by Prince Licaylicay | Nov 16, 2021 | All Articles, Buying, Investing
There are a lot of investment opportunities to choose from in these times. From stocks, bonds, trust funds, commodities and gold, cryptocurrency, to real estate. It all depends on your risk tolerance, preferences, and long-term goals.
If you are an investor, first-time or not, who prefers to invest in real estate among other investment opportunities then this article will be of interest to you. As you may know, real estate is classified into two (2) categories – Commercial Real Estate, and Residential Real Estate. Read through this article to know the four (4) reasons why you should invest in commercial real estate (CRE) over residential.
Higher Income Potential
The income you can generate in a commercial property is much greater than their residential counterparts. Generally, commercial tenants cover many of the costs for the upkeep of the property. They pay CAM (Common Area Maintenance) charges to maintain the building, insurance, administrative fees, etc. of the commercial property they are leasing. Because this pass-thru cost is covered by the tenant, landlords do not have to worry about these expenses on the back end. On residential real estate, these expenses are not usually covered by the tenants; and if these charges are indicated in the lease contract, most of them are being negotiated.
This simply means that investing in commercial properties shows a greater value of income returns when compared to residential properties. Not only do the maintenance charges, administrative fees, and other expected fees being covered by the tenants making commercial real estate a reliable source of income over residential, but also commercial tenants tend to sign on for longer leases to avoid the hassle of changing their business location. This gives commercial landlords a sense of security that their properties will be occupied for longer periods of time. So if you are an investor, consider this – instead of making a few hundred dollars on a rental home every month, you could make thousands of dollars or even more if you choose the right commercial properties to invest in.
Quality Tenants
Commercial properties usually have stronger tenants than residential ones. If you are a residential property investor or a residential landlord, you will encounter a lot of calls from tenants requesting some issues or problems be fixed with their rental homes. Although you are responsible to cater their needs and address their issues, many of them end up calling in the middle of the night and on weekends causing a higher level of inconvenience.
These scenarios are rare and do not usually happen in commercial properties. Tenants leasing in commercial spaces tend to be much more professional. If they happen to encounter some issues, they have their own maintenance team to take care of it. Also, commercial tenants usually work normal business hours, so any calls you get from them will be at a normal time of the day. Therefore, investing in commercial real estate gives you better and quality tenants, and it also saves you from receiving calls in the middle of the night to address an issue or help a tenant get into their house.
Less Competition
The competition in commercial real estate is lesser compared to residential. Residential properties are very common and widespread which makes any commercial property appreciate differently due to the fact that a lot of investors often overlook the value and potential of CRE. Since financing is more difficult in CRE, available buyers will be lesser in comparison to residential real estate market. Hence, those who qualify are able to look at more options with less competition.
With that being said, choosing to invest in CRE not only gives you higher returns but also more income opportunities and profit potentials on your side!
Property Value Appreciation
A good investor carefully chooses what, where, and when to make an investment. Investing in a commercial building is a better and secure option when compared to a residential property. Why? Because when you invest in a commercial real estate, it appreciates quicker than that of residential.
One of the most significant distinctions between residential and commercial real estate is how property values are calculated. While comparable properties have a big influence on residential real estate, revenue has a big impact on commercial real estate. Moreover, commercial real estate properties are less susceptible to fluctuation making them a safer and stable investment.
Even after outlining all the information above, buying and selling CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Nov 12, 2021 | All Articles, Buying, Investing
Closing the real estate transaction is essentially the completion of an investigation made or actions taken by either a single agent or title attorney before the actual issuance of the title insurance policy. While it is not the job of the title attorney or agent to cure any defect or complications with the title to the property, title attorneys and title agents nonetheless assist in this area regularly. Get to know more about the closing process of Commercial Real Estate (CRE) through the following steps:
Commercial Real Estate Closing Process
Establishing a plan – Developing a transaction plan is the foremost step. Such a plan must guide contract negotiations and the actions necessary for closing and post-closing. For example, in the instance that there are (a) zoning requirements, (b) availability of utilities, or (c) the confirmation of structural elements of a building, the plan as well as the purchase agreement must address those issues and be included as part of the closing requirements.
