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Interview with Steven Taylor, Los Angeles Real Estate Specialist

Though residential real estate may not change quite as dramatically as runway fashions, it nonetheless has cycles and can quickly transform based upon sudden market variations. Navigating these unstable conditions takes knowledge, attention to detail, and not a little intrepidity.

Steven Taylor Los Angeles
Steven Taylor Los Angeles

Numerous factors, from overall economic health to population spatial patterns and demographics to available property characteristics, make for a complex mix that any would-be developers must be willing to handle. The rewards can be significant, both personally and financially. However, failures can be equally dramatic.

Some nonetheless plunge into this uncertain environment, like real estate developers and landlords, working to flip as well as refurbish properties for profit. Not all succeed, but those who do find much wealth in this industry. There is no one road that leads to a successful career as a real estate developer and property owner and landlord. Some industry experience or related knowledge is common, but if property development is your passion, this field is open to those willing to work hard and take chances.

Steven Taylor is one of those who has found great success in this volatile field. A successful and experienced property investor and landlord in the Southern California market, Mr. Taylor has been named as one of the region’s “30 under 30” real estate moguls. He has handled more than $500 million in property transactions and is a Principal at NEME Capitol. He also is the founder of Taylor Equities, a family company that purchases multi-dwelling structures such as apartment buildings.

He knows the real estate industry inside and out and stays current on up-to-the-minute conditions and changes. Such work can be all-consuming, but Mr. Taylor has found a way to keep his real estate work growing even as he concentrates on more personal matters and passions closer to home.

We wanted to learn even more about Steven Taylor Los Angeles real estate specialist, so we were able to ask him a few questions recently. Please see the great responses below:

What was it that inspired you to become a landlord?

The concept of passive income has always been attractive to me. My goal has been and continues to be to create a sufficient passive income on a monthly basis that will support me and my family. Also, one of the benefits of being a Landlord is that you to develop and reposition assets in emerging markets which is always fun.

You have been redeveloping apartments for a long time, how has your business model changed over the years?

Yes, you need to evolve with the market and demands of your residents, but the fundamentals remain the same. Focus on location, appreciation and deprecation.

What do you find to be the most rewarding portions of your career?

Achieving Stabilization. Once a property hits stabilization, meaning that the business plan has worked and the property is performing and its generating positive returns, there is a great sense of accomplishment.

On the other hand, what has been the most challenging project of your career?

The bureaucratic and red tape of the city permitting and approval processes can be very challenging. The inconsistencies between building inspectors and field inspectors can be frustrating and exasperating. I have personally been in several situations where I obtain a permit from the city but then the field inspector wants something entirely different which can put a project on hold until resolved.

In your expert opinion, what do you find works best when it comes to keeping an income property turning a profit?

Managing the revenue side. In my opinion, on the expense side, there are a fairly large number of fixed operational expenses which sort of handle themselves, and the variable expenses can be managed with a good budget and a good team. However, the revenue can be tricky because you constantly need to assess your competition, but if high-occupancy is constantly maintained, the property should turn a profit.

What processes do you have in place that allow you to ensure a redevelopment is running efficiently?

Like most business, real estate ownership and management is all about having the right people in place. We have several systems in place to have real-time intel on property performances, so as weekly and monthly OPEX budgets, weekly and monthly vacancy details, snapshots of expense to income ratios of each property and so on.

I am sure some projects can become stressful quickly, how do you maintain your composure under pressure?

I love what I do. I am constantly thinking about how to improve my business and how to grow my business, but even more so, I believe in work life balance. I think that if you can manage to have balance in your life, then situations that can become stressful quickly can be compartmentalized and handled appropriately.

When you first inspect a property you are interested in, what are your main point of focus?

Typically, location is a top priority in conjunction with some basic metrics like cost per unit and cost per foot. Then I’ll assess the unit conditions and the conditions of the systems of the building so that I can accurate assess the costs associated with modernizing the building.

When it comes to advertising a property, what do you find to be the most effective method?

We use all the traditional advertising channels, such as online media marketing, banners, signs and flyers. Having a well thought out and easy to use leasing website is key.

As the real estate industry changes, what resources allow you to stay up-to-date on trends?

I live and breathe real estate and feel like I have my finger on the pulse, but I read all the local trades on a daily basis as well as national publications like the WSJ.

