Real Estate Flipping Is Flipping Real Estate the Smartest Way to Get Started in Real Estate

Real Estate Flipping – Is Flipping Real Estate the smartest way to get started in real estate investing?

“Flip This House”, “Flip That House”, “Property Ladder”,… and on and on…

Over the past couple years you and I have been hammered on TV with real estate flipping shows that depict these people making outrageous profits flipping homes and making it look easier than heck.

So, is this flipping stuff real? Well… it sure is. There are countless people out there making a darn good living flipping homes. But… the tv shows on flipping are darn deceiving when it comes to the “reality” of real estate flipping.

Is flipping real estate the best way to get starting in real estate investing? I’ll let you decide for yourself. However, in my opinion, for most people, especially in today’s down markets (not all markets are down… there are actually some doing really well), real estate flipping is not the best way to get started in real estate investing.

Here’s why:

First, let’s clarify two kinds of flipping.

  1. The Fix and Flip – Where you buy real estate, rehab it, and sell it to a retail buyer. The kind that is on the TV shows.
  2. The Wholesale Flip – Where you buy real estate (or get it under contract), find a wholesale buyer, and flip the contract. The kind that is less glorious… but has a ton of money in it… with a heck of a lot less risk.

To me, the Fix and Flip method is not for most newbie’s… even though that is the kind of real estate investing you see on TV all of the time.

Why?

  • You need a good understanding of rehab costs
  • You need to have good funding… either from a private lender or a bank (private lender is preferable)
  • You need to be able to float the carrying costs if you can’t sell the property quickly
  • If you don’t calculate your costs just right… there may not be a whole lot of room for error… and room for error means greater risk on you!
  • The market is in a downturn… so there are less retail buyers out there for middle income houses… which is what most people start out flipping

There are many people out there making a very good living flipping… but most of them started several years ago… and have many flips under their belts.

They already have systems down, have marketing channels for getting buyers, have solid lending sources, etc. Not to say that new real estate investors cannot do all of the above… YOU CAN!

But, there are better ways to get started in real estate investing that allow you to get in with little or no risk or money, and will allow you to learn the Fix and Flip business before you ever take a huge money commitment to do so.

What’s the single best way (in my opinion) to get started in real estate flipping to minimize your risk and shorten your learning curve… all the while making nice money in the process? Well… obviously option #2 from above: The Wholesale Flip – or in other words… wholesaling real estate, flipping houses for quick cash, flipping contracts, etc.

When you wholesale real estate you do everything a flipper would normally do… except actually repair the property and sell it to a retail buyer. But, you don’t have the risk or time commitment that a fix and flipper has.

Basically, you as a wholesale real estate flipper (or wholesaler for short), find properties that need work that you can purchase at a large discount and flip them for a fee to a rehabber who will do the work.

Your job is to find the properties, analyze the numbers to determine the repairs needed, create an offer that enables both you and the rehabber that you will sell to to make a profit, and sell the contract to a rehabber who will actually make the repairs.

Often times real estate investors will make between $2,000 and $20,000 on a wholesale deal. So, for a low to no risk way to get started in real estate… there are huge profits to be had.

Another reason for starting out doing wholesale real estate deals is that you learn the ropes of what it takes to be a rehabber. After analyzing several deals and talking to rehabbers to find out what they look for… you will have a good grasp on what a good deal is, how to accurately estimate repair costs, who the rehabbers use as contractors, etc.

So, you actually make money while you are getting a hands on education on real estate flipping and rehabbing.

Anyhow, I didn’t start out to write this article to scare you from the fix and flip mindset. There is good money in it…

My motivation to write this article is to help guide new real estate investors away from the glorified version of rehabbing that is plastered all over TV… and point you toward what I believe to be the best way to get started in real estate investing.

I have something to confess…I may be a bit of a hypocrite… but I didn’t start with wholesaling. I actually started with buying income properties. But, with today’s markets… wholesaling real estate is the way to go to get your feet wet and make some serious money in the process.