Assess the issues – It is essential to be prepared for problems that can arise during a commercial closing. Failure to understand and resolve these issues is one of the causes of transaction missteps. Risk shifting techniques, such as insurance with appropriate use of available commercial endorsements, can effectively mitigate transaction risks. An experienced commercial real estate attorney accustomed to available commercial endorsements can most often overcome title obstacles through effective contract drafting and the assistance of a professional title underwriter.
Opening an Escrow Account – An escrow account is one that a third party holds for the buyer and seller. As per practice, a commercial property sale involves multiple steps and is typically completed between fifteen (15) to ninety (90) days. Thus, to prevent fraud, it is necessary to bring a neutral third party. This third party can hold all the money and documents associated with the transaction until everything is resolved. Once all procedural and substantial formalities are over, the capital and records are transferred to the seller and buyer to an escrow account, guaranteeing a secure transaction.
Title Search and Title Insurance – A title search and title insurance provide peace of mind and legal safeguard. Title search and insurance ensure that when a person purchases a property, nobody can claim it afterward.
Title search refers to examining public records to ascertain a property’s legal ownership and discover what claims are on the property. And on the occasion that there are claims, they may be settled before the buyer gets the property. On the other hand, Title Insurance refers to indemnity insurance that guards the holder against financial loss sustained from defects in a title to a property. Thus, it protects real estate owners and creditors against the uncertainty of loss or damage stemming from claims or title defects.
Coordinate all closing requirements – New issues often arise towards the end of closing, frequently because of the necessity of relying on independent third parties and providing certifications and property tours dated near conclusion. As the closing approaches, CRE brokers, CRE counsel, and all necessary buyer and seller representatives should remain available and ready to respond to the changing demands and circumstances.
Negotiate Closing Costs – Costs incurred from opening an escrow account to hiring a real estate attorney. These costs can, unfortunately, accumulate from zero to a million if you aren’t cautious. Unfortunately, however, many services take advantage of consumers’ lack of knowledge by charging exorbitant fees. Moreover, even fees for legitimate closing services are often subject to inflation.
Lenders most often charge junk fees, i.e., fees which the lender imposes upon the borrower at the closing of the mortgage. These fees are not expected by the borrower and are not clearly explained by the lender. As a result, these fees can accumulate to an enormous bill. Junk fees include administrative fees, application review fees, appraisal review fees, ancillary fees, processing fees, and settlement fees.
Ensure proper Interest Rates – Interest rates – including those offered on the mortgage – are often unstable and often subject to change. In addition, these interest rates are subject to multiple factors, namely: geographic region, property type, type of loan applied for, and the applicant’s credit score. And so, it is advisable to lock in the interest rate for the loan in advance. This prevents you from being at the mercy of market fluctuations, which could cause rates to rise before you finalize your property purchase. Even a small rate hike can significantly increase your monthly payments and the amount of time it takes to repay the mortgage.
Accost the Funding Requirements – You most likely deposited earnest money when signing the purchase agreement. Earnest/option money is a deposit made to a seller to reserve the item for the given period. It indicates the buyer’s good faith, seriousness, and genuine interest in the property transaction. On the chance that the buyer backs out, the earnest money is forfeited in the seller’s favor as payment for the period within which the seller may sell the property. Conversely, if the seller backs out, the money is returned to the buyer.
To complete your purchase, you’ll have to deposit additional funds into escrow. Failure to do so can lead to the sale getting cancelled, with the earnest money going to the seller.
Title and Closing Paperwork – Before the transaction is finalized, the buyer and seller must accept the title report and complete the closing documents. These documents may include the assumption of leases, deeds, environmental reports and assignments of liability, zoning disclosures and warranties, and anything else that has been agreed upon to close the transaction.
In the sale process, the title company will provide a report of the current state of the property’s title. After this report is made, the buyer needs to review it and file any objections carefully. The seller is also under a limited timeline to respond to these to go through with the sale.
When all issues with the title are cleared up, a final title report is made. Both parties will need to analyze for final approval before moving forward with other closing documents, such as Zoning/ Building Jackets, Environmental Reports, and Deed transfer with title affidavit, as well as assignment and assumption of any leases.