Millions of people, both women and men, seek a successful equilibrium of their work and home lives. Mr. Taylor seems to have found that balance, one that lets him achieve business goals of creating a steady passive income to support himself and his family as well as meet personal aims of working at something he loves and challenging himself daily. Finding such stable poise is not easy in any industry, but certainly in one as potentially risky as property development and ownership.

No single real estate deal is like any other. Each is unique and brings individual challenges. Even veteran developers must continue to learn and grow if they do not want to get left behind. Professionals such as Mr. Taylor must stay current on every aspect of property acquisition and development, from the cost of modernizing older structures to patterns of urban growth.

Once properties are found, funded, and in hand, developers must focus on planning and acquire all needed permissions, licenses, and permits to move forward with renovation and construction. Entrepreneurs dealing with real estate cannot overlook important details if they want projects to move forward in a timely way. Every day that schedules are not met means money out of the developer’s pocket.

As complicated as this industry sounds, there are particular ways that professionals handle real estate transactions. The bottom line is that successful landlords and property developers such as Mr. Taylor know the industry basics, quickly learn everything they need for each deal, and take care of all aspects to ensure each project is carried out on schedule. Perhaps the most important thing winning real estate developers with flourishing businesses do is carry over the knowledge they gain from each project into successive ventures. They build on top of the firm foundation they already have to create a new, solid enterprise that will last.

Originally published at https://realtybiznews.com on October 19, 2019.

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Steven Taylor: Los Angeles Is Growing Smaller…and Better

Steven and Natalie Taylor in Los Angeles
Steven and Natalie Taylor in Los Angeles

Don’t be fooled by stories about those mega-mansions dotting exclusive Los Angeles neighborhoods. If you’re thinking of moving to the city, says Steven Taylor of Los Angeles, be prepared for a dash of reality. Not every home in Los Angeles is massively large with Olympic size swimming pools and yards the size of football fields

In fact, the average home size in Los Angeles metro today is actually smaller than the city’s average home just a few years ago.

Across the U.S., the medium-sized home is 2430 square feet. In Los Angeles, new homes typically come in at around 1800 feet. That’s larger than San Francisco’s 1150 sq. ft. homes, yet lags behind cities like San Diego (2728 to 3581 sq. ft.) and Las Vegas (2430 sq. ft.) 

Much of the reason for LA’s smaller square footage, says Steven Taylor Los Angeles, is the densification of LA’s central area. People want to be close to the action, and the central area packs them into increasingly smaller lots and residences. For decades, new residents poured into the city from everywhere. But the growth began to slow down over the past few years. From 2018 to 2019, for example, there was actually a 0.08% decline in population.

Between July 2019 and July 2020, Los Angeles county lost 40,036 residents, the steepest loss of any other California county.

Nonetheless, says Taylor, the city has not lost its luster. Diehard Los Angeles residents still love their professional sports (Lakers and Dodgers), the diverse culture, the unmatched cuisine at the city’s many restaurants. Not least, of course, is what many regard as the best weather in the U.S. When you’re up to your ears in the snow, blizzards, hurricanes and tornados so common in other parts of the nation, LA’s moderate, balmy temperatures begin to look irresistible.

As the nation recovers from COVID, LA’s famous restaurants, night life and world-renowned attractions are springing back into life.

Add to that the lure of Hollywood and the huge film and entertainment industry, and you see why—despite recent losses over taxes and government regulations–the city is the first choice for so many of its residents.  

If you want a home in what is still one of the most desirable cities in the U.S., top Los Angeles real estate pros, like Steve Taylor will tell you tha LA is the place to go! 

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Steven Taylor – Los Angeles, What Makes it Such a Special Place to Live – An Insider’s View

Los Angeles hike with Steven Taylor and family

Los Angeles isn’t only one of the world’s most popular places to visit on vacation, it is also an exceptional place to live, work, and play. Long time residents, like Los Angeles native, Steven Taylor, say they get the best of all worlds living in LA. From downtown skylines to mountain ranges, bustling restaurants to hole in the wall coffee shops, and business district apartments to family friendly neighborhoods – there is something for everyone. In this article, we’ll share a few reasons Los Angeles is such a special place to live, from an insider’s view.

Los Angeles is truly a melting pot.