There is much more to real estate flipping and wholesaling real estate than the TV “reality shows” show. One of the best ways to learn the ropes is to learn from someone who does it everyday and makes a solid living doing it.

  1. Go to your local REI club and hook up with an experienced mentor
  2. Go out on your own and try to hack it yourself with no instruction (not advised)
  3. Invest in a quality, step by step multimedia course that walks you through A – Z on the exact blueprint that successful wholesalers and real estate flippers use.

If you want to go the route I took, the wholesaling course that I actually still use today is shown below.

The real estate wholesaling and real estate flipping course that I think is by far better than any other out there is below. They always way over deliver and they are the only “gurus” out there that I can truly say are trustworthy and good people. I’ve bought a ton of courses, and the Wholesaling for Quick Cash (link below) is the only one I’d recommend.

The Real Estate Blog Alphabet 26 Benefits and Best Practices

This alphabet lists 26 key benefits and best practices of using a real estate blog. Not all of these entries will apply to every individual blogging scenario, but they all apply to real estate blogs in general. So you are bound to find something useful here that you’ve never considered before.

Here you have them, real estate blog benefits and best practices … from A to Z.

Authoritative

Everyone knows you have to understand a subject well in order to write about it or explain it to others. When agents blog about the real estate scene in their cities or towns, they position themselves as authorities on the subject. In this way, a real estate blog can be a useful tool for positioning, branding and differentiation.

Believable

If used properly, a real estate blog can make the agent (or company) behind it more believable. And let’s face it … in the post-Enron, low-trust world of corporate skepticism, a little believability can go a long way. Use your real estate blog to communicate openly and honestly with your audience. Lose the fluff and the jargon. Be candid and sincere. And speaking of being candid…

Candid

It’s a mistake to treat your real estate blog as “Website, Part 2.” Blogs are easy to publish, so you can publish to them more frequently. In this way, a real estate blog can become an ongoing dialogue between you and your audience (potential clients). To get the most out of this dialogue, and to achieve the believability mentioned above, a real estate blog should take on the candid, heartfelt voice of the author.

Direct

Real estate blogs are direct-to-reader / direct-to-consumer. You simply type your message, click the “Publish” button, and your message becomes instantly viewable online. Unlike other forms of business communication, there are no journalists or editors to put their own spin on things. Your message goes from you, directly onto your blog, and directly to your audience.

Enthusiastic

In a perfect world, only the truly enthusiastic bloggers would publish real estate blogs. But this is not the case, and as a result there’s a lot of “half-hearted” blogs online today. Half-hearted commentary stands out like a purple elephant in the blogosphere. This kind of blogging actually does more harm than good. On the other hand, enthusiasm comes across in blog posts — but enthusiasm is both positive and contagious.

Flexible

The number of ways you can use your real estate blog is limited only by your imagination and energy. Maybe your blog will be a source for local real estate news. You can do that. Or maybe your blog will cater to a certain niche, such as condo buyers or home sellers. You can do that too. With the versatile publishing capabilities of most blogging programs, you can set up your blog to support any business, marketing or communication objective.

Google-friendly

A real estate blog can help you increase your online visibility in several ways. For one thing, a blog can help you expand your website with new content, easily and efficiently. Blog daily for a year, and you’ll have 365 new pages of content. And search engines love topical content. A real estate blog is also more “social” than a regular website, so with time and effort your blog can acquire links from other blogs. This “link popularity,” as it’s known, can do wonders for search engine ranking.

Happening

Generally speaking, real estate blogs are much more “happening” than their website counterparts. Blogs are easier to update than regular websites, which is important in the ever-changing world of real estate, interest rates, etc. When you update your blog often with quality content, it becomes an active resource that people are more inclined to read, revisit and recommend.