Understanding the Paperwork – Paperwork is essential to closing the property deal. Despite there being a plethora of legal terms, one should read it themselves. And on the instance that one does not understand any legal terms, he/she should hire an attorney for their review and help smooth out any issues with the transaction.
In conclusion, while it may seem that the closing process is a lot of work, it is worth the time and effort to get things in the proper order before signing anything that one does not understand. While real estate brokers and other entities can and will help during the process of the transaction, they can’t ensure that the transaction is problem-free. Hence, it is up to you to ensure that the transaction is free from possible one-sided transactions and dealings before closing the Commercial Real Estate Transaction.
Even after outlining all the information above, buying and selling CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Nov 9, 2021 | All Articles, Buying, Investing, Leasing
Bustling skyscrapers and offices cramped and crowded with workers could be a fragment of the pre-COVID-19 world.
The COVID-19 Pandemic Health Crisis has forced millions of Americans to abandon their offices in favour of working from their homes. However, there are sure signs that this may not be a short-term phenomenon; rather, it is more of a permanent shift in lifestyle, day of life, especially remote work even after the COVID-19 pandemic has settled.
According to a survey released by KPMG, a global network of professional firms providing Audit, Tax, and Advisory services, more than two-thirds (68%) of prominent company CEOs plan to scale down their office spaces[i]. The COVID-19 pandemic has demonstrated that employees don’t need to work in cubicles or offices to be successful. And that, in turn, begs the question regarding the value of offices and expensive office space, especially in high-end and high-priced cities like New York, San Francisco, and Los Angeles[ii]. In fact, according to KPMG’s CEO, Paul Knopp, that home-based work or virtual working environments have proven to be somewhat effective and productive. Moreover, a survey of companies with an approximate total revenue of $1 billion held that shifting to a more adept and ready virtual model is not going away. In fact, it is going to be the norm. Corporations are accelerating their investments to accommodate and pioneer a shift to a virtual working environment. Corporations will be planning to spend more on the digitalization of workplaces and the accommodation of work-from-home employees lest they be left behind in the arms race of virtualization of operations and creating the next generations of operating systems and models. There will be no question that corporations will invest in creating a workforce model, the increased use of automatons, and artificial intelligence to work alongside humans to accommodate the changing tides. This is the modernization and effect of the COVID-19 in the workplace. It forces corporations to shift their focus on the modernization and digitalization of their workplace, preceding expensive office space in favour of a virtual working environment.
Even before the COVID-19 pandemic, a growing shift towards remote work offices across America has organized this movement at a rapid pace. The declaration that expensive office spaces to be dead have evolved from whispers to shouts. People are beginning to realize – especially in light of the pandemic – that the old concept of office space may no longer be useful for many industries as they entail high overhead costs. This, however, does not mean that it is entirely gone; instead, it has merely changed; evolved. The concept of the rebirth of office spaces through its virtualization and digitalization has paved the way for companies to rapidly grow and take opportunities for certain companies to capitalize on this trend. That being said, while some businesses have thrived in the realm of remote work, others have toiled or have had to shut down completely. With COVID-19 cases continuing to rise, remote work will be the focal point of companies if they wish to stay afloat. A downside of these remote working conditions is due to the seemingly unending confinement and isolation caused by the pandemic. Many employees are missing the human element and camaraderie that comes with an in-person workplace. For the forward-thinking investor, both of these competing forces create an attractive opportunity for investing.
However, there is no situation that offices will ultimately die. For example, let us take the experience during mid-2021 where states lifted the stay-at-home order and gradually let business re-open. Companies gingerly allowed white-collar workers to return to office buildings despite weighing how much they needed the space. While about half of U.S. employees worked from home during the COVID-19 pandemic during shutdowns, many companies – including Facebook, Google, and Morgan Stanley – plan to continue allowing at least some staffers to telework at least some of the time even after the vaccine and the health crisis is over. Analysts, moreover, do not predict an abandonment of office spaces. More office spaces will be needed in the short term to accommodate social distancing requirements until the lingering effects of the coronavirus will be totally controlled or even eliminated. There could be a very likely scenario where leasing and construction activities in less expensive suburbs would increase with this premise in mind. Over the long term, companies will most likely still want most workers in the office to promote collaboration and morale.
