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.

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.

Commercial Real Estate Investing – What You Need to Know

Commercial Real Estate Investing Basics

Commercial real estate investing is a terrific way to make money if you know how to invest correctly. Commercial investing means that you are making real estate transactions that don’t apply to single family homes. Instead you are investing in apartment complexes, retail properties, office buildings, educational buildings, warehouses, manufacturing facilities, etc.

There are several real estate properties that are deemed as commercial. This may even be a vacant lot were a future commercial building could be structured. Even parking lots could be considered a commercial investment. Or there is already a working business on the lot of land that you are investing in.

When you choose to get involved in commercial real estate investing, you are putting your money in a reasonably safe place. And more than likely, you will have some great returns if you are smart about your investments. This type of investing has a lot of potential for making the big bucks.

For you do to well in commercial investing, you will want to educate yourself. You can do this by attending investment seminars or courses, or even reading some do-it-yourself literature. You will want to know everything you can about what you are doing with your hard-earned money

Why Commercial Real Estate

Commercial real estate investing is really attractive because it lets investors build equity, supply rental income, and just earn money to use for your own business. Depending on what you want to do and the type of money you want to get back, there are several procedures in managing your investments and properties. You may want to consider taking more than just a few informal courses if you are serious about investing in commercial real estate. You might want to think about taking some specific classes on commercial investing.

Buying property instead of renting it will permit you to gain equity. When you own the property, you can also manage it how you want and won’t have to worry about the rules and stipulations put on you by an owner other than you.

If you are playing with the idea of commercial real estate investing you will want to do some research, educate yourself, make lists of your goals and how you can achieve them, and compare the advantages and disadvantages to help you make decisions. When you follow these steps, making the right decisions will be an easier process for you.

Real Estate Investing – The “Business Plan” and Developing a Market Analysis – Part I

Market analysis is the beginning part of your real estate investment business plan.

What Is Your Target Market?

The first question is what is your target market? These are extremely, extremely critical questions. I don’t think anybody can go through this business plan without addressing that question.

For example, it could be a town that you want to invest in. It could be a zip code. It could be an area code. It could be a part of a town or part of a county or something like Philadelphia that is a very large city. I don’t know how many people we have, 4 or 5 million people, something like that, but Philadelphia is broken up into probably 80 or 90 different neighborhoods. If you wanted to invest, you’d probably pick two or three neighborhoods – that’s it.

As a small real estate entrepreneur, you certainly would not be investing in “Philadelphia.” That’s way too large and way too diverse. There are low-end sections of Philadelphia and there are extremely high-end areas. You would pick two or three neighborhoods that you’d want to invest in. Again, you’d know every single street. You’d know what the prices are. You’d know what the rents are. You’d be the expert.

Narrow Down Your Target Area

Again, try to narrowly define your target area. Where is it? I would estimate that you’d probably need to pick an area that is anywhere from 15,000-30,000 houses. That is a nice size community – not too large, not too small. There should be plenty of deals within a community of 15,000 to 30,000 houses. I would not suggest that you start looking at cities with 500,000 or more. That’s just way, way too big. There’s no way you can become an expert on that area.
The whole point here is, as a private lender, why would I want to invest with you? If you’re not the expert and you don’t have the specialized skill or expertise, if you’re going to be all over the world and have no special skills, why would I want to invest with you? If you tell me, “I’m only going to invest in this small little community, and I know the last 10 sales on that street, and I know what they average,” now you’re starting to pique my interest. Now you’ve demonstrated that you’ve got some really specialized skills, so that’s why we go through this process.

Other Things to Consider

Other things you’re going to need to address –

· What types of properties are you going to be buying?
· Are you going to be buying single-family homes?
· Are you going to be buying duplexes?
· Are you going to be buying apartment buildings?
· Are you going to be doing commercial buildings?
· Are you going to be doing small strip malls?
· Are you going to do multi-unit buildings with commercial at the bottom and residential at the top?

It’s not important what you pick. It’s whatever you think you’re good at and you like. But it’s important that you do define what that is. I don’t want you saying, “I buy real estate.” That’s not really meaningful to anybody. I want to hear, “I buy apartment buildings with anywhere from 10 to 25 units in this town. That’s the type of real estate investor that I am.”

