Commercial Real Estate Investing

Because the bottom has fallen out of the residential real estate market, real estate investors have now turned to commercial real estate investing. Commercial real estate investing has many different options for the savvy investor. Some of them are as follows:

1. Investing in a retail shopping center as part of a joint venture with several other investors. This enables you to take less of a risk and get some experience in investing in commercial real estate without it costing you a lot of money. Make sure you know plenty about your partners as well as the property that you will be purchasing;

2. New construction. If you have been a project manager or general contractor, you may be able to swing commercial real estate new construction as long as you are aware of the different codes. Commercial real estate new construction is much different than residential new construction. There are different building codes for commercial buildings that vary from different municipalities. You have to be familiar with the codes when building commercial property;

3. Rehabbing or refurbishing older buildings and preparing them for business use. Again, you need to have some knowledge of building codes and requirements;

4. Buying a storefront property or free standing store and leasing it to a business. You need to know about the location, make sure you have a solid lease with a reliable and stable renter and proceed to reap a profit on the rental income while paying off the property at the same time.

Those are just four examples of commercial real estate investing. No matter what you decide to do, remember the three most important aspects of real estate investment:

1. Location;

2. Location;

3. Location.

This is an old and well worn saying, but bears repeating because it is so integral to any type of real estate investment, commercial or residential. If you purchase a storefront in a blighted area it may be cheap, but unless you plan on working in the store all day and every day and worrying about getting robbed or murdered on a daily basis, stay away from blighted areas.

You want to make sure that there is a need for the commercial real estate you plan to develop or in which you wish to invest. Office buildings and complexes are usually always in demand as professionals and others are usually looking for cheap office space.

In older towns and cities, there are areas in which older homes are being turned into office buildings and stores. In “historic districts” in towns, there is an effort to refurbish older homes and increase the value of the property in the area. These are also an ideal option for those who are thinking of commercial real estate investing.

Five Key Condsiderations for Choosing The Right Commercial Real Estate Broker

Commercial Real Estate investing requires working with the right Commercial Broker to reach your investment goals. The following Five Key considerations will determine if a broker will bring you a stream of quality properties you are looking for and makes your business their priority.

Key consideration number one: Do your due diligence.

Start by doing the same kind of Due Diligence on your Broker Candidates as you would on properties themselves. This will increase the probability that the broker you choose will be the right broker. Make sure you create a guideline containing your specific goals and needs to qualify your broker candidates. I research the agents that I will potentially be working with. I read their brochures, promotional literature, websites, past closings, etc so I can cross reference credentials and history with other brokers in the marketplace. Remember, choosing the right Commercial Real Estate broker can potentially net you millions of dollars worth of time and money.

Key consideration number two: How long has the broker been in the business?

There are many brokers who cross over from Residential Real Estate into Commercial Real Estate in an effort to “make big money”. What they fail to realize is that Commercial Real Estate is more than just selling or buying real estate. It requires an ability to understand and interpret profit and loss statements, rent rolls, third party contracts, and many more specific documents that are involved with each transaction. It’s more than just writing up a contract. If your potential broker can not figure out the Net Operating Income of a building or can not tell you what the debt service coverage ratio is, then you need to keep looking.

Key consideration number three: Have they kept current with changes in their profession along with market changes?

Ask the commercial real estate broker about his or her credentials, certification and education in terms of selling commercial properties. Your Commercial Real Estate broker may have years of experience but they also need to be able to adjust to new selling or buying methods. If your broker is not in the loop about the newest trends of investors buying pools or how new technology is affecting the market trends, you may potentially lose out on a property. I never deal with brokers who have some commercial experience, it is important to know who you are working with in terms of their familiarity with the type of investment you are considering.

Key consideration number four: Make it a point to get to know the broker’s staff.

It is important to ascertain the competency of their staff to see if your deal will be handled with professionalism and efficiency. The right broker will have key employees that have a wealth of knowledge about an area and the ability to make a transaction smooth. Things to consider are: Who do they know that will help me build my team? What type of relationships do they have in the industry? Do they maintain broad relationships that can assist me in developing market contacts?