The home isn’t an office and shouldn’t be treated as such. Late in May of 2020, Google had given their employees an allowance of $1,000 to purchase the necessary equipment and office furniture. The question is whether this allowance is enough to make one home a truly adequate office space. There is, therefore, an uneven playing field, as one’s own home is not like another’s. While some may already have the necessary equipment, furniture, appliances equipped with expensive technology from printers to coffee machines and an internet connection, others will be struggling to find a place to stay or a desk to place their equipment. In addition, the sudden shift to virtual working has had some hierarchal hurdles. Rank and file employees are more likely to be in a house with minimal workspace, and therefore their productivity will be hindered. In stark contrast, managerial or supervisory employees will undoubtedly have the funds and space to make virtual working as comfortable and as easy as possible. Hence, it can be reasonably said that office spaces will never be phased out and will never cease to exist as technical, physical, emotional, and people problems will exist.
In summary, while office spaces might be, at first glance, at the brink of extinction due to the COVID-19 pandemic, further analysis into the circumstances would tell otherwise. There are many advantages that office space tends to offer, from a moral standpoint to a worker’s productivity. Consequently, while virtual office space has emerged in light of the COVID-19 pandemic, this does not spell disaster nor the end of office spaces. In fact, it will be a catalyst for office spaces to be as affordable and essential as ever.
Even after outlining all the information above, if you have questions around leasing or buying commercial real estate (CRE), please reach out to our Team at Commercial Properties, Inc. We’re here to help you achieve your CRE goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
[i] https://home.kpmg/xx/en/home/media/press-releases/2021/03/nearly-half-of-global-ceos-dont-expect-a-return-to-normal-until-2022-ceo-outlook-pulse.html
[ii] https://home.kpmg/th/en/home/media/press-releases/2021/03/press-release-ceo-outlook-pulse-2021-en.html
by Prince Licaylicay | Nov 2, 2021 | 1031 Exchange, All Articles, Buying, Investing, Selling
The concepts on real estate investing can be tricky, especially if you don’t know the basics of each. Here, we have rounded up information about 1031 Exchanges vs. Delaware Statutory Trusts (DST).
Real estate investing has some advantages to boast, such as:
- The use of leverage to increase returns;
- Significant tax advantages from “non-cash” expenses such as depreciation;
- The ability to defer capital gains taxes to the use of the 1031 like-kind exchange have long made real estate an attractive option for investors.
What is a 1031 Exchange?
1031 exchanges refer to the IRS code that provides the law and specific requirements regarding “like-kind” transactions. Like-kind transactions allow real estate professionals to grow and diversify their portfolios, with limited federal income tax implications. To qualify under Section 1031, there must be an exchange of real property held for the productive use in a trade, business or investment solely for property of a like-kind for practical use in a trade or business or investment.
Investors have turned to 1031 exchanges to defer their capital gains taxes, as well as additional tax liabilities, which, in some states, include state capital gains taxes, Affordable Care Act surtaxes, and depreciation recapture taxes. 1031 Exchanges may permit real estate investors to perpetually defer these taxes provided that they continually reinvest capital back into other forms of real estate. In fact, the IRS allows subsequent exchanges each time a property is sold, which allows an investor’s equity to continue growth potentially. At the same time, be tax-free unless such investment is alienated, transferred, or sold.
What is a Delaware Statutory Trust (DST)?
A Delaware Statutory Trust is a mode of real estate investment that provides individuals with an avenue to commercial investment properties that can be significantly larger than what they could acquire on their own. These properties are often the same type and quality as those purchased or owned by large institutional, corporate, or government investors, such as pension funds, insurance companies, or REITs.
DSTs provide 1031 exchange eligibility for individual investors upon entry and exit, a benefit not commonly available to other co-ownership structures. Moreover, DSTs can also provide tax-advantaged monthly income, which could be fully sheltered from income tax liabilities. Simply put, DSTs are professionally managed passive investments. They cover a wide range of property types, including, but not limited to the following:
- Industrial Buildings;
- Multi-Family Apartment Complexes;
- Self-Storage Facilities;
- Medical Offices and other similar types of commercial estates.