LA is truly diverse – it is one of only two cities in the US that does not have a majority population. Los Angeles is full of people from many cultures, backgrounds, and ethnicities – its residents hail from over 140 countries and the LA population speaks almost 100 languages. Not only will you find many cultures, but there is a wide variety of neighborhoods and socio-economic communities. You can find people of every religion, belief system, and lifestyle here. Los Angeles’ vast diversity has led to incredible food, art, entertainment, and community scenes, which people come from all over the world to experience.

Los Angeles offers an endless amount of things to do.

If there is one thing that everyone can agree on about Los Angeles, it’s that you’ll never be bored. Steven Taylor Los Angeles native, loves that the LA area has countless activities that he can enjoy with his whole family. Residents who enjoy the outdoors take advantage of more than 80 miles of coastline and beaches, in addition to the plethora of state parks, hiking trails, bike paths, horseback riding, and nearby mountains for skiing and snowboarding.

For residents who are looking for entertainment and educational activities, Los Angeles has hundreds of museums, as well as Zoos and Aquariums. Southern California is also home to theme parks, professional sports arenas, concert venues, and world famous tourist attractions that even the locals can appreciate.

Los Angeles is environmentally progressive.

If you care about your carbon footprint and waste impact, Los Angeles is a great place to live. LA may be known for its layer of smog, but Angelenos are also known for being environmentally conscious. The area has a growing number of energy efficient buildings, and is the number one city in the United State for solar power use. Angelenos are also on top of their waste management and recycling – LA has the highest recycling rate of all big cities in America. While there still may be pollution from all the traffic, Los Angeles is making progress in the right direction to keep our environment safe.

Los Angeles has an exceptional restaurant scene.

Those who live in Los Angeles have access 24 hours to an immense amount of restaurant and dining experiences. Between the bars, restaurants, food trucks, pop-ups, and stands, you can find any type of cuisine at any time of day. LA has become known around the world for it’s dynamic food scene, primarily due to its expansive diversity and culture. If you want to experience why Los Angeles is such a special place to live, Los Angeles native Steven Taylor says there is no better way than to taste the food!

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Steven Taylor – Moving to Los Angeles? Here’s What You Need to Know

Steven Taylor and the family in Los Angeles
Steven Taylor and the family in Los Angeles

If you’re thinking of moving to Los Angeles, you probably have a lot of questions. Los Angeles is clearly a popular place to live – 3.9 million people currently choose to live in the LA area. But, is it right for you? Before you make any move, you should do some market research. It is important to understand the culture, lifestyle, real estate, and other aspects of a city prior to making a jump. In this article Steven Taylor, Los Angeles Native and real estate professional, answers some of the most common questions people ask him when first moving to Los Angeles.

Who will I meet in Los Angeles?

One of the most beautiful things about Los Angeles is its diversity. LA has always been known as a melting pot, and for good reason. The city has great cultural, ethnic, and experiential diversity. Moving to Los Angeles can expand your horizons – according to the 2019 US census, Southern California residents hail from 180 different countries, and 59.1% of people speak a language other than English. With a population of 3,979,537, LA is home to many different cultures. The city is currently 49% Hispanic, 29% White, 8% Black, and 12% Asian. This diversity contributes to Los Angeles’ epic cultural, art, and food scenes!

In Los Angeles, you will meet people with passion. A large portion of LA residents are transplants, who moved to the west coast to pursue their goals. Everyone has their own reasons for coming to LA, but it has always been a home for big dreamers. Whether you’re an entrepreneur or hoping to become a star, you will meet like-minded people in Los Angeles.

What do people do for work in Los Angeles?

Los Angeles is a land full of opportunities. Whether you are looking for a more traditional work lifestyle, hope to work from home, or are pursuing seasonal or gig work in the entertainment industry, there is work for you in LA.

When people think of LA, many of them first think of the entertainment industry. While it’s true that many Angelenos are employed in the world of film and television, some of the most common jobs in LA outside of Hollywood are retail, real estate, tourism, healthcare, and education.

While many people still work 9-6 type office jobs in Los Angeles, a large portion of the population works on flexible schedules. Jobs in entertainment, fashion, hospitality, and other industries provide the opportunity to make your own hours or work an atypical schedule. Los Angeles native, Steven Taylor, says this means you’ll find more people out and about exploring the city during typical weekday “working hours”.