Informative

When you keep people in your area informed about the local real estate scene, you increase the usefulness of your real estate blog. You also increase the likelihood of future business from those readers, not to mention the likelihood they will recommend your blog to others. Blogging is a simple but effective way to keep people informed. Before you publish a new post, get in the habit of asking yourself, “How will this blog post help my readers?” If you can answer that, publish a way. If you can’t answer it, rethink the topic.

Jargon-free

In general, blogs are not the place for corporate speak or “fluff” content. This applies to the real estate blog as well. Write your blog in your own voice. Don’t try to impress people with your vocabulary. The best blogs convey quality information in a conversational style. This will increase your readership, the level of dialogue, and (ultimately) the blog’s profitability as a client-acquisition tool.

Knowledgeable

Dr. John Tuccillo, former Chief Economist for the NAR, recently said: “With the expansion of the number of Realtors, the level of competence has fallen to its lowest point ever.” If this general perception spreads to the public in general, it could cause real problems for real estate professionals. This is another area where a real estate blog can benefit you. Use your blog to show readers how knowledgeable you are on your subject. Just remember, some of your readers will know as much about the subject as you do. So check your facts before posting!

Lead-producing

You stand to gain a lot from the interaction and trust mentioned previously in this list. When you interact with your blog readers in a positive way, you have a much greater chance of turning them into clients. You can also configure your blog to allow reader comments, which is another way to generate leads and start a dialogue.

Manageable

Blogging programs simplify the web-publishing process to such a degree that anyone can do it, regardless of their web experience. In fact, a single individual could easily manage a large web presence if it were built on blogging technology. This is ideal for real estate agents who operate independently, without the benefit of an I.T. department.

Non-invasive

A well-written real estate blog will “pull” readers into the message, as opposed to pushing the message on the reader (like magazine ads). People can sign up for your blog in total privacy, either by using the blog’s RSS feed or an email subscription option (if you provide one). The readers come to the blog — it is not thrust upon them. As long as blogs in general adhere to this non-invasive, respectful approach, they will be held in higher esteem than other communication channels like email.

Operational

A real estate blog is more than a simple communication tool. It can serve operational roles as well. This could include internal collaboration (like an intranet) or outward instruction (like a home buying seminar online).

Purposeful

Before you publish your first blog post, you should determine the purpose of your real estate blog. Sure, you can always dive right in and figure out your purpose as you go. But your blog will be more effective (and easier to produce) if you have a purpose and plan ahead of time. Ask yourself, “What do I want to accomplish with my blog? Who is my ideal audience? What information would they find useful?”

Qualitative and Quantitative

When real estate blogging is done well, it has both a quantitative and qualitative affect. The quantity of content will increase your website’s usefulness and search engine visibility. The quality of content helps you position yourself as an expert and differentiate yourself from other agents in your area (see entry for “Knowledgeable” above).

Recyclable

Blog content can be reused for many purposes. For example, you could expand your blog posts into article-length and publish them online for additional exposure and web traffic.

Straight-shooting

This point is somewhat repetitive of ‘C’ for candid. Guilty as charged. But it’s worth repeating, so I’m repeating it. The most popular real estate blogs got to where they are partly by being straightforward. In this context, straightforward refers to both the design and the content of the blog. Real estate blogs that are “overly designed” tend to look more like websites than blogs. I truly believe this reduces their candidness and authenticity. The same goes for the blog’s content. Blog postings that are straightforward and candid will generate more interaction and “buzz” among readers.

Thoughtful

The best real estate blogs are thoughtful. I don’t mean thoughtful in the sense of “kind” — although kindness does go a long way on the Web — but thoughtful as in “full of thought.” Each time you publish a blog post, put some thought into the content. Make sure it (A) supports your overall blogging goals, (B) gives your readers useful information, and (C) reflects well upon you as a real estate professional.

Usable

When you first set up your blog, it will be straightforward and easy to use. The default settings of most blogging programs are designed this way for a reason. But some people feel the need to clutter up their blogs with all kind of nonsense, reducing the blog’s usability and readership in one swoop. Avoid this. Keep you blog clean and easy to read. Web readers and researches are skilled at hopping from site to site. They don’t need much of a reason to bail out on you, and they’ll do just that if your blog is hard to navigate.