It is vital to note that Delaware Statutory Trusts are viewed as securities under Federal law and qualify as a like-kind exchange under Section 1031 of the IRS tax code.
Advantages of Delaware Statutory Trust (DST) 1031 Exchanges. Delaware Statutory Trust (DST) 1031 Exchanges offer many benefits to Investors. The following are its advantages:
- 1031 Exchange Eligible. DSTs are customarily viewed as securities under the federal securities laws. Hence, they are treated as direct real estate ownership under Section 1031 of the IRS tax code. Accordingly, the DST investments are eligible for 1031 exchanges both when it is initially invested and when it is liquidated.
- Institutional-Grade Assets. DSTs are compartmental or co-investment properties that allow numerous 1031 investors to acquire equity ownership interests in significant, high-quality assets that would typically be out of reach. By exchanging into a Delaware Statutory Trust and merging equity with other co-owners, 1031 investors can own a portion of an institutional-grade property that is significantly larger than what they could ordinarily purchase on their own.
- Opportunities for Diversification. Since a person can choose the amount to be invested in a Delaware Statutory Trust, he can split his investment between and among multiple DST properties, thereby allowing the opportunity to diversify his real estate portfolio and, therefore, lessen the risk of a loss.
- Earn normal distributions. Delaware Statutory Trusts are allowed to keep a reasonable amount of cash reserves to be prepared in case of a contingent event that would necessitate repairs or face unexpected expenses. However, all earnings and proceeds above the reserve amounts must be appropriated to the beneficiaries on a routine basis and within an expected period.
- Sizing. One of the challenges for 1031 exchange investors is finding like-kind replacement properties that closely match the value of their alienated or transferred assets. If replacement properties are too small or too large in value, investors may be left with excess, and therefore, taxable funds. However, DSTs allow an investor to invest a definite and exact amount necessary to satisfy exchange requirements.
- Non-recourse Debt. Mortgage financing is already in place when a DST includes debt. The loan, however, is typically non-recourse, i.e., the investor’s assets outside the loan are protected.
Disadvantages of Delaware Statutory Trust 1031 Exchanges:
- Lack of Control. With Delaware Statutory Trusts, investors can still enjoy the benefits of owning real estate without dealing with the day-to-day responsibilities of actively managing real estate. Although this may be a plus for some, others do not want to give up their management responsibilities. With a DST, investors do not have operational control or have the ability to make management decisions.
- Inability to raise new capital/refinance. Once the DST offering closes, there won’t be future contributions by current or new investors. Major expenditures such as changing or refurbishing a roof can consume several year’s profits. In the same vein, changes in occupancy or diminution in rents can destroy or lessen a property’s cash flow. This means property maintenance can eat up a large chunk of profit. Hence, it is essential to have reserves that are set aside in advance.
- Not liquid. DSTs have moderate to long-term hold periods, typically five to 10 years. And therefore, they are not liquid, i.e., quickly sold for cash.
Conclusion. The 1031 exchange and the Delaware Statutory Trust are well known and highly effective tools for real estate investors to utilize. However, it should be noted that while the concepts of both are pretty straightforward, the details and execution can get a bit tricky. As such, investors utilizing the 1031 and DST options should consult with real estate investment and tax professionals.
While the information at hand can be overwhelming, there are many ways in which you can simplify your understanding of 1031 exchanges and DST’s. Choose the best commercial broker and company to help you understand the ins and outs of these concepts.
Even after outlining all the information above, investing in CRE and the 1031 Exchange process can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Oct 8, 2021 | All Articles, Buying, Investing
Investing in commercial real estate (CRE) can seem daunting. However, you would be surprised at how rewarding a venture into the world of real estate could prove to be. As for that hint of hesitation, maybe because you’ve never invested in CRE or you’re not as familiar with the process, let this article be your ticket to becoming a successful CRE Investor.
