The Truth About Commercial Real Estate
Success or Failure
The truth about commercial real estate is that it is a balance. The balance embraces many factors that operate effectively together. When these factors are not in balance, then the scale tips. This can mean the difference between success and failure.
Sometimes commercial property investors begin their journey on the road to success by buying a duplex or apartment and then another and so on, until sooner or later they hit the wall. This happens when the bank lets you know that they cannot give you any more single family mortgages or that your portfolio is out of their lending parameters. This is when you begin to consider your options in investing in commercial real estate. What we want you to recognize is that residential investing is different than commercial investing. Many real estate investors are like a fish out of water in the seas of commercial real estate. Some of the questions you may ask when checking out commercial property are: “How do I know how much the property is worth? What are the benefits? What are the risks? What kind of money are we looking at?” We understand that this uncertainty can be overwhelming. So, we are going to explore with you a little on the truth about commercial real estate.
The Pros About Commercial Property Investment
We want you to be an intelligent investor so you can build a significant amount of wealth investing in commercial real estate. What this means is taking the time to really think things through. We are going to start by mentioning some of the pros and cons of commercial property investment.
You Can Make a Tremendous Amount of Income
The pros about commercial property investment regard that fact that you are not just buying property, you are buying a business. This is an opportunity that can give you a tremendous amount of income once you get your personal financial business in order.
More Objective Price Evaluations
When you evaluate commercial property income flow you can request an income statement from the current owner and determine what the price of the property should be based on that figure. Hoping the seller is employing a broker who knows what he is doing, the asking price should be set in terms that allow the investor to earn the area’s prevailing cap rate depending on the property. Just a note on this: residential property is more emotional in its pricing than this method
The Public Eye
Commercial property is going to be maintained because the business owner needs to maintain a good impression for the public eye. This makes it a win-win solution for the investor and the tenant.
Triple Net Leases
The cool thing is, even with the variations in triple net leases, the basic thing to know is that you do not have to pay any expenses on the property like you would if it were residential real estate. The truth about commercial real estate in triple net leases is the lessee takes care of property expenses personally, which includes real estate taxes on the property. The only expense you take care of is the mortgage.
More Flexibility In Lease Terms
The truth about commercial real estate is that there are fewer consumer protection laws. This is unlike the multitude of state laws such as limits on security deposits and termination protocols that embrace residential real estate investing.
The Downside to Commercial Real Estate
Time Commitment
When you get into this kind of investment, if you own a commercial retail building with tenants, there is going to be more to manage. You really cannot be an absentee landlord and make the most of the return on your investment. Your tenants are in the public eye, which makes you also in the public eye. Putting in the necessary time helps to maintain a good reputation.
The Money
It is not always easy to get your foot in the door where money is concerned in commercial real estate investments. Investing in commercial property requires more up-front capital than does residential property in the same area. We want to tell you that you can expect a few large capital expenditures once you have invested.
The Risks
We want you to know the truth about commercial real estate investing. There are more risks involved than in residential real estate. This includes the fact that because of the nature of commercial real estate as business space, more people are on the property, so that means people get hurt or damage your property at times. It also means the risk of vandalism. Someone can come along and spray paint graffiti all over your building. Unfortunately, this happens all the time.
You Will Need Professional Maintenance
The truth about commercial real estate is that you still have to handle the maintenance. What we want to advise is to add on an estimate of property management when you are evaluating the price of the commercial property you are considering. In general, property managers charge between 5-10 percent of rent revenues for their services.
We want you to succeed. It is our hope that you have a better understanding about the truth of commercial real estate.
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