Is the traffic really that bad in Los Angeles?

This quick answer is – yes. Unfortunately, sitting in traffic is part of the reality of living in Los Angeles. How bad is the traffic? That depends on where you are coming from, where you are going, and at what time. While Los Angeles does have public transportation, most people still commute by car. The COVID-19 pandemic has decreased traffic as more people are working from home, but the problem is not completely solved.

There are wonderful rewards that come with living in Los Angeles, so traffic is an annoyance many people are willing to put up with to live here. The best thing you can do is avoid driving on the major highways at peak hours, and take public transportation when you can! No one likes traffic, but Los Angeles native, Stephen Taylor, says it’s worth it to experience all that Los Angeles has to offer its residents.

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Steven Taylor – Los Angeles at a Glance – Things to Do in LA in 2021

Steven Taylor , Los Angeles CA

Even in the midst of a pandemic, Los Angeles is full of things to do. If you are looking for safe activities for a date night, family outing, or solo adventure, there are plenty of fun options to explore. Whether you’re interested in checking out LA’s extensive dining scene, getting out into nature, or discovering new art, there’s something in LA for everyone. Many of Los Angeles’ best landmarks are still accessible to locals and visitors. Here is a list of 4 fun, affordable activities you can do in Los Angeles in 2021.

  1. Take a drive around the coast .

One of Los Angeles’ defining features is it’s close proximity to great beaches and coastal scenery, but many locals don’t take advantage. If you’re looking to get out of the house, head over to the coast and take a cruise up the Pacific Coast Highway to Malibu or Ventura. Steven Taylor Los Angeles native, recommends LA residents and tourists alike check out the Palos Verdes peninsula, where you can see beautiful oceanfront views, winding coastal roads, and dramatic bluffs. Soak up the scenery, and check out some impressive real estate along the drive!

  1. Experience the Los Angeles dining scene from home.

Los Angeles is known for its diversity, culture, and creativity, all which contribute to the city’s top-notch dining scene. While restaurants are still closed for indoor dining as of January 2021, plenty of LA’s best restaurants are open for to-go orders. Chefs are getting more and more creative, and many spots have multiple course tasting menus available for those who want to step up their dining-at-home game. The LA Times is even hosting virtual dinner parties that are a collaboration with local chefs and celebrities. Just because you can’t dine out doesn’t mean you can’t enjoy the best food experiences LA has to offer.

  1. Take a bike ride.

If you’re feeling cooped up inside, getting out to take a bike ride can be a great way to reset. If you don’t own a bike, there are many places to rent along the boardwalk in Venice. If you’re looking for a city ride, you can venture into downtown Santa Monica to ride along their well-developed bike lanes. If you’re feeling more adventurous, you can bike the Strand, a twenty-two mile bike path along the Marvin Braude Trail, which traces the coastline. Start at Will Rogers state beach, and make your way all the way down to Torrance if you’re ready for a workout! Los Angeles native, Steven Taylor, likes to explore the tail with his kids, making it an event for the whole family.

  1. Experience a drive-in movie.

Due to the pandemic, many people are missing the experience of going to the movie theatre, and tired of watching movies on the couch. The good news is that the Southern California area has several options for drive-in movie theaters that make for a great family outing or date night. Drive in movies are affordable, fun, and can be a nostalgic throwback to simpler times. Lucky for you, LA Magazine put together this comprehensive list of current drive-in and outdoor movie options.

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Steven Taylor Taylor Equities on 3 Different Ways of Investing in Apartment Complexes

Steven Taylor Taylor Equities on 3 Different Ways to Invest in Apartment Complexes
Steven Taylor Taylor Equities on 3 Different Ways of Investing in Apartment Complexes

Investing in multi-family units can be a fantastic way to add to your portfolio and earn passive income.  According to Steven Taylor Taylor Equities, there are many different ways to invest in apartment complexes. The strategy you use will depend on your desired level of involvement, your available capital, and other factors.

Here are 4 different ways of investing in apartment complexes:

1. Purchase units yourself.

The first way of investing in apartment complexes is the most simple – buy the building yourself. This would require extensive upfront capital. For many, this method might sound impossible. You would need to do extensive research and the responsibility of the deal would fall on you alone. In order to purchase multi-family units on your own, you would need to first save the proper amount of funds, and come up with a clear picture of your budget. Research the market and examine different deals. You may choose to take out a loan. This method requires you to later find property management and other decisions in regards to handling the property.