Voluntary

You should blog because you want to, not because you think you have to. If you start a real estate blog just because everyone else is doing it, it will lack the heartfelt enthusiasm that’s a trademark of popular blogs. (See “E’ for enthusiastic above.)

Wise

Your real estate blog is the ideal place to share your wisdom about the industry. This will help you position yourself as an authority in your field (letter ‘A’ above) and foster the trust mentioned under the letter ‘T’ above. A “tip of the day” series is a prime example of this. It’s a great way to share your real estate wisdom, and it’s the kind of thing that will keep people coming back to your blog and recommending it to others.

Xstensible

Yes, I cheated with this letter. But real estate blogs are truly extensible (and you try to produce an adjective starting with ‘X’). Your blog can grow as your audience grows, or as your company grows. You can add additional authors, perhaps a colleague in the mortgage industry. You can add sections to cover additional topics. You can expand a blog however you need to support your objectives. And it doesn’t require an I.T. department to get it done. Blogging programs are designed to be extensible.

Yours

A real estate blog can have one author or several authors. I’ve seen popular blogs published by individual agents, as well as some published by teams of writers. But the blog has to belong to somebody. It should be yours, or his and hers, or all of yours. Somebody needs to own the blog. Otherwise, nobody will trust what it has to say.

Zippy

The dictionary defines zippy as “lively and full of energy.” These are great traits for a real estate blog. If you are passionate in the way you publish your blog, it will eventually connect with readers who are equally passionate about the subject matter. These are the kind of people who will promote your blog without being asked to do so! It goes something like this: “Hey, Barbara, you have to check out this real estate blog I’ve been reading lately. Let me send you the link…”

Commercial Real Estate Investing

I read once that if you took all the real estate lawyers in Illinois and laid them end to end along the equator – it would be a good idea to leave them there. That’s what I read. What do you suppose that means?

I have written before about the need to exercise due diligence when purchasing commercial real estate. The need to investigate, before Closing, every significant aspect of the property you are acquiring. The importance of evaluating each commercial real estate transaction with a mindset that once the Closing occurs, there is no going back. The Seller has your money and is gone. If post-Closing problems arise, Seller’s contract representations and warranties will, at best, mean expensive litigation. CAVEAT EMPTOR! “Let the buyer beware!”

Paying extra attention at the beginning of a commercial real estate transaction to “get it right” can save tens of thousands of dollars when the deal goes bad. It’s like the old FramĀ® oil filter slogan during the 1970’s: “You can pay me now – or pay me later”. In commercial real estate, however, “later” may be too late.

Buying commercial real estate is NOT like buying a home. It is not. It is not. It is NOT.

In Illinois, and many other states, virtually every residential real estate closing requires a lawyer for the buyer and a lawyer for the seller. This is probably smart. It is good consumer protection.

The “problem” this causes, however, is that every lawyer handling residential real estate transactions considers himself or herself a “real estate lawyer”, capable of handling any real estate transaction that may arise.

We learned in law school that there are only two kinds of property: real estate and personal property. Therefore – we intuit – if we are competent to handle a residential real estate closing, we must be competent to handle a commercial real estate closing. They are each “real estate”, right?

ANSWER: Yes, they are each real estate. No, they are not the same.

The legal issues and risks in a commercial real estate transaction are remarkably different from the legal issues and risks in a residential real estate transaction. Most are not even remotely similar. Attorneys concentrating their practice handling residential real estate closings do not face the same issues as attorneys concentrating their practice in commercial real estate.

It is a matter of experience. You either know the issues and risks inherent in commercial real estate transactions – and know how to deal with them – or you don’t.

A key point to remember is that the myriad consumer protection laws that protect residential home buyers have no application to – and provide no protection for – buyers of commercial real estate.

Competent commercial real estate practice requires focused and concentrated investigation of all issues material to the transaction by someone who knows what they are looking for. In short, it requires the exercise of “due diligence”.

