The Benefits of Investing in Commercial Real Estate

As a commercial investor, there are many perks that come with the job.

We’ll discuss a few in this post:

Safety Net – Since many commercial properties offer the opportunity to lease more than one units at a time, the chances of entire vacancy are slim. Compare this scenario to renting a single-family home. If the tenant defaults, the cash flow is dried up by 100%. On the other hand, only a percentage of cash flow will be eliminated when this happens for one or more units in a commercial property.

Think of the scenario as how most people perceive employment. With shaky levels of job security in tow, many people are just a pay check away from financial catastrophe. However, if there are other revenues of income set up prior to this, being laid off will be non-issue for some time. In fact, having another income stream is the main reason investors take on commercial real estate.

Higher Payouts – More units rented mean more cash flow for owners.

Stability – The average lease term for commercial spaces is longer than residential units. Some can even extend close to ten years. Small and large startups have one need in common: and that’s a central place to conduct business. As such, many will be reluctant to move, having done business in the same place for years.

Subsidized Taxes – Depending on the lease drafted by a lawyer, many commercial owners have the option to include property taxes as part of the renter’s payment commitment. This isn’t uncommon at all.

Despite these benefits, commercial investors should still be careful. Owning and managing commercial property doesn’t obliterate all risks of investing. Mismanagement, failure to keep tabs, not choosing the right property, and more can all snowball into a disaster.

Check out Jason Hartman’s tips for investing wisely. Prices are usually calculated based on square footage, wherein these can be estimated through market comparisons. For investors who choose the path of commercial real estate, networking is key.

Maintenance is also essential, even during vacancies. Be sure to dot your Is and cross all Ts in a commercial lease. This is recommended to prevent liability in case of accidents, defaults or other incidences – which will be discussed in future posts.

The startup cost for investing in commercial real estate will certainly be higher than a single family home. However, the rewards are well worth the efforts exerted during the initial stages of investing. (Top image: Flickr | Mrshife)

The Commercial Investing Center Team


Increase the Rental Value of Commercial Properties

You’re not an expert broker. You’re trekking through an unfamiliar terrain. Still, you’re seeing the benefits of commercial real estate and took the first step to invest in a property.

So, what can you do to increase the value of returns, and decrease the debt-ratio?

Jason Hartman’s tips allow even the novice investor to take over as a game changer. These practical solutions will help increase the value of a housing complex, whether it’s three units, or over 100:

Curb Appeal – Check if the exterior matches the upscale interior of each unit. If not, hire a landscaping company to quickly transform the outdoor space.

Marketing – Which amenities will appeal to the target market? Play on this angle and highlight features in every marketing material. For instance, in a society that’s more eco-conscious and frugal than ever before, a metro rail, bus route, or biking path close to the building will appeal to this sector. These features also help to save renters money on travel. A home is a haven, and a large percent of the population will spare extra income to live in a comfortable space. With that being said, what other investments can be made to add the value of appeal? Continue reading below.

Flooring – A complete overhaul of old floors will make a room look brand new. With budget-friendly options available, new flooring can easily reform an historical building into a renovated one. Even if you’re not the remodeling type, there are flooring options which can be self-installed. Quick tip: Visit the local home improvement store to get a price breakdown of materials and requirements.

The Cost Breakdown:

This is a hypothetical scenario: What was once listed as a $1000 rental unit, in a 50-unit complex, can now be priced at $1200 per unit with these simple, yet visible changes. The increased revenue adds up to $120,000 more each year.

Image is everything, even if it’s a building or advertising brochure. These concepts can be used for mobile home parks, storage facilities, plexes and other types of commercial real estate. A paint here and there, insulation to reduce energy use, and other improvements allow a leeway to increase the price of rentals.

When managing a commercial real estate property, it’s essential to:

  • Be resourceful
  • Explore all avenues of income
  • Research competitors

All while still being reasonable and providing value to renters. Ensure that advertisements are real, and tenants get what is seen in pictures. Ultimately, when tenants experience value first-hand, they’re most likely to rent for the long-term. (Top image: Flickr | nannetteturner)

The Commercial Investing Center Team


How to Approach a Private Lender

With new stricter lending requirements in place at most banks and traditional lending institutions, it’s not surprising that we’re beginning to see a rise in the number of private lenders stepping in to fill the gap. What is private lending? It’s exactly what you might expect; a person or partnership willing to lend money on real estate deals. The good news is that their standards are likely to be less stringent than your local bank. The bad news (not really) is that they do still have SOME standards.

The reality of today’s housing market is that prices are low. REALLY low. The problem is that, in the wake of the foreclosure crisis, most lenders have upped their down payments requirements a lot. What used to be a five percent down loan might now easily require a 25 percent down payment. It’s easy to see why real estate buyers are highly interested in private money sources. But what are these private lenders looking for when you approach them with a deal you’re interested in?

The answer is it depends. It depends on the type of property investing – rehab, flipping, new construction, multi-family, commercial, or residential income producing. While some private lenders make low loan to value loans based on the property value, others want to see the same basic information that a bank would. The one idea to keep in mind is they are looking for proof of your ability to repay the entire debt, not just survive the payment schedule.

Expect that a legitimate private lender (which means NOT a loan shark) will want to verify income, cash assets, liabilities, and he or she will probably run a credit check. If all this sounds formidable, keep in mind that they are not a bank and will not likely scrutinize your records with the same standard a loan officer would apply. Depending upon the transaction, a private lender might want to see a business plan, and if you’re a business entity like an LLC, expect he’ll want to glance through your organizational documents.

All this should not scare you away from approaching a private lender. On the contrary, it shows a level of professionalism that you should appreciate. Now get out there and circumvent the traditional lending process.

The Commercial Investing Center Team

 

 

 

 

Flickr / MoneyBlogNewz