Purchasing on your own requires more work, but also has many benefits. As the sole owner, you get to choose your investment strategy, how you would like to run your property, and when you would like to sell.

2. Purchase with a partner. 

For many new real estate investors, it is easier to purchase for the first time with a partner. If you don’t have all of the funds you need to get started, partnering up with someone you trust can be a great way to pool capital. Another advantage of buying with a partner is that you can learn and grow in your strategy together. Having someone to discuss a deal with can be valuable. 

The negative aspect of purchasing with a partner is that you will not get to make decisions on your own. For this reason, I only recommend going into business with a partner if you are someone who can handle compromise. Before you get in too deep, make sure you are on the same page about your strategy, vision for the building, and what you are hoping to achieve. Document everything, and get anything important in writing. Working with the right partner can be a rewarding experience, but communication is key.

3. Purchase by Syndication

A syndication is a group pool of funds used to purchase a property, usually run by one person (the syndicator). In this case, the syndicator, or general partner, is running the investment. As an investor, or limited partner, you would be joining in to purchase a small stake of the property. Usually, general partners make decisions, run the property, and follow their own strategy. As a limited partner, you are a passive investor. But, you still collect a share of the profit when the property is sold. This option can be a good way to invest in apartment complexes without spending a lot of time or getting extensively involved.

There are many other ways to invest in apartment complexes, but these three options are some of the most common ways to get started. If you’re interested in learning more about how to invest in multi-family real estate, consult a professional or mentor like Steven Taylor Taylor Equities.

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What Is Commercial Real Estate? – Steven Taylor, Taylor Equities

Apartment Steven Taylor Taylor Equities
Steven Taylor, Taylor Equities – “What Is Commercial Real Estate? “

If you’re interested in buying into the real estate industry, it is important to start with the basics of buying and selling property. This includes topics you may find boring, such as classifications and zoning restrictions. Even if you have no intention of owning a strip mall or office building, you should have a full understanding of the industry, including commercial real estate. 

Commercial Real Estate (CRE) a property type and zoning restriction. There are three basic property types – residential, industrial, and commercial. While there are more than three forms of zoning, most properties in a highly populated area will fall under commercial or residential. Today we are going to focus on commercial real estate as a property type.

Commercial Real Estate is defined as “any property owned to produce income.” Obviously, a lot can fall under that umbrella. Here are a few examples:

  • Convenience stores
  • Apartment complexes
  • Office Buildings
  • Car Washes
  • Malls
  • Restaurants
  • Theatres
  • Gas stations
  • Theme parks
  • Hotels

CRE properties can be broken down into several categories. Here are three common categories to invest in:

Office Property

CRE office properties can include anything from small buildings for professional use by a single tenant to skyscrapers full of offices. These properties are classified by categories A, B, and C.

Class A: These buildings are at the top of the food chain. Class A properties are often new but could include older buildings if they have been renovated extensively. They are generally in great locations and are managed professionally.

Class B: These properties are highly sought out by investors due to their potential for a high ROI. Class B buildings are often older, but able to be renovated and improved. Infrastructure often requires investment, but in general Class B buildings are well-taken care of and well-managed.

Class C: If you invest in Class C, know that the buildings will most likely be older, in a bad location, and need major renovations to infrastructure. These properties often have lower occupancies due to the office space’s lower quality. Class C buildings can remain vacant for longer periods of time and often are used for redevelopment.

Retail and Restaurant Property

Retail and restaurant properties can either be stand-alone buildings or a larger structure encompassing multiple businesses, such as a strip mall or office building. Real estate investors are usually drawn to properties that can encompass many businesses and tenants. These properties often include malls and other large retail centers, because with multiple occupants, there is less risk. Strip centers, community retail centers, power centers, and regional malls are a few types of property you may want to research if you are interested in investing in this category.

