Tips For Commercial Real Estate Investment

Commercial Real Estate Investment involves buying commercial properties that are bigger than a 4 unit apartment building. It is that real estate investment in which an estate is rented out or sold to make profit through rental income, interests, dividends, royalties, etc. but not for primary residence. It is better for the investors who are beginners in the field to avoid commercial real estate investment strategy. On the other hand, experience investor can go for for this kind of investment as the competition is much less. It is also the best choice asset class for building wealth, you may ask why? This is because there is a limited supply of land; no more land is being created! If you select a real estate with a land component in an area of increasing population and demand, the laws of supply and demand will work in your favour to increase the value of your investment. It provides better leverage than any other asset investment, with the ability to typically borrow at least 80% of the purchase price on house and land packages. 100% lends are possible in some circumstances. It physically exists and everybody needs a roof over their head. Wherever there are people, there will be demand for real estate. Given a healthy national economy, no deflation, an increasing population, or at least increasing demand for property in your chosen investment area, then your investment is liable to increase in value over time. You may have no control over the state of the economy, but I tell you, you can stack the chips in your favour by selecting the right type of property in the right area. Commercial deals take longer than other investments. They take longer to purchase, renovate, and get sold. This is not necessarily a bad thing, but something to keep in mind so that you don’t get impatient or rush into a bad decision.

Tips to help you succeed in commercial real estate investment

This investment is not a get rich quick scheme. It takes time as I said earlier to buy, renovate and sell, so you need to be patient. Think big and embark on big investment, buy properties at least 10units, remember that the more the unit you buy the cheaper they are per unit. Be prepared to spend a lot of money at first, fight the temptation to be discouraged by this, always have in mind that you can overcome this by borrowing from real estate investment trust or other source as I mentioned in one of my articles. Predictability is required in this investment because it follows a cycle which can be predicted, with predictability you can grow. It also requires consistent and persistent. Learn to analyse properties, know the worth before buying. Before now you suppose to know that commercial real estate is the business of marketing and finance, so you have to be master of finance, learn about mortgages and interest rate, loan programs that are out there. Also you need to be a skilled problem solver for anything going on in the business field in other to excel in this investment. Finally, remember that this business is not static, it changes in strategy and other aspects, so you have to be updated in the latest information, to do this you have to continue with your education/training on this.

Thing to look for when buying commercial real estate investment property

1. Solid Land Component; Aim for an investment where at least 30% of the purchase price is comprises of the land component. House and land, villa units, townhouses, and low apartment buildings can all fit in the bill. Land is the only limited resource, and that means value for you. If you purchase a unit in a high rise, not only will the value of the building depreciate over time, but what is to stop developers erecting more high-rises and diluting the supply in your market?

2. Stable or Increasing Population; Invest in an area with an increasing, or at least stable, population base. Avoid towns which are dependent on a single industry for the bulk of their employment. If the industry folds, so will the tenants.

3. Transport, Shops and Public Amenities; Invest in an area close to schools, shops, public transport and good public amenities such as a post office, library and park lands. These are the basic factors that make an area desirable to live in and will help to ensure continued demand for property in that area over the long time.

4. Affordable for an Average Worker; Select a median property in a median area, one which is affordable for the average workers. High end real estate is prone to vacancy and busts in recessionary times. Low end real estate is less desirable, can attract a lower quality of tenant, and cost you more in maintenance. Aim for a property that will rent for no more than 40% of the average household income for that area, preferably 30% of the household income.

5. Affordability for you, the investor; Try to invest in property that at least pays for itself, that is to say that the rental income will at least cover your mortgage repayments, insurance, maintenance, management fees, local rates and taxes. If this is not possible in your area, consider alternative areas. Otherwise you can still build wealth with negative geared property.

Above are few tips on how to succeed and buy a good investment properties. Just bear them in mind when buying commercial real estate properties and I bet you, you cash flow will boom.

Real Estate Investing – Be Wary of the Real Estate Gurus

Are you a real estate investor or have you just started trying to get involved with real estate investing?