Key consideration number five: Most of all, make sure the broker is loyal to your needs as an investor and is not in a conflict of interest.

A broker with a fiduciary interest in a property is incapable of putting my needs first. I am very careful to deal with business ambiguity up front in all contractual relationships and will work with someone based on their their loyalty to me being their first priority. Pay particular attention to how fast they return telephone calls after meeting. This may sound insignificant, but it says something about their professionalism and the way they do business. First, a broker will have information about the market that you will not, especially if they have worked in the area for an extended period of time. I have worked with brokers that have sold the exact same properties a number of times. They were able to give me history about building conditions and ownership that I was unable to get from other sources.

Interview as many brokers as needed to make sure they are a good match to do business. The right broker will find commercial properties that meet your investment and business criteria. In the long run this is a business relationship that grows over time, so make it a point to nurture this relationship. Clarity about your investment criteria will help reduce problems finding the right broker. Some resources that can help you begin your process would be The National Association of Realtors, recommendations from other investors, checking professional periodicals online and off, investment associations, and word of mouth from trusted allies.

SUMMARY:

-Choose your Broker carefully – do your due diligence here too

-Make sure they have specific Commercial education and experience

-Know the way they work and the times needed from contract to close

-Be clear on the properties you are looking for

-Make sure the Broker is always working in your best interest

-Evaluate their staff in the same way you do the Broker

-Close when you say you will – so they get paid

-Take good care of your relationship – it will get more and more valuable over time

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SBA Loans Can Help Alpharetta Commercial Real Estate Buyers

Low interest rates and falling property values, not to mention lots of available space, make now a great time for Alpharetta businesses that want to purchase commercial real estate or build new facilities. Unfortunately, many companies have a hard time coming up with the 20-25 percent down payment that’s typically required for commercial real estate.

Well, there’s lots of good news right now for commercial real estate buyers in Alpharetta. The U.S. Small Business Administration (SBA) offers several different types of SBA loan programs designed specifically to help small businesses obtain financing to buy, build or renovate commercial real estate.

And thanks to the American Recovery and Reinvestment Act (aka the Stimulus Act) passed earlier this year, many fees associated with these SBA loans have been waived for the remainder of this year.

Karen Cross, the chief credit officer and senior lender with Community Business Bank in Forsyth County, says there are two main SBA loan programs that can help companies purchase commercial real estate: the SBA 7a program and the SBA 504 program. “These work especially well for new and startup businesses where the bank may be hesitant because the business doesn’t have a proven track record yet,” she says.

The SBA reduces the bank’s risk of lending to newer and less-established businesses by guaranteeing a portion of the loan, thus encouraging banks to lend to small businesses. The SBA typically guarantees 75-85 percent of 7a loans, but this was raised to 90 percent by the Stimulus Act for the rest of 2009. In addition, the guarantee fees of 2 to 3.5 percent of the guaranteed portion of the SBA loan are also being waived through the end of the year.

The typical structure of an SBA 504 loan is a 10 percent down payment by the borrower, 50 percent financing by the bank and 40 percent financing by the SBA. Borrowers must normally pay fees of 2 percent on 504 loans, but this fee is being waived this year for as long as the program’s funds remain available (only about 40 percent of the funds had been used as of July). This would result in a savings of $20,000 on a $1 million loan. Owners can put this money to good use, perhaps on commercial real estate property improvements, for example.

“These SBA programs are especially helpful for businesses that have the cash flow to repay loans but don’t have the normal down payment,” says Cross. “They allow them to buy commercial real estate with as little as 10 percent down.”

She adds that the interest rate on the SBA portion of 504 loans is typically between 100-150 basis points lower than the rate on the bank-financed portion. SBA loans can be amortized for up to 20 years with no calls or balloon payments. “SBA loans allow banks to take on a little more risk with new and start-up businesses than they normally would,” says Cross.

As with any loan, a bank will consider a borrower’s ability to repay the debt and whether the borrower can pledge sufficient collateral to secure the SBA loan. Borrowers will generally have to provide the bank with tax returns, financial statements, financial projections and other documentation just like they would if applying for a traditional small business or commercial real estate loan.