Multi-family Units

While many people think of apartments, like those owned by Taylor Equities, as a residential property, any apartment building that is a fourplex or larger can be considered commercial real estate when investing.  Apartment buildings, extensive complexes, condominiums, and even smaller multi-family buildings all fall under the category of commercial real estate. This type of property can offer less stability long-term but is always in demand and offers high returns. Multi-family real estate is personally my favorite type of investment, and a topic worthy of extensive research. Check out my blog for insights into the multi-family real estate market, and to learn why I choose to invest in apartment buildings as part of my commercial real estate strategy. –Steven Taylor, Taylor Equities

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Steven Taylor of Taylor Equities on Understanding Real Estate Investing

Steven Taylor of Taylor Equities with his wife Natalie
Steven Taylor of Taylor Equities with his wife Natalie

While it is technically possible to profit from a deal without thoroughly understanding real estate investing, those stories are often the exception to the rule. If you want to succeed at building wealth through real estate, it is vital that you do your research and build your knowledge of the industry first. Real estate investing can be a very profitable business, but only if you have a solid understanding of the market and do your diligence before purchasing properties.

Steven Taylor of Taylor Equities has compiled a checklist below of a few aspects of real estate that everyone should have a solid understanding of before entering the business. If any of these concepts seem foreign to you, you should consult with a mentor or expert before investing.

Learn how to evaluate potential properties.

The most important aspect of understanding real estate investing is knowing how to evaluate a property you are considering investing in. Before you enter the real estate industry, take the time to study evaluation techniques for acquiring buildings. As you build your investments, it will be important that you only add assets that contribute to the big-picture of your portfolio. There are many resources that can teach you how to inspect properties, research potential areas, consider neighborhoods, and integrate comparative market analyses with your plan. Ultimately, you will want to determine a property’s profit potential before buying in.

Understand the many ways in which you can profit.

Before investing in real estate, you should be aware of the different types of cash flow that come with real estate investing. The most common way to profit from a real estate investment is known as flipping – owners fix up investment properties and then sell them at a higher price. But, there other factors to consider when looking at cash-flow, such as your annual income, taxes, tenants, and vacancies. To understand real estate investing, you must understand the plethora of ways that your cash flow could be affected.

Be aware of the reality of leverage.

For many new investors, purchasing a property without a down payment can sound very appealing. But, this real estate investment strategy can come with many risks. When an investor doesn’t have enough capital available to purchase a property outright, they may borrow money to acquire the asset. In some instances, investors can utilize financing as leverage in order to purchase a unit or building. It is extremely important that investors have a solid understanding of the risks that come with using leverage before taking on any debt.

Understand the many types of mortgages available.

To have a full understanding of real estate investing, you must understand the many different types of mortgages available. By taking the time to research the variety of mortgages on the market and the pro’s and con’s of each, you can secure your investment from the beginning. Take the time to shop for the best mortgage with the interest rates that will benefit you the most. Always be careful with mortgage deals that sound too good to be true – if there is zero down, and adjustable rate, or a deal that just sounds unrealistic, take a second look. There should never be a rush to invest in real estate. Take your time, and consider all of your options carefully.

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Steven Taylor of Taylor Equities – The role of a Real Estate Private Equity Firm

Steven Taylor Taylor Equities
Steven Taylor of Taylor Equities

According to Steven Taylor of Taylor, Equities a real estate private equity firm raises capital from investors. These investors are called Limited Partners. They then use the capital to obtain and develop real estate properties.  The firm can also be involved in operating, improving, and reselling the properties in order to see a return. Firms use an active management strategy and take a diversified approach to owning properties.

There are many different types of outside investors or Limited Partners. A few examples are insurance firms, high-net-worth individuals, pension funds, family offices, and endowments.

Real estate private equity firms most commonly focus on commercial properties such as offices, retail, industrial, multifamily, and other properties, although it is possible for a REPE firm to purchase residential buildings.

Who can participate in private equity real estate?

If you’re interested in getting involved in private equity, there are a few things to consider. Your ability to take part in investing in private equity real estate will be determined by the amount of money you have available to invest. A traditional private-equity fund requires partners to invest a minimum of $250,000. In general, firm managers prefer institutions and individuals who can contribute above $25 million in a long-term investment collective in combination with other investors. 

Individuals who are interested in getting involved in real estate private equity should examine their options of firms, and further their options of funds within that firm.

How do you examine a private equity fund’s investment structure?

To take part in most private equity funds, you must pay a number of fees for management and performance. Many REPE funds include annual fees in order to pay for legal services, data costs, firm salaries, deal sourcing, research, marketing, and other variable and fixed costs. If you are considering getting involved in private equity real estate, it is essential that you understand these fees before investing.