The national housing market in 2012 is still the lowest that it has ever been in the last 30 years. Yet, positive reports about the real estate market are starting to crop up in the national news. So called, real estate gurus would have you believe that, now is a good time to get involved in real estate.

Did you know that Real Estate investors popped up everywhere the last two times that the national housing market crashed in the last 30 years?

What, the housing market crashed before?

Yes, some of you may remember how things seemed historically bad in the early 1980′s. What happened then? Infomercials and books were written about ways for you to make tons of money by simply following simple strategies.

Then the housing market tanked again in the early 90′s. Guess what, the same thing happened again. A flood of gurus popped up with magical ways to make money in real estate.

What is going on?

Well, when the housing market drops houses depreciate in value. This depreciation lowers the value of homes. The further the drop the cheaper the properties. The housing market often reflects what is going on with the national economy.

Therefore, if houses are getting cheaper it would seem like a great time to get involved in real estate, right?

WRONG!!!

Look at what happened in the Las Vegas housing market. Back in the early 2000′s Nevada’s property values were shooting out the roof. If you held property between 2000 and 2005 you made a ton of money fast. Suddenly, the national housing markets tanked and guess what happened in Las Vegas?

Yup, Vegas also tanked and tanked real bad. All of a sudden properties were underwater and real estate was getting cheap. Private investors who could not afford to invest in Las Vegas when it was in its heyday, now could afford multiple properties. A slew of investors rushed in hoping to see Las Vegas rebound and make everybody rich.

Did that happen?

No, unfortunately the Las Vegas market and the national average dipped some more. Many investors including real estate gurus lost tons of money. Did investors learn their lesson?

What do you think? No, now there were cheaper houses than ever before. Newer investors started gambling on Las Vegas again buying up all of those great deals. Did these investors strike it big?

Boom! The housing market fell harder and these newer investors lost their money.
What can we learn from all of this?

Just because a bunch of real estate gurus tell you that now is a good time to invest does not always make it true in every market. Those who invested in the Las Vegas market learned this the hard way. Does this mean that all gurus are a bunch of scam artists not to be trusted?

Of course not, there are many reputable gurus who can be great mentors. The point is that you need to understand that not all real estate markets reflect the national average. Let me repeat:

Not All Real Estate Markets Reflect the National Average.

Does that statement get your attention?

You see, the news media get their statistics from national analytical and financial tools. This is not an accurate way to navigate investments. What is happening nationwide does not always reflect what is happening in your individual housing market. This fact also suggests that not all real estate investing strategies work in every single market.

Every county and zip code has its own personality. Not one market is exactly the same. If the investors who went into Las Vegas understood this then they would not have tried to buy and hold property while the Las Vegas market was crashing way below the national average.

Not all markets followed the national average. Let’s take Rochester, NY or San Antonio, TX for example. These markets stayed stable during the present national crisis. Some of the property values in these areas have even experienced an increase in value.

The writer of this article has investment property in Rochester, NY. He started purchasing property back in 1997. One single family property was purchased for $45,000, in a desirable section of the city, back in ’97. In 2011, the city assessed the house for over $79,000 in a neighborhood where single family houses are presently selling in between $92,000 – $102,000. In other words, this house will sell for more than the assessed value now. In 2012, the house assessed for over $88,000. That is close to a $10,000 increase in just a year at a time when the national housing crisis was at an all-time low. Pittsburgh, PA/ Dallas, TX/ Raleigh, NC (to name a few) have also been affected very little by the national housing crisis.

This previous paragraph simply illustrates the fact that not all markets reflect the national average. So, how do you avoid making the same mistakes as those who invested in the Las Vegas market?

You need to understand the individual market that you are investing in. Do your research first. Do not allow real estate gurus to tell you that their strategies will work in any market. This is simply not true.

Part 2 of this series will explain the markers to look for before choosing to buy and hold in a housing market that seems to have a lot of cheap and profitable real estate opportunities.