Finding the Best Deals in Commercial Real Estate

If you want to be successful and profitable in the commercial real estate market, it will depend heavily on your ability to find the best deals on the commercial real estate market. You can lower your burden and maximize your net income if you only invest in commercial real estate transactions that have great potential. As an investor, it is important that you find a good offer to make money, but you must remember that it takes some work on your part as an investor to find the best offer. Here are some tips that can help you find the best deals in commercial real estate so you can make a profit and get success as an investor.

Tip # 1 – Know the Area and Market – The most important thing you need to know if you want to find the best deals in commercial real estate is the area and the market. You must be very familiar with the area that you plan to invest and you also need to be informed about the market in that specific area. If you are not familiar with the area you plan to invest, then you have to make it your business to learn about market areas and trends. You cannot determine whether an investment opportunity is a big thing unless you have a good understanding of the commercial real estate market in that specific area. Take the time to find out the area and market in the area, and you will definitely get the best commercial real estate offers.

Tip # 2 – Utilizing a Pocket List – Another tip that can help you find the best deals in commercial real estate is to use the pocket list you might have access to. This listing can help you find and track extraordinary investment opportunities. Often you can get this list from brokers to help you pursue excellent real estate investment opportunities. Pocket lists are commercial real estate opportunities that have not yet entered the market. So, you basically get a jump on property before someone else does it. If you want to find many things, don’t forget to use your pocket list.

Tip # 3 – Use Online Resources – Many real estate investors today really utilize their online resources when searching for the best commercial real estate offers. Using online resources can save a lot of time; however, you still need to make sure that you take the time to do the investigation that you need to do. There are many online websites that are directed to investors in the commercial real estate market. Quite a number of investors are using online resources to find the best deals, and you can use this easy access resource to help find great deals too.

Tip # 4 – Use Business Contacts to Find Deals – If you have great business contacts in the commercial real estate market, you can use them. This business contact can help you find some great commercial real estate offers. It is important that you take the time to build good relationships with these business contacts so that you are the person they tell when they hear about a great commercial real estate deal. Fostering business contacts can take several jobs; However, it is very valuable if you can get a great business deal from him.

Tip # 5 – Get to know your Financial Capacity and Strategy – Know your financial capacities and strategies are also important if you want to find the best deals in commercial real estate. You will never want to push yourself too financially, so you need to know your financial capacity. It is also important that you have a good strategy for investing as well as for success by looking for great deals on the commercial real estate market.

Tip # 6 – Make Sure to Practice Due Diligence – It is very important that you carry out due diligence if you want to find the best commercial real estate offers. Due diligence is one of the most important steps in finding many things. Some things you need to consider when practicing due diligence are the condition of the existing property, the actual property value, how much you can generate from the property, title issues, zoning issues, and many other important aspects. Make sure that you take the time to do an adequate due diligence to ensure that you really get the most commercial real estate that you plan to invest.

Using all these tips together can help you find great commercial real estate offers. If you want to be on the road to success, great deals are important, and these tips will allow you to find the best deals in commercial real estate that

Commercial Real Estate – A Complex Purchase Done Correctly

Purchasing commercial real estate is a much more complex process more so than purchasing a home or just purchasing land. But, it doesn’t have to be so difficult. One of the best decisions that you can make is to higher a real estate agent that specializes in commercial real estate sales.

This individual should have experience in working with the type of property that you are interested in buying or selling. There is more to take into consideration, after all, than just the value of the building and the land.

A commercial real estate agentwill help you to purchase real estate for a business or for rental property by doing his homework. It is essential for him to determine if the area is worth the cost that is being asked for it.

If the value of the land and building are not going to benefit you, he or she needs to determine this through a series of reports and then present it for you. One of the key elements of his job is to find the prime location for you to put down your business that will make it as successful as possible.

If you are looking to sell your commercial property, the right commercial real estate lender will help you to get the best price for it. In addition to helping you to determine the value now and into the future, the real estate agent must also determine if the best way to market your property.

It is unlikely for a buyer to just drive by and bid on the property. Investors need to come from far and wide and for that a specific and skilled agent is required to provide the right marketing potential.