Most REPE managers also collect “carry.” A “carry” is a fee based on performance that is typically 20% of excess gross profits of the fund. 

Individuals should also examine what would happen in the case that they fail to meet a capital call. In some cases, a fund may force and individual or institution to default and forfeit their ownership shares.

What types of strategy does private equity real estate employ?

In PERE, there are a few main strategy types:

  1. Core PERE strategy: Core strategy is generally the most conservative strategy. This method sometimes only includes properties that offer low risk and therefore lower potential returns. These types of properties usually exist in popular and high traffic locations. Core strategy may focus on high-value properties that don’t require much development or upkeep.
  2. Core-plus strategy: Core plus strategy requires more of a gamble, but can also offer a higher ROI than a core method strategy. These properties usually require more modest amounts of upgrades and improvements.
  3. Value added strategy: Value added is a moderate risk method with a medium-to-high-return. This approach is more focused on property development and working the market. Managers often purchase properties, redevelopment them for improvement, and then resell at the right time with added value.
  4. Opportunistic strategy: An opportunistic strategy returns the highest amount but assumes the most risk. Managers usually purchase properties that involve undeveloped land, or properties that are in markets with low traffic that typically don’t perform well. – Steven Taylor, Taylor Equities
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Steven Taylor of Taylor Equities – Red Flags to Look Out for When Buying Commercial Real Estate

Steven Taylor of Taylor Equities Commercial Property picture

All real estate investment comes with risk, but commercial real estate in particular requires that liquid assets be readily available. As an investor, it is essential that you are careful about the properties you invest in – you don’t want all of your capital tied up in a building with a high risk of failure. If you are diligent about research and observant in your showings, you can pick up on red flags that could keep you from getting involved in a bad deal.

But how do you know when a commercial property is a major risk? If you look out for these warning signs, you can avoid signing a deal for a property that won’t serve your goals.

Red Flags to Look Out for When Buying Commercial Real Estate

The neighborhood is going down hill

It can sometimes be difficult to tell the difference between an area that is on it’s way up and one that is going downhill. Low value can be an opportunity to get in before prices skyrocket. But this only works if the surrounding area is growing steadily, experiencing job growth, and bringing in new people.

If a neighborhood is on the decline, with businesses closing and residents moving out, think twice. The best way to assess the status of an area is to spend time in the neighborhood and talk to local business owners and residents directly. While the goal is to acquire a commercial property in a booming area, accidentally purchasing a building in a declining part of town can be a major loss.

The property needs major repairs to be usable

It is common for real estate investors to purchase properties that need fixing up or redevelopment. There is a difference between adding value to a property by improving its appearance or conditions and needing a complete overhaul. Some repairs will be more expensive than you imagined and could take your deal south. Take the time to research what repairs or improvements will cost you before you purchase a money pit.

            Here are just a few signs I look out for:

  1. Low ceilings: Many users of commercial spaces require high ceilings for their business to function. It is essential that you ensure your ceilings fits the needs of those you are hoping to rent it to, without major construction.
  2. Damaged roof: Repairing the roof of a commercial building is much more costly than a single-family home. Be on the look-out for leaks or damage.
  3. Cracks and settling: Walk through the interior and exterior of a commercial property to check for cracks or signs of settling in the walls or floor. If you find a large crack, it could be a flag for a larger issue.
  4. Environmental contamination: If you are purchasing a property in an industrial area, there is always a chance that you will find contamination. Environmental contamination can affect your property and cost you. Watch out for chemicals and items that are stored improperly and may be damaging to the living conditions.

The numbers don’t add up

You can’t always accept the value the seller tells you to be the truth. Evaluating a commercial property requires a lot of research and appraisal beyond the physical conditions. Assess financial projections. You don’t want to purchase a commercial property where rental vacancies are projected to increase in the coming years. Look at any documents such as loss/profit statements that you can get your hands on. Never trust the seller’s estimates.

As with any investment, purchasing commercial real estate is a gamble. While risk is always going to be part of buying a property, the goal is to acquire a profitable building. If you know what red flags to look out for when buying a commercial property, you can save significant energy, time, and money. – Steven Taylor of Taylor Equities