I admit – the exercise of due diligence is not cheap, but the failure to exercise due diligence can create a financial disaster for the commercial real estate investor. Don’t be “penny wise and pound foolish”.

If you are buying a home, hire an attorney who regularly represents home buyers. If you are buying commercial real estate, hire an attorney who regularly represents commercial real estate buyers.

Years ago I stopped handling residential real estate transactions. As an active commercial real estate attorney, even I hire residential real estate counsel for my own home purchases. I do that because residential real estate practice is fundamentally different from commercial real estate.

Maybe I do “harp” on the need for competent counsel experienced in commercial real estate transactions. I genuinely believe it. I believe it is essential. I believe if you are going to invest in commercial real estate, you must apply your critical thinking skills and be smart.

POP QUIZ: Here’s is a simple test of YOUR critical thinking skills:

Please read the following Scenarios and answer the questions TRUE or FALSE:

Scenario No. 1: It’s Valentine’s Day. You are in hot pursuit of the love of your life. A few weeks ago, she confided in you that all she ever dreamed of for Valentine’s Day was that her lover would show up at her door, dressed in a white tuxedo with tails and a top hat, and present her with a beautiful bouquet of flowers. You’ve rented the tuxedo, but now you are concerned about how much money you are spending.

TRUE OR FALSE: Since flowers are pretty much all the same, it is OK for you to skip the roses and show up with a bouquet of fresh yellow dandelions.

Scenario No. 2: For several years you eyesight deteriorated to the point where you can barely see your alarm clock. You are now considering corrective eye surgery so you won’t need glasses. Your sister-in-law had corrective eye surgery and has had spectacular results. She recommends her eye surgeon, but mentions the cost is about $5,700 for both eyes and that the surgery is not covered by insurance. A few years ago, you had surgery to correct your hemorrhoids and it cost you only eight hundred bucks.

TRUE OR FALSE: Since surgeons all went to medical school and are all medical doctors, you are being frugal and wise by asking the surgeon who performed your hemorrhoid surgery to perform your corrective eye surgery.

Scenario No. 3: Several years ago, when you first got married, you asked a former classmate who is a lawyer to represent you in the purchase of your townhome. The cost was only $375. A year later, you started a family and decided you needed a Will. The same attorney prepared Wills for you and your wife for a total cost of $700. You started your own business and your attorney friend formed a corporation for you and charged you only $600 plus the cost of the corporate minute book. Years later, when your son was arrested for misdemeanor reckless driving, your attorney friend handled the criminal case and got your son off with supervision for only $1,500.

Your business has been successful and you have built a pretty sizable nest egg, but you are tired of working for every dime and want to try investing in real estate. You have your eye on a strip shopping center. It includes a grocery store, bank, hardware store, dry cleaners (on a month to month tenancy), a couple of fast food restaurants, a gift shop, dental office, bowling alley (with a lease about to expire), and wraps behind a gas station/mini-mart on the corner. The purchase price is $8,000,000, but the net operating income looks pretty good. You figure if you turn the bowling alley into a full service restaurant/banquet facility, and convert the dry cleaners into a 24-hour coin laundry, the net operating income will increase and the shopping center will turn into a spectacular investment. You plan to pull together much of your life savings and put down $2,000,000 to buy this strip shopping center, borrowing the balance of $6,000,000. You remember that your lawyer friend handled the purchase of your home several years ago, so you know he handles real estate.

TRUE OR FALSE: Commercial real estate is the same as residential real estate [Hey, its all dirt, isn’t it (?)], so you are being a shrewd businessman by hiring your lawyer friend who will charge much less than a lawyer who handles shopping center purchases several time a year. [What is this “due diligence” stuff anyway?]

ANSWERS:

If you answered “TRUE” for any of the foregoing Scenarios

STOP!

The Quiz is over.

Please find a quite place to reflect upon your life and consider whether the decisions you make consistently give you the results you desire.