Interview the commercial real estate agents that are available today. Find out what they propose to help you with and the cost of it. Most importantly, determine if what they have to offer you is what you really want. Find out more about their experience and their success.

Finally, determine if they are the right person by developing a plan of action with them to insure that this commercial real estate transaction goes as smooth as possible.

The Best Commercial Real Estate in New Jersey

For example, there are three major commercial centers in the following locations:

1) Northern New Jersey: Right across the George Washington Bridge and the Lincoln Tunnel from Manhattan as well as the Tappan Zee Bridge making it a great location for proximity to New York but at a less expensive price.

2) Southern New Jersey: Right across the bridge from Philadelphia giving it a fabulous overflow from that city and state, again, at a more affordable price.

3) Atlantic City: A huge gambling and entertainment city on the Atlantic Ocean with casinos, hotels, restaurants and more all within walking distance of the center and connected by the Boardwalk.

Each location is near neighborhoods with good schools, clubs, shopping and everything else employees would need. Once you select your favored location, what amenities make any commercial real estate the best? The best commercial real estate buildings must set themselves apart from the other buildings nearby and make prospective employees attracted to the building as well as the business.

Exterior Features

When searching for excellent commercial real estate in New Jersey you should keep an eye out for the following factors:

• Attractive design
• Enough parking and access to public transportation to attract tenants with employees that need to get there
• Aesthetically pleasing landscaping to give the building curb appeal
• On the interior the best commercial real estate properties must have amenities like:

Interior Features

Some of the features that can be found in top-of-the-line New Jersey commercial real estate:

• Attractive lobby with plants and excellent building materials like marble
• Enough elevators that hold everyone during rush hour and get employees to their offices fast
• State of the art operational systems including, heat, air conditioning, water, and wireless Internet access
• Attractive, clean bath rooms
• At least one restaurant or café that can serve employees meals
• A bank on-site, or at least an ATM machine
• Workout room with TVs that employees can use to keep in shape.
• If it is a large building, day care facilities can be particularly attractive.

Neighborhood Features

Things to look for in the surrounding area:

• Off-site shopping and restaurants for employees or entertaining executives
• Convenient entrances and exits from major commute routes
• Nearby corporate parks to find a pool of employees

An example of a building with an excellent interior, attractive grounds, and excellent nearby amenities is the Mack-Cali Bridgewater I in Bridgewater, New Jersey. Attractive from the exterior with beautiful landscaping, it has won awards for its energy reduction efficiencies. The building is near several major routes for commuting, and other buildings in the nearby business corridor make it easy to attract employees and clients to this building.

If you have a great location with all the building amenities and services that can be provided, then you have found a perfect building for your company. New Jersey has so much to offer that whether you are near Manhattan, Philadelphia or Atlantic City – they all have the potential to be great locations for you business in New Jersey.

How to Invest in Commercial Real Estate

Commercial real estate investing is done by business people for profit. There is a lot of difference between the commercial business real estate investing and the other investment properties like agriculture, residential and industrial. Commercial real estate gives a long and stable income which makes it the most lucrative option. The initial investment in the real estate property is very low compared to the returns. Examples of these properties include retail outlets, office buildings, strip malls, restaurants, hotels, apartments, multi-family apartments and many others. There are wide varieties of options available for a person to invest in commercial real estate properties.

Commercial real estate purchases are similar to other properties. The system of the investment is same which is based on selling, buying and all other legal transfer procedures. However, before investing a person should see that how much percentage of return a commercial estate property can give. A person should always research in the market before investing in any property.

First of all, check out the location of the commercial property you are interested in. Then look at the nearby areas that may develop in the future. Also make sure that the commercial property you are interested is free of any legal action and that the title is clear. Do not rush to get any property – otherwise there is a good chance that you’ll end up in a deal that you regret.

For the people who are beginners commercial real estate, you should proceed with due care. It is always advisable to take suggestions from the experts who have experience. If you are low in your budget or choose not to hire a professional for advice, you have to spend the time necessary to collect information from all the sources available in the market.

