How do I get started as a commercial investor?

I've owned a 6-family for over a decade, and it's time to sell. I want to consider a 1031 Exchange, but never having purchased commercial property am unsure of what are the safest entry plays. Can anyone suggest any resources?
In Buying Property - Asked by Jason S. - Aug 13, 2009
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Answer(s)

Alice H.
Broker/Agent
Stouffville, ON

I think to start off, you should research for a local realtor that is familiar with your investment objectives. Make point form questions regarding your investment objectives prior to interviewing your local realtor.

Aug 13, 2009
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Robert G.
Broker/Agent
Falls Church, VA

You should consider doing a 10/31 exchange with an other property. Your return will depend highly on the location. Where are you located?

Aug 13, 2009
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Davide P.
Broker/Agent
Pinole, CA

Considering you already have the experience, most people suggest multifamily as the "safest" bet in a commercial purchase. Your best bet is to find an area you are either familiar with or a location that has job growth (or minimal job losses). If you're looking abroad, Colliers (who I don’t work for just to clarify) comes out with a very in depth publication on metro areas - many times separating office and industrial reports.

Aug 13, 2009
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Gregory G.
Broker/Agent
San Francisco, CA

Buy an investment grade triple net on a new lease if you want to play it safe. I have a few listed if you're interested.

Aug 13, 2009
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Antoine B.
Owner/Investor
Lantana, FL

Since you are hesitant about getting into commercial, you might also consider a joint venture too. Another option is about educating yourself that would boost your confidence ; there are some good courses out there. Another point to make, do you really need to sell? There are strategies behind my question.

Aug 14, 2009
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LEE T.
Broker/Agent
Suwanee, GA

Talk to your CPA regarding the guidlines on 1031 exchange. Talk with a commerical real estate agent for what is available in your area. Drive by the listings to see if the area is what you like. If is 100% leased review all lease contracts to make sure it is a tripple net lease, how many year left in the lease...ect. Your Real Estate professional will happy to calculate the rate of return and make sure the number make sense for you... Since is a 1031 exchange need to do it within the 6 month period. Talk with a 1031 exchange person for detail.

Aug 27, 2009
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Maria G.
Corporate Investor
Hollywood, FL

Commercial properties are taking a bigger hit now then residential. It is a good time to buy if you can get the right price but be prepared for vacancies and turnover now. I would consider moving up into a larger residential complex if you want to expand. Remember, you also have 10 years of experience in that area versus none in the commercial.

Aug 27, 2009
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Ajay B.
Broker/Agent
Orlando, FL

Since you have owned the 6-family for over a decade, even with the downturn you will have a considerable capital gains tax issue; so considering a 1031 exchange is a smart thing. On the other hand capital gains tax at 15% is the lowest it has been in a long time, and in the current political climate that will be going up so it might be ok to pay that. In my opinion, it is still better to put all 100% of the sale proceeds into another property, why pay uncle sam. Along with the capital gains tax, you also have to pay 25% taxes on depreciation that you took. It is very important to follow the 1031 exchange timeline, so identifiy your exchange property before you close on your 6-family. The 1031 exchange requires you to identify replacement properties (typically up to 3) within 45 days of closing on your property and closing on the exchange property within 180 days. It is very important that you work with a commercial realtor who is experienced with 1031 exchange, one place you can look for a good commercial broker is at www.CCIM.net; The CCIM designation is earned after completing graduate lever cirriculum in commercial real estate brokerage, leasing, asset management, valuation and investment analysis and attainment of qualifying experience.

Aug 27, 2009
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malkit s.
Owner/Investor
Pembroke Pines, FL

I have Five Acres Prime commercial land in Dade City,Florida It is near TAMPA,Florida.If you like we can have joint venture together and hardly any risk.Please let me know if you are interested. My e-mail address as follows:
msappal@bellsouth.net

Aug 27, 2009
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Stephen N.
Developer
Boca Raton, FL

Jason....You don't mention anything about what kind of value your 6 plex has so it is difficult to fully answer your question. Also, you don't mention what part of the country you reside in currently. My advice would be to first get an idea of what your property is worth and, at the same time, do some research on the internet and look at what triple net properties are available in your geographic area. Now is a great time to buy single user retail properties or, multi-tenant retail buildings. Depending upon your risk comfort and how much "management" work you want to be involved with on this investment. Once you know what you can afford to exchange into then you will know if you can look at a freestanding Walgreen's or, if you need to look at a freestanding Starbucks or Verizon or, a multi-tenant building with those types of tenants. I am involved in retail brokerage and development so that's what I can advise you on. Good luck.

