize – ALWAYS. Remember the value of your apartment building is directly derived from the Net Operating Income the property produces. The formula is quite simple:

More Income = Higher Value

I have seen sellers leave thousands of dollars on the table when they have sold their properties…and never even knew it. This is especially true for owners that manage properties themselves and have owned them for many, many years.

Some apartment owners start to play things safe over years of ownership. You may have seen my simple example of the old gentleman that sold his 7 unit property for $130,000. After making just a few changes over a period 4 months, the property was easily worth $160,000.

And I am not talking about putting in new windows, siding, carpet, or cabinets. The changes I am referring to are simply getting rents up to market levels and reducing expenses where needed. What happens with many owners is over time they start to play it safe. They get comfortable with the tenants, their vendors, and the overall property management, and they operate with very few problems – in their own minds…

Thus, as human nature goes, owners tend to stop paying attention to their expenses. They stop paying attention to what the market rents are for the apartments. The bottom line is they fall into ‘the comfort zone’ and let the building run on its own, rather than making the property more profitable.

Be sure that you are not making these two huge mistakes with your apartment property:

1. Not Increasing Rents To Market Rates
Many owners that manage their own properties have a tendency to not raise rents. I have even seen this where a property management company is running the day-to-day operations.

This is the number one mistake I have seen investors make over the years, and like the gentleman in my story, leave tens of thousands on the closing table when he sold…and never even knew it.

2. Not Watching Expenses Closely
Be sure that you are checking expenses closely, and bidding out services on a regular basis. Do not be complacent with your vendors. It is easy – especially with recurring expenses like insurance to stay with your existing agent, and not ‘shop around’ on at least a yearly basis. Remember, it is good to have a nice working relationship with your vendors, but do not sacrifice profits and property value because of it.

By the way…you might be wondering about the seller in the story I told earlier. How could a seller with NO real motivation to sell, with NO real reason to discount his price leave a whopping $30,000 on the table? It was not broke so he did NOT fix it. Moral: FIX IT! As much as you can.

Commercial Property Negotiation Tactics – “Move the Middle”

In Commercial Real Estate Price negotiations, a natural response is to try and “meet in the middle”, once an opening price has been established. If I say 10 and you say 20, both sides expect a middle position response, in this case 15, as a “reasonable compromise” to begin to lower the price.

Let me show you a technique I call ”Move the Middle” that will naturally cause your negotiating counterpart to split the difference in your favor and move them in your direction …  toward the number you need.

It begins with a traditional “meet half-way” or “meet in the middle” basis for bargaining. I add a little twist I call “Move the Middle”, that benefits you in any negotiation. This is a simple negotiation technique that provides consistent profitable results for you in any transaction. It has enormous value and it is a tactic you can use again and again when bargaining.

Here’s the technique:

You just make note of the gap between THEIR opening number and  yours and make your response less than halfway. Basically you NEVER split the difference and always negotiate in smaller increments than your counterpart.

The following is a true example of a commercial property re-trade I negotiated:

The negotiation took place at the end of the Due Diligence period on a Commercial Property I eventually acquired. My calculations indicated I needed a $100,000 credit for repairs from the seller to make the numbers work. I began with a request for a $200,000 concession from the seller up front.

  • The seller countered with $100,000.
  • BINGO – notice he came up from zero to $100,000 in one step – he automatically split-the-difference… a response I expected when I made the request.
  • An impulse response for me might have been to split-the-difference again and say $150,000. Instead I used Move the Middle and named a smaller amount than the expected $50,000 drop. I floated a request for $190,000 – and dropped by only $10,000.
  • The Seller countered with $130K
  • BINGO AGAIN – Notice again, he moved toward my offer by countering with $30,000 above his initial $100,000. I moved $10,000, he moved $30,000. I successfully applied the Move the Middle technique. I requested $180K next and the Middle moved my way again…

The Seller and I eventually settled on $145,000, a $45,000 increase above the $100,000 I actually needed, and the acquisition now worked on paper. After this technique got me what I wanted, I proceeded with the close of the transaction. The re-trade worked and the deal was $145,000 in our favor.

That is how you Move the Middle !

Look at the negotiation interval the other side is using and come back with a smaller one. The other side will come your direction as their natural tendency to “meet in the middle”.

Learn and profit from this bargaining tactic:

I really love this, once you get used to it, you just learn to rely on it. Try to Move the Middle in your next negotiation… especially if it seems like a just too simple tactic. The results will reward you again and again.

Here’s to your investing success.