If, on the other hand, you understand that the answer to each of the foregoing questions is FALSE, I am available to help you in Scenario No. 3.

For Scenario No. 2, you should follow your sister-in-law’s suggestion and contact her eye surgeon, or some other eye surgeon with equal skill.

For Scenario No. 1, you are on your own. [But, if you answered TRUE for Scenario No. 1, you may be FOREVER on you own.]

Investing in commercial real estate can be profitable and rewarding – but it requires good critical thinking skills and competent counsel.

You have a have a brain. It is strongly recommended that you use it.

R. Kymn Harp is a seasoned attorney based in Chicago, Illinois with 30 years experience representing commercial real estate investors, lenders and developers. He is a frequent speaker at continuing education seminars, and is a widely published author on commercial and industrial real estate topics including due diligence, entitlements, commercial real estate financing, and Brownfield development and financing.

Pop Quiz Commercial Real Estate Investing

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I read once that if you took all the real estate lawyers in Illinois and laid them end to end along the equator – it would be a good idea to leave them there. That’s what I read. What do you suppose that means?

I have written before about the need to exercise due diligence when purchasing commercial real estate. The need to investigate, before Closing, every significant aspect of the property you are acquiring. The importance of evaluating each commercial real estate transaction with a mindset that once the Closing occurs, there is no going back. The Seller has your money and is gone. If post-Closing problems arise, Seller’s contract representations and warranties will, at best, mean expensive litigation. CAVEAT EMPTOR! “Let the buyer beware!”

Paying extra attention at the beginning of a commercial real estate transaction to “get it right” can save tens of thousands of dollars when the deal goes bad. It’s like the old FramĀ® oil filter slogan during the 1970’s: “You can pay me now – or pay me later”. In commercial real estate, however, “later” may be too late.

Buying commercial real estate is NOT like buying a home. It is not. It is not. It is NOT.

In Illinois, and many other states, virtually every residential real estate closing requires a lawyer for the buyer and a lawyer for the seller. This is probably smart. It is good consumer protection.

The “problem” this causes, however, is that every lawyer handling residential real estate transactions considers himself or herself a “real estate lawyer”, capable of handling any real estate transaction that may arise.

We learned in law school that there are only two kinds of property: real estate and personal property. Therefore – we intuit – if we are competent to handle a residential real estate closing, we must be competent to handle a commercial real estate closing. They are each “real estate”, right?

ANSWER: Yes, they are each real estate. No, they are not the same.

The legal issues and risks in a commercial real estate transaction are remarkably different from the legal issues and risks in a residential real estate transaction. Most are not even remotely similar. Attorneys concentrating their practice handling residential real estate closings do not face the same issues as attorneys concentrating their practice in commercial real estate.

It is a matter of experience. You either know the issues and risks inherent in commercial real estate transactions – and know how to deal with them – or you don’t.

A key point to remember is that the myriad consumer protection laws that protect residential home buyers have no application to – and provide no protection for – buyers of commercial real estate.

Competent commercial real estate practice requires focused and concentrated investigation of all issues material to the transaction by someone who knows what they are looking for. In short, it requires the exercise of “due diligence”.

I admit – the exercise of due diligence is not cheap, but the failure to exercise due diligence can create a financial disaster for the commercial real estate investor. Don’t be “penny wise and pound foolish”.

If you are buying a home, hire an attorney who regularly represents home buyers. If you are buying commercial real estate, hire an attorney who regularly represents commercial real estate buyers.

Years ago I stopped handling residential real estate transactions. As an active commercial real estate attorney, even I hire residential real estate counsel for my own home purchases. I do that because residential real estate practice is fundamentally different from commercial real estate.

Maybe I do “harp” on the need for competent counsel experienced in commercial real estate transactions. I genuinely believe it. I believe it is essential. I believe if you are going to invest in commercial real estate, you must apply your critical thinking skills and be smart.