Aug 27, 2009
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Mark M.
Broker/Agent
Pembroke Pines, FL

This is a great time to purchase triple net assets. Find one that matches the size of your investment (with or without financing) and verify the credentials and financial capacity of the tenant(s), whether you are able to find a multi tenant or single tenant asset that matches your needs. Negotiate hard on the price, as everyone in this environment understands that cap rates are significantly affected due to the Recession/Depression. You should be able to get at least 10% return, and probably better, for a very stable asset. If you need help in finding one, let me know.
Mark (Weston, FL)

Aug 27, 2009
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Frank S.
Broker/Agent
Dayton, OH

Hello Jason,
I've specialized in the sale and 1031 Exchange of investment properties since 1976.
If you would be interested in moving the equity in your 6-family into an 8-family apartment in the south of Dayton, OH area, it is an exceptional opportunity at a low price that will give you an excellent cash flow with today's reasonable financing rates and terms. It has a great occupancy history over the past several years and as usual, is presently 100% occupied. The resident manager/maintenance man has done an excellent job at much less expense than a management company would charge. The price was recently reduced from $375K to $325K, providing a better than 11% cap rate!
You can contact me for details at investmentres@hotmail.com or 937-435-5670.
Frank

Aug 27, 2009
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James P.
Lender/Mortgage Broker
Amherst, NH

If you'd like to explore the 1031 option, the transaction must be settled very quickly, if you were not already aware. We have seen funding denied due to slow responses from financees, so make sure all of your financials, cash flow and P&L are current and ready to be submitted.
If you have any other questions, please feel free to contact me.
Rgds,
Jim

Aug 27, 2009
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Ken B.
Owner/Investor
Milton, FL

One caveat in commercial today is to be weary of retail unless it is NNN, long term (5yr or more) AND has annual increases built in. You will probably still pay too much for such a property. Retail is realizing somewhat of a downturn and who knows where it is headed.
Always look for jobs and economic stability, no matter the investment class. You may just want to stay with apartment buildings.
You need to figure out where you want to be in 5 years first. Then go after the market that fits your criteria.

Aug 27, 2009
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Dolores B.
Broker/Agent
Houghton, MI

Jason, look at what is happening in the economy and how peoples buying habits are changing. Look at where they need to shop, what they need to do everyday. They need staples, they need food, they need their cars fixed. These are areas that are growing and are doing well in this economy. There is less discretionary income these days and what people do have, they using it at different retail. Places like Dollar General, Family Dollar are where they are shopping now.The income of families shopping at these stores has gone to over $100,000. This will continue as these retailers add more name products to their inventory. Look for companies that will be able to pay you the rent each month. Multi family was great but what happens when a tenant loses their job? The retailers mentioned will not be going anywhere any time soon.

Aug 27, 2009
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Eva Jean C.
Owner/Investor
Jacksonville, IL

Having done 1031 Exchanges for many years, they can be a tremendous advantage. However, you must research your market and know your limitations. My husband and I are at the age where we wish to, given the correct situation, divest ourselves of some of our commercial holdings. If you have any interest, please contact us. Our holdings are in Illinois and Florida.
jjcook@cfl.rr.com

Aug 27, 2009
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Barbara R.
Broker/Agent
Orlando, FL

Why do you want to sell? If you are tired of tenants, trash and toilets...look into self storage. It's profitable even at 60% occupancy. Scott Meyers is my self storage guru. It is a great time to buy Commercial!
Best regards,
Barbara

Aug 27, 2009
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Mark D.
Broker/Agent
Fort Lauderdale, FL

Jason,
There are and going to be some great deals in commercial real estate. I like multifamily and looking for an REO apt. building myself. Its all about having both CASH and PATIENCE in this current market.

