3 Reasons to Try Commercial Real Estate Investing

3 Reasons to Try Commercial Real Estate Investing

On 18, Nov, 2016

If you’re interested in owning real estate as an investment, chances are you’ve thought about the commercial real estate investing option at some point. After all, someone owns all the buildings those businesses occupy, and it isn’t always the business owners. And what about those apartment buildings with dozens of tenants? Somebody owns those, too – and they’re probably making a lot of money off the rent.

Below, we’ll talk about 3 reasons you should take a very close look at owning some commercial real estate as an investment. Read on!

Reason #1: A Grander Scale

The bottom line is that you can own and manage a lot more mobile homes, apartments, and office spaces than you can residential properties. And if you can justify having an onsite manager (offering them a free apartment and/or a small salary), then you’ve just gotten yourself out of the property management game while still earning money off the rent.

This economy of scale also comes into play with maintenance because you’ve got consistent work for a crew – which means discounted rates from any outside contractors you bring in. Your maintenance department will likely take care of most things, though, and if you’ve got the head of maintenance living on-site, then your residents will feel more secure – giving your building a better reputation and more prospective tenants.

Reason #2: Valuation

It’s true that the value of a commercial property is partially calculated by market comps and replacement value, but the true value of a property comes from its Net Operating Income (NOI). This is the Gross Income minus operating expenses, not including debt services.

So as a general rule of thumb, you can take your property’s NOI and divide it by an appropriate CAP rate for the market you are evaluating, and this is your property’s true value. Similar to residential real estate, in commercial, you don’t make the most money on a property that’s already in great shape. You make the most money on a property that could be in great shape.

Reason #3: Interesting Financing Methods

It’s possible to purchase multi-unit properties with little to no money down via private money partners. Often, a commercial loan will be much more lenient than a residential one. You can also do a combination method of financing, using a commercial loan plus a private money partner to get the sum you need.

Sometimes, buyers can even walk away from closing with cash in their pocket. If they do what’s called a “lease-back,” where the seller leases back part of the purchase from the buyer, then the seller will pay for this lease at closing and increase the property’s NOI – which gives the buyer a chance at better financing from the bank.

Interested in Commercial Real Estate Investing?

Our designees are leaders in the world of CRE – and when it comes to buying investment properties, nobody knows more than a CCIM designee! Contact us today for more information on commercial real estate investing. We have all the expertise you are looking for!

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