POP QUIZ: Here’s is a simple test of YOUR critical thinking skills:

Please read the following Scenarios and answer the questions TRUE or FALSE:

Scenario No. 1: It’s Valentine’s Day. You are in hot pursuit of the love of your life. A few weeks ago, she confided in you that all she ever dreamed of for Valentine’s Day was that her lover would show up at her door, dressed in a white tuxedo with tails and a top hat, and present her with a beautiful bouquet of flowers. You’ve rented the tuxedo, but now you are concerned about how much money you are spending.

TRUE OR FALSE: Since flowers are pretty much all the same, it is OK for you to skip the roses and show up with a bouquet of fresh yellow dandelions.

Scenario No. 2: For several years you eyesight deteriorated to the point where you can barely see your alarm clock. You are now considering corrective eye surgery so you won’t need glasses. Your sister-in-law had corrective eye surgery and has had spectacular results. She recommends her eye surgeon, but mentions the cost is about $5,700 for both eyes and that the surgery is not covered by insurance. A few years ago, you had surgery to correct your hemorrhoids and it cost you only eight hundred bucks.

TRUE OR FALSE: Since surgeons all went to medical school and are all medical doctors, you are being frugal and wise by asking the surgeon who performed your hemorrhoid surgery to perform your corrective eye surgery.

Scenario No. 3: Several years ago, when you first got married, you asked a former classmate who is a lawyer to represent you in the purchase of your townhome. The cost was only $375. A year later, you started a family and decided you needed a Will. The same attorney prepared Wills for you and your wife for a total cost of $700. You started your own business and your attorney friend formed a corporation for you and charged you only $600 plus the cost of the corporate minute book. Years later, when your son was arrested for misdemeanor reckless driving, your attorney friend handled the criminal case and got your son off with supervision for only $1,500.

Your business has been successful and you have built a pretty sizable nest egg, but you are tired of working for every dime and want to try investing in real estate. You have your eye on a strip shopping center. It includes a grocery store, bank, hardware store, dry cleaners (on a month to month tenancy), a couple of fast food restaurants, a gift shop, dental office, bowling alley (with a lease about to expire), and wraps behind a gas station/mini-mart on the corner. The purchase price is $8,000,000, but the net operating income looks pretty good. You figure if you turn the bowling alley into a full service restaurant/banquet facility, and convert the dry cleaners into a 24-hour coin laundry, the net operating income will increase and the shopping center will turn into a spectacular investment. You plan to pull together much of your life savings and put down $2,000,000 to buy this strip shopping center, borrowing the balance of $6,000,000. You remember that your lawyer friend handled the purchase of your home several years ago, so you know he handles real estate.

TRUE OR FALSE: Commercial real estate is the same as residential real estate [Hey, its all dirt, isn’t it (?)], so you are being a shrewd businessman by hiring your lawyer friend who will charge much less than a lawyer who handles shopping center purchases several time a year. [What is this “due diligence” stuff anyway?]

ANSWERS:

If you answered “TRUE” for any of the foregoing Scenarios

STOP!

The Quiz is over.

Please find a quite place to reflect upon your life and consider whether the decisions you make consistently give you the results you desire.

If, on the other hand, you understand that the answer to each of the foregoing questions is FALSE, I am available to help you in Scenario No. 3.

For Scenario No. 2, you should follow your sister-in-law’s suggestion and contact her eye surgeon, or some other eye surgeon with equal skill.

For Scenario No. 1, you are on your own. [But, if you answered TRUE for Scenario No. 1, you may be FOREVER on you own.]

Investing in commercial real estate can be profitable and rewarding – but it requires good critical thinking skills and competent counsel.

You have a have a brain. It is strongly recommended that you use it.

R. Kymn Harp is a seasoned attorney based in Chicago, Illinois with 30 years experience representing commercial real estate investors, lenders and developers. He is a frequent speaker at continuing education seminars, and is a widely published author on commercial and industrial real estate topics including due diligence, entitlements, commercial real estate financing, and Brownfield development and financing.