Aug 27, 2009
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Dixon G.
Developer
Tazewell, TN

Some folks on here may want to kill me for this answer, but a 1031 is not the way to go. If you can sell now for the lower long-term capital gains I'd do it. 1031's will not be grandfathered in once long-term capital gains rates are raised, and with the current administration that is a certainty. You will end up having a much greater tax burden down the road...one that I don't believe is offset by the present value of the tax you will save today.

Aug 27, 2009
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Peter C.
Broker/Agent
Grand Rapids, MI

Hi Jason, you are a smart guy. Now is the time to sell a six family and take advantage of buying a prime passive property that are priced at all time lows. I am a 1031 expert and have helped many people in your situation. Many are buying properties leased to Dollar General and Family Dollar as they are such stong tenants and easy properties to own. The most important thing to remember is to make sure you identify "sure things" that have no surprises just before closing. Make sure the title is clean, there is a clean phase 1 and no "hair". Time flies fast during a 1031 and one cannot afford surprises. We offer a great supply of "sure things". We are here to help you.
Peter Colvin, Sperry Van Ness Silveri Company, Grand Rapids MI 616-893-1398

Aug 27, 2009
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Joey S.
Broker/Agent
Youngstown, OH

A 1031 allows you to defer capital gain taxes on income property. The "Exchanger" operates as a middle man and you cannot recieve any proceeds from your sale if you want to defer the whole gain. It is a little complicated but I have done a couple and the seller/buyer were pleased with the results. You must exchange "like property" and allow for flexability in your exhange. Your situation is "income property for income property" allowing you to exchange your 6-plex for a commecial income property. If you like you may contact me by email linked from my site metrogroupinfo.com for additional info.

Aug 27, 2009
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Rami K.
Owner/Investor
San Antonio, TX

We were in the same boat as you are, and got tired of running around all day to take care of our 6 and 8 unit apartment buildings. A few years ago, we decided to sell our buildings and do a 1031 exchange for NNN single tenant properties. Since then, we have enjoyed a single check in the mail for a higher income return then the apartment building. We have bought several more income properties throughout the years, and are enjoying the cash flow. You may visit our website at www.kotelinvestments.com

Aug 27, 2009
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Barbara R.
Broker/Agent
Orlando, FL

Gave you the wrong link...Here is the good one.

Aug 27, 2009
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Scott B.
Corporate Investor
Overland Park, KS

Dont sell at this time. Market values are unstable. We have not had a recession with the depth of jobs losses like this in many years. You may be tired of what you have, but you know what you have. Commercial property is only for those with financial depth and knowledge. Will Rogers said years ago, "I am more interested in the return of my money than the return on my money."

Aug 27, 2009
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arlene m.
Broker/Agent
Cuyahoga Falls, OH

Location,location,location
industrail buildings a. Safe
entry point. Regarding the
exchange your accountant
will be able to structure the
program to fit your specifics
Cuyahoga falls, Oh. 44223

Aug 27, 2009
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Jesse B.
Broker/Agent
Mcallen, TX

I second Scott B.'s advise. I've been doing this a long time and have the fortune of being in one of the very few markets that has a modest but still growing economy. I am deep South Texas (McAllen) and even here I tell Sellers, "Don't sell unless you have to." Why? Simple. It's a Buyer's market. NO ONE will offer you a fair price. Everyone wants bargains. In these uncertain times, stick with what you know. You know multi-family. If you want to take advantage of the market and buy today, perhaps a re-fi cash-out is right for you to use the funds for a small, modest purchase. Maybe a small single-family home (ie. repo). Also, consider a small mobile home park or a 4 plex.
I also agree with another repondent that stated that commercial properties are for folks with "deep pockets" (I'm paraphrasing). Someone mentioned perhaps a single tenant commercial property would work. Ok, but what will you do when the tenant defaults? Can you carry the note from your own pocket?
Don't go out on a limb in an effort to become a Buyer in a Buyer's market. Keep things controled and stable. Stick to what you know for now. In the meantime, do more research and commercial and perhaps down the road when you have much more knowledge, money and confidence you can venture into retail commercial.
Remember the old saying, "Don't bet the family farm." Stay diversified.
Good luck - with whatever you decide.