Commercial real estate investing can be challenging and interesting, but profitable as well. More information on commercial real estate investing can be found in magazines, newspapers, and online. The Internet can be a good source to get information and other things related to commercial real estate investing. There are many websites which can provide you detailed and updated information on commercial real estate investing. Good luck!

Commercial Real Estate to Lease Vs Own

In my daily dealings with small business owners I see entrepreneurs struggle with the question of whether to lease or own consistently. The idea of owning can be very appealing, especially now as interest rates are still low (historically), new loan programs are popping up like 90% non SBA financing and 30 year fixed programs. And, building bargains seem abundant.

This question is certainly not new. Businesses have struggled with this for years – in good times and bad. The decision can become complicated quickly as objective (financial, space needs, etc.) and subjective factors (business image, growth plans, pride of ownership, etc.) combine. Forces outside of the business owner’s control, such as the general economy, interest rates, future real estate values, further obscure the issue.

The most thought of advantage of ownership is the potential appreciation. However as we are seeing now, appreciation is not always guaranteed.

Historically, financial experts have broken down the question by quantifying the factors such as the difference between the down payment/monthly mortgage vs. lease payments (among many others factors such as tax rate, tax benefits, interest rate, inflation, depreciation, expected holding period, expenses, etc). The point is to come up with an estimate of the buyers Internal Rate of Return on the down payment injected into the purchase.

Internal Rate of Return is commonly discussed, analyzed and dissected. Many factors can be manipulated, such as the anticipated appreciation rate inflation rate etc, to come up with different projections. Some of the major pros and cons of ownership include:

Pros

o The creation of equity
o Monthly mortgage payment is usually lower than comparable lease payment
o Potential future rental income
o Assisting owners with wealth/retirement
o Building an asset that will assist in securing business lines of credit and other forms of loans
o Pride of ownership
o Stability
o Control
o Business image
o Not being exposed to increases in rental market
o Not being exposed to whims of landlords
o Dramatic tax benefits

Cons

o Property management responsibilities
o Interest rate exposure on adjustable mortgages and/or if mortgage balloons
o Opportunity costs of down payment not being in a more liquid asset, or being used for business operations
o Decrease in functionality of building
o Building value subject to market conditions
o Length of time in selling building
o Decrease in space flexibility

These types of analysis can be very useful and give a clear perspective on a complicated issue. But, for most small business owners in general and in our Michigan economy, the question really boils down to money, and long term plans.

First of all, can the business really afford to inject 10% or 20% into a facility? Equity is hard to “tap” in commercial real estate. Many businesses need that capital for daily operations. Secondly, what is the difference in the potential mortgage payment vs. lease payments? Is owning going to increase cash-flow for the business (as it commonly does)?

Long term plans. Owning can be the wrong strategy for companies with strong growth potential/ expansion plans as selling on the short term can be expensive and difficult. Also, companies seeking venture capital may want to shy away due to how real estate ownership affects their books.

So, without overly simplifying the issue, the economy seems to be making purchasers think more of “now”, how holding real estate affects their business immediately vs. traditional long term hold IRR type mentality. Many buyers are discovering that despite concerns over the market, ownership still makes a lot of sense for their business and personal wealth.

Some Tips On Investing In Commercial Real Estate

If there is any good thing that has come out of the recent crisis in the mortgage industry in the U.S., it is that some people who have always had an interest in investing in real estate are now finding that dropping prices are making it possible for them to do that. Today, investing in commercial real estate, whether it’s residential properties to rent or office and industrial buildings, is quickly becoming a hot ticket item with some. Before you just jump in with both feet so to speak, consider the following tips and cautions.

First off, remember that unlike other investments you might make, commercial real estate is probably going to require quite a bit of your time and attention rather than just your investment dollars. If you’re considering taking advantage of the foreclosure crisis by purchasing homes to rent out, this means making sure they’re up to code, making needed repairs and remodels, finding tenants, collecting rent, taking care of ongoing repairs and maintenance, and so on. This is also true of office buildings or other commercial real estate. You need to manage tenants, take care of the property and hire landscapers and cleaners, and so on. Yes, you can hire someone to manage the property for you, but even so, there are many decisions that need to be made, invoices to approve, checks to sign, and wages to be paid. This means that no matter what, your investment in commercial real estate is going to be an investment of your time and energy, not just your money.