So again, think that through. Define it. You’re going to hear that all through this process, I want you to narrow down your focus. I do not want you to expand your focus bigger because you’re afraid of losing a deal 50 miles away. There are plenty of deals close by. You do not need to go far away.

Beat the Crowd When Investing in Real Estate

We all are thinking about it and some of us are actually taking action and getting their hands on real estate investment properties. The longer the NY Stock Exchanges doesn’t produce desirable returns the more people are starting with real estate investments.

For most of us the obvious choice of properties are single family homes. Although you can invest in real estate without owning a home, most people follow the experience they made while purchasing their own home. This is familiar ground and the learning curve for doing a real estate deal of this type is pretty slim.

Of course there’s a drawback with this approach. The competition is fierce and there are markets where investors are artificially driving up the cost of the properties while completely discouraging first time home buyers. If this is the case, the burst of the real estate bubble is just a matter of time.

How do you avoid these situations and still successfully invest in real estate? How do you get ahead of the competition and be prepared for bad times in real estate investments as well? The only answer I have is commercial real estate.

Why commercial real estate you might ask? Commercial real estate is a solid investment in good and bad times of the local real estate market. The commercial real estate I’m referring to are multi unit apartment buildings.

Yes you will become a landlord and No you don’t have to do the work by yourself. You are the owner and not the manager of the apartment building. The cost of owning and managing the building is part of your expenses and will be covered by the rent income.

Apartment buildings are considered commercial real estate if there are 5 or more units. To make the numbers work you should consider to either own multiple small apartment buildings or you should opt for bigger buildings. This will keep the expense to income ratio at a positive cash flow. Owning rental properties is all about positive cash flow.

With investing in single family homes it is easy to achieve positive cash flow. Even if your rent income doesn’t cover your expenses 100%, the appreciation of the house will contribute to the positive cash flow. With commercial real estate the rules are different.

While single family homes are appraised by the value of recent sales of similar homes in your neighborhood, commercial real estate doesn’t care about the value appreciation of other buildings. The value of the property is solely based on the rent income. To increase the value of a commercial real estate you need to find a way to increase the rent income. The formula on how this is calculated would be too much for this short article. I listed a few very helpful books where you can find all the details.

What’s another advantage to invest in commercial real estate? Commercial real estate financing is completely different than financing a single family home. While financing a single family home you are at the mercy of lenders who want to make sure that you are in the position to pay for the house with your personal income. Commercial real estate financing is based in the properties ability to produce positive cash flow and to cover the financing cost.

After reading all these information about commercial real estate you want to go out there and dive into the deals. Not so fast. First, you need to learn as much about real estate as possible. In commercial real estate you’re dealing with professionals. If you come across too much as a newbie you will waste these guys’s time and your commercial real estate career ended before it actually started. Second, no commercial real estate lender will lend you any money if you can’t show at least a little bit of real estate investment experience.

What’s the solution to this? Go out there and do one or two single family home deals yourself. It doesn’t matter if you make huge profits to start off with. Most newbie investors are losing money on their first deal anyway. If you can manage to show positive cash flow with your single family home deals you are ahead of the pack.

My advice, buy a small single family home in a decent neighborhood and rent it immediately. This will keep your out of the pocket expenses at a minimum and you will have rent income to cover for your monthly expenses. Bonus, you gain experience as an investor and as a landlord.

Here’s another observation I made during my real estate investment career. Most people like to analyze, learn, discuss and analyze some more. They never actually got to do a real estate deal. They love to talk about real estate investments, but never did it themselves.

My approach to real estate investment was simple.

– I bought some books about real estate investment.

– I read every single one of them.

– I put together a simple plan on how I want to get started.

– I started looking for properties.

– I bought my first investment property 30 days after I started reading my first book.

– I made positive cash flow with all of my properties so far.

What is my point? You have to go out there and practice what you’ve learned. The only valid credential in the real estate business is practical experience. Having a couple of deals under your belt, you can go out there and start looking at commercial real estate and even impress seasoned investors with your knowledge. Because you made this experience by yourself and you know what you’re talking about.