Aug 27, 2009
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Paul B.
Broker/Agent
Miami, FL

have you talked to your CPA or qualified tax advisor?
if you own an exchangeable property you can do a 10-31 then it depends on several variables like do you want something management free then consider the Absolute NNN property with a long term leased property...ATT, Walgreens, Fast foods, etc national credit tenants pay rent, RE expenses and manage your Bldg under an existing lease contract...they can be anywhere in the US since you own but don't manage your NNN investment property...
otherwise you can buy a property where you will have to be involved part time or full time...then you will have to bone up on how to manage it
If you want to talk about it pls call me, I am a Buyers Broker (sellers pay commissions though)
Paul Becskehazy
PB Commercial Realty Inc
Paul@PbCommercialrealty.com
305 5733338

Aug 27, 2009
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Rick R.
Owner/Investor
Highlands Ranch, CO

Hi Jason,
1031 is the way to go. If you are trading up to a larger property, whatever you give up in this buyers market as a seller, you will gain back as a purchaser. No one can time the market exactly. Also, we specialize in this. Our website is www.interurbancompanies.com . Have a great day. Rick Rizzuto

Aug 27, 2009
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Tai L.
Broker/Agent
San Diego, CA

There are a lot of good books out there on commercial real estate. You might want to read those. A lot of inventory to select these days.

Aug 27, 2009
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Karim A.
Broker/Agent
San Diego, CA

A few points:
1) Multifamily offers the additional advantage (in addition to the your experience) that the demand for rental units right now is particularly high - even with unemployment at ~10%, 9 out of 10 folks have jobs and can make good tenants. Attention must be paid to the shadow rental market, but there are definitely markets where the rent demanded by the shadow market is still prohibitive compared to medium sized apartment complexes.
2) For commercial, I would argue that 10yr leases would be required with additional options. The reason is that the value of the property is largely a function of the income stream. As such, imagine you owned a commercial space and it had a 5yr lease on it and you wanted to sell at the end of Year 4 (i.e. 1 yr remaining on the lease). I would argue that your ability to sell the property at a solid sales price will be hampered. Now imagine that you wanted to sell at the end of Year 5 - now you are trying to sell an empty building with no income stream.
3) When comparing Multifamily to Commercial, pay very close attention to the Exit Strategy - in multifamily, there is very little probability that you will ever have to try and sell an empty apartment complex - your current situation most likely substantiates this.
4) Syndications can be an effective way to achieve diversification. While there are cons with this approach, the pros can in many cases outweigh the cons.
My recommendation to you would be to map out several different scenarios, comparing apples to apples, across differing asset classes, across differing tax scenarios, complete with appropriate exit conditions over a given hold period to better understand which would be the best course of action for your given requirements. If this is something you would like assistance with, please don't hesitate to contact me at 619-813-5809

Aug 27, 2009
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Peter N.
Broker/Agent
Valhalla, NY

A 1031 is a great way to use all of your equity rather than what's left after paying taxes. It's not complex and there is a lot of info you can find on the Internet. Google 1031.
If you felt comfortable with the 6 family, then sell it and buy a 12 family. Or re-finance and buy another 6 family.
Commercial (stores, offices, etc) require less attention, but also come with a lower return. Then there's always more risk of vacancies unless it's a great location.
You asked for resources. Search the Internet or go to a bookstore and browse Throught he real estate section. When you see something you like, you'll know it.
Wikipedia is great.

Aug 27, 2009
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Guy W.
Broker/Agent
Richmond, CA

Jaso,
I recommend a good solid property purchase like Walgeens or CVS. The main Corporation signs a long term lease and in most cases are either triple net leased or double net leases. No worries just collect your rent. Cap rates ae good on these investments now vs last year. Guy Woods Lem Real Estate advisor/Broker

Aug 27, 2009
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Larry H.
Broker/Agent
Chatsworth, CA

Hi Jason. I went through this about 10 years ago and sold an aging duplex in a great area to a tenant. I did the 1031 exchange and was going to purchase additional residential income since I have other like properties. I found an older commercial strip in a good location and researched the cities policy on financial assistance for rehabilitation. If you can find it in this economy its a great way to get money for improving your property. Once I rehabbed it I was able to get more rents and NNN the existing tenants a well as get a good national new one. I was also able to build on to this purchase giving me a greater return. I agree with the others that you should talk to your tax person first. Find a broker who is also a commercial/multi-residential owner since they will be able to really relate and give you the tru ups and downs. Remember to research the property thoroughly(phase 1 & 2), to find out what used to be there so it doesnt't come back to haunt you. Look at the traffic and who shops there and speak to the tenants once you find a possibility. Most people will tell you the truth about conditions and other unknown factors. In the long run if you do all your homework including time at city hall for any unknown future plans for the area, you will be a happy camper with the right commercial property. Larry Heller, Owner/Broker Heller Properties