Another consideration you need to think about is whether or not your investment in any type of commercial real estate is going to be supported over time. When the economic situation in one area is so bad that there are vacancies in homes and office buildings, this means that there may not be enough populace in that area to support your investment. Sometimes buildings and homes are vacant for a reason! You need to seriously research the area in which you plan on investing; is the population growing or shrinking? What industry is in this area to support the population and your real estate investment? Are businesses coming into the area or leaving it? You need to do this research before you get caught up in the hype and excitement of rock bottom real estate prices.

Search the internet and read about real estate investment in Megapolitan Areas to determine if the area you are interested in has the growth potential you will need for a good return on your long term investment strategy. Perhaps you need information on Section 8 Housing. Again the internet is a great place to find information.

Yes, there have been those who have made a fortune in commercial real estate, but usually those millionaires are the exception to the rule. In reality, whether you’re thinking of purchasing or building new, commercial real estate is unlike any other industry or investment out there. It requires a lot of research, determination, and commitment to make a success of it; be sure you’re ready with all three of these before you invest your money in any venture.

A First Time Buyers Guide To Commercial Real Estate

Commercial real estate differs from residential real estate in that the properties being purchased are either buildings or land. They are intended to earn the purchaser income. This form of real estate is usually divided into four categories; retail, office, industrial, and multifamily. Multi-family falls into not only residential real estate but commercial as well because the owner will be earning a profit from rents paid by tenants.

Retail estate includes the purchase of medical centers, mall, hotels/motels, and shopping centers. Office real estate is the purchase of office buildings, usually multi-unit. Industrial real estate refers to the purchase of warehouses, garages, and land use for industrial purposes. Multifamily refers to buildings that house multiple families, different from single family residences. Apartments, condominiums, and duplexes all fall into this category.

Those new to house search may not know that land for sale is zoned by the city for various purposes. When searching for a commercial property, one of the first things to pay attention is whether or not the listed is zoned for commercial use.

When buying commercial estate for the first time, many purchasers are unsure how a residential and commercial real estate agent differ. For the most part, their jobs are the same. A real estate agent handles the listing and showing of properties and coordinates with all other brokers involved in the transaction.

One of the biggest differences is what is involved when listing a commercial property as opposed to residential. There are many factors that need to be considered when calculating the sale price and also business records that need to be copied for prospective buyers. The value of any machinery and fixtures on the property need to be factored in to the overall cost.

The task of marketing a listing does not vary much between a residential and commercial broker. There are many ways in which a property can be marketed, especially in the age of internet savvy consumers. Virtual tours are quickly becoming a common tool used to promote a brokers listing. While the methods use to market a sale may not be different, the target audience might as the clientele would not be the same as someone who is trying to buy a home.

Closings, also called escrows, are not much different either. All transactions must be handled through an escrow, a third party, and this is traditionally where the closing documents will be signed by all parties. Regardless of the sale type, all real estate transactions must be negotiated through a third party who also handles the monies. The title company is responsible for finalizing the documents and the sale and also for distributing closing costs.

Making a commercial purchase for the first time is a use financial risk and can be daunting. There are questions that all buyers should make sure the ask the broker when interested in a listing. These questions can help make the decision to purchase less stressful and closing run more smoothly. It is important to ask how long the property has been available. Knowing that a property has been on the market for a long time is helpful negotiating tool. Asking if there have been any closing problems can indicate issues with the property passing inspection.

When purchasing any property, it is imperative to ask about it’s condition. A price may seem with a consumers budget, but if a major remodel or investment is needed it may not be worthwhile in the end. As mentioned earlier, asking what the property’s zoning is establishes what the usage for the property can be. Also vital to a purchases knowledge is whether or not the property has any easements. These, too, can restrict usage. Commercial real estate may seem harrowing at first, but as long as a purchaser asks many questions and has a trustworthy broker the payoff can be huge.