Aug 27, 2009
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David K. R.
Broker/Agent
Charleston, SC

Sell that six unit asap and after you have it sold think in terms of a NNN investment with a national tenant and a good long therm lease with scheduled increases over the life of the lease. Do a 1031 exchange to defer your taxible gain on the existing property.
David Rudick
Senior Commercial Associate
Coldwell Banker Commercial
65- 752-0698

Aug 27, 2009
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JEFF S.
Broker/Agent
Colorado Springs, CO

Jason - hopefully your not overwelmed by all the resposes to your question. I'm sure everyone that responed has something to "offer" (sell) you too. I'm a multi-state licensed broker and have done thousands of deals over nearly 3 decades. I like what one peoson here has already recommended find a CCIM designated broker well reconized in the area you want to sell, (and another where you want to buy if the location is different) They are the "cream of the crop" - only 6% of commercial brokers have that designation. Now with that said - it doesn't mean that all CCIM's are great..... but I specalize in training CCIM brokers about alternative cashflow 1031 exchanges (all over the USA) so when you find one have them get a hold of me - they do the sale leg of your real estate transaction and I help you through a National Qualified Intermeadery into an "alternative cashflow" property that requires no landlord effort on your part = it is relatively "conservative" - yet It will provide you DOUBLE DIGIT CAP/RETURN rates if your qualified - and the real estate professional gets paid a full referral commission from me (my company) if your so desire. WIN, WIN, WIN, and this is not a triple net deal either. Good luck in your endevors - what ever you deside to do.

Aug 27, 2009
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David B.
Broker/Agent
Minneapolis, MN

If you happen to live in the Mpls/St Paul area, I have an 8 unit townhouse project, partially finished. Could make a good deal.
David B

Aug 27, 2009
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Jesse B.
Broker/Agent
Mcallen, TX

I second Scott B.'s advise. I've been doing this a long time and have the fortune of being in one of the very few markets that has a modest but still growing economy. I am deep South Texas (McAllen) and even here I tell Sellers, "Don't sell unless you have to." Why? Simple. It's a Buyer's market. NO ONE will offer you a fair price. Everyone wants bargains. In these uncertain times, stick with what you know. You know multi-family. If you want to take advantage of the market and buy today, perhaps a re-fi cash-out is right for you to use the funds for a small, modest purchase. Maybe a small single-family home (ie. repo). Also, consider a small mobile home park or a 4 plex.
I also agree with another repondent that stated that commercial properties are for folks with "deep pockets" (I'm paraphrasing). Someone mentioned perhaps a single tenant commercial property would work. Ok, but what will you do when the tenant defaults? Can you carry the note from your own pocket?
Don't go out on a limb in an effort to become a Buyer in a Buyer's market. Keep things controled and stable. Stick to what you know for now. In the meantime, do more research and commercial and perhaps down the road when you have much more knowledge, money and confidence you can venture into retail commercial.
Remember the old saying, "Don't bet the family farm." Stay diversified.
Good luck - with whatever you decide.

Aug 27, 2009
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Chuck T.
Broker/Agent
Riverside, CA

Jason,
Karim has the best advice. Stay with multifamily and if possible keep your existing property and get a 75% loan and buy as an individual or as part of a partnership that has long term hold philosophy. Buy in an area with good demographics. Read "How to buy and sell apartments" by Gene Vollucci

Aug 27, 2009
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Henry C.
Broker/Agent
Windsor, CA

I would recommend working with an expert in commercial real estate: a CCIM. That stands for Certified Commercial Investment Member (of the National Association of Realtors). In order to obtain the CCIM designation, candidates are required to undergo a rigorous course of study, pass a series of examination, demonstrate substantial experience in commercial transactions and finally pass a thorough final examination. This typically takes a number of years.
Best of luck,
Henry Chazankin, CCIM (broker)
Windsor, California

Aug 27, 2009
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Terry M.
Broker/Agent
San Diego, CA

Jason,
Are you overwhelmed or confused with the answers?
Find someone who:
is competent (CCIM and or many years of income property experience) and
asks aobut your goals, skills and preferences and
seems to care about you.
Ideally this person will also be near where you are.
If the advisor is within 90 minutes that may be fine. If he is a time zone away the perspective will be less helpful.
Competent brokers will have done a score or more of 1031s.
The amount of equity you have will determine your chocies. $100k capital give difference choices from a million. Your risk parameters matter as well.
It may be wroth while to interview three different folks to gain perspective.
Apartments are traditionally lowest risk, and offer best financing. In most markets six units won't generate enough proceeds to trade into commercial.
Best of success!
Terry Moore CCIM 619-889-1031

Aug 27, 2009
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Sheila B.
Owner/Investor
Redondo Beach, CA

Funny, we are interesting in getting back into residential market, sold ours and went commercial. How about a swap if the price tags are right. My partner likes fixing things not computers is the reason. Look at 6413 Del Amo in Lakewood, CA

Aug 28, 2009
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bruce c.
Owner/Investor
Leawood , KS

where is your property located? I traded a 4 plex for commercial building about 5 years ago and the 1031 exchange saved me a bunch. Commercial was much easier to manage
and now I'm spoiled. Of course I have not experienced a vancy as yet and that could change my attitude but for now its been great.
Bruce
Kansas City

Aug 28, 2009
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Greg L.
Broker/Agent
Cypress, CA

I have worked with clients like yourself since 1986 and would suggest a thorough review of your current financials and review your goals aligned with your age. From there you can then better focus your financial strategy(s) with purpose and focused
direction. My company works with clients all over the U.S. and place little priority on
local professionals being THE source. My best to you in your searching.

Aug 28, 2009
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Howard G.
Broker/Agent
Boca Raton, FL

I'd buy a strong National Credit Tenant Corporate outparcel with NNN long term lease. Tenant should be such as Family Dollar, Dollar General, AT & T, Verizon, etc.
At lease 10 yrs. on the lease. Get rent increase during lease term.
Should have high population densities, high traffic count, etc.
I've closed $73,552,000 recent shopping center and single tenant NNN deals all overcountry representing only buyers ( numerous 1031 buyers ).
E-mail me if I can be of any help to you.

Aug 28, 2009
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Don D.
Owner/Investor
Fleming Island, FL

Jason, I have ready what everyone is telling you, that this is good time but Jesse from Texas hit it right on the head, besides a 6 plex are a dime a dozen if your going to sell it go big use it to buy something with great cash flow, don't go down always go up, buying something right now with one tenant in it is crazy even if it is tripleNNN if you have some one buying your 6 plex you go buy a 20 unit or bigger. THINK BIG

Aug 29, 2009
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Danny Z.
Broker/Agent
Coral Gables, FL

Look for a competent commercial agent in your area, I would look for either a member of CCIM or SIOR, contact the local board and they can point you in the right direction
Danny
Broker Associate
Miami Fl 33127

Aug 30, 2009
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Jay M.
Owner/Investor
Fairview, TN

Hi Jason,
My name is John. I am a Commercial Real Estate Investor, with over 30 years experience as a R. E. Investor, Real Estate Broker(Comm. & Res. R.E Property Management, ect.), Mortgage Broker & a General Contractor(that has renovated multiple multiple unit properties). I am no longer Licensed & I don't work on a fee basis. I have a Program whereby I work with orher R.E. Investors & I don't earn any money unless all other investors earn money. If you are interested in more information as to what I am doing, you may request it at the e-mail below. There is no charge for the information, just ask & include your contact information.
Thanks, John CommREBiz@Yahoo.com

Aug 30, 2009
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Mike M.
Chesapeake, VA

Since you've owned this property for 10 years, I suspect you're comfortable with multi-fam residential. I suggest you find a 12 or more unit to roll the proceeds into tax deffered. 1031s are great when used properly. Commercial tends to have a higher risk of vacancy that you have to wiegh against the headaches of residential props. Good luck.

Sep 16, 2009
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