Understand that Investment equals risk. An investment, needless to say, is and will always include a certain amount of risk no matter the nature or kind. More so, we are required to use our resources, time, and effort. It can make us feel afraid and a bit apprehensive, however, if we want to reach our business goals and be financially free, we need to take that risk and make an investment. The ticket to better living and financial freedom is to take the first step and investing in commercial real estate is a wise move if you keep these things in mind:
Knowing your market
In commercial real estate, knowing your market means that you are capable of making an assessment and that you understand that there are forces at play when it comes to the value of real estate. A wise CRE investor considers the demand that is defined by the number of properties wanted in the market at a given time and with a specific price, as well as the buyers’ ability to purchase willingly under such considerations. Add to that, the property’s rarity and utility. Is it truly suitable for use? Given a limited supply of a certain type of property in a particular location, is your investment one of those they can rarely find but more than willing to lease because it is what they need? You may also want your investment to check-in well with the aspect of transferability. Be wary that the commercial property you are considering does not have impediments or legal encumbrances in any part of the deed.
Tip: Feasibility studies and Site Investigation Reports (SIRs) are your holy grail of knowledge in the real estate market. With these, you will have access to a comprehensive collection of questions with data results inclusive of business’ structure, zoning laws, land surveys, traffic issues, and many other similarly significant data surrounding your prospective investment.
Following a blueprint
It is never wise for a non-swimmer to jump into deep water without a lifesaver. How many people do you know would venture into the unknown, so to speak, and still comes out alive? They should be lucky if they could come out and still breathing. Now this may be a metaphor, but becoming a failure in a venture such as investing in commercial real estate can only be due to one’s lack of plan – a buffer. Following a blueprint is one of the secrets of any successful CRE investor. If you are able to fill your brain with all the necessary learning and information about your market, then you are most likely to come up with an effective plan. It will then be your track to follow as you navigate around the world of commercial real estate.
Finding the right approach
Do you ever notice how effective your grasp is if you are using all of your fingers? There will always be strength in numbers that even in our approach in looking for that most cost-effective investment in commercial real estate, a multi-pronged approach can prove to be the best one. Be with an approach that can help you find properties available while scoring the best of deals. Know the difference between direct and indirect approach for investing in commercial real estate and determine which of the two can offer you that multi-pronged option that you essentially need. If you choose to become a CRE investor, you can choose to become either a landlord through ownership of the property (direct) or maybe an investor through ownership of different market securities (indirect) like Real Estate Investment Trusts (REITs). The latter allows you to have shares receiving income from a selection of portfolios such as hotels, offices, retail spaces, and many more.
Embracing technology
Real estate, in its entirety, has always been one of the most lucrative ventures worldwide. Ironically though, even as its demand is unceasingly increasing through time, the necessary update to technology by most of its investors doesn’t really catch up quite fast. Do not be like the others who resist change. Soon enough you will find that technology advancements create more accessible connectivity which then enables you as an investor to better manage your investments with the social media and the website creating linkages that were not present before.
Adapting agility
What caps the perfect makeup of a successful CRE investor and being a cut above the rest is his dexterity and responsiveness. As previously cited, real estate nowadays exists in a tech-enabled ecosystem pushing investors to also realign priorities and enable them to adapt to the new demands. Adapting agility in terms of decision-making and coming up with a more updated portfolio for commercial real estate is a need. You must learn to up-skill in order to achieve and maintain a good amount of growth. Agile investors are those who come out with good relationships with customers hence, creating a significant investment income. The challenge posed by the constantly changing real estate environment and market can best be met if you would innovate continuously rather than work within already set guidelines which through time may not provide accurate solutions anymore.
Success will never be far from an interested CRE investor with an open mind. It doesn’t matter if this world is somehow new to you because learning the trade will always be an opportunity that is open for all those who come willingly. If the risk somehow overwhelms you, think about the reward that awaits you in the end. After all, success has never been achieved overnight but rather with ample time for learning and substantial experience related to commercial real estate.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Sep 24, 2021 | All Articles, Buying, Investing
The real estate industry has proven itself a bankable field for investors. It has generated massive income through the years and has produced billionaires, the likes of Sam Zell, Stephen Ross, and Donald Trump. Real estate industry’s diverse scope of investment options include rental properties, real estate stocks, investment trusts, and crowdfunded deals.
Indeed, real estate is an exciting venture to be in. If you are looking for a great place to start investing, diversify your investments, or generate relatively higher income, opt for commercial real estate (CRE).
What is Commercial Real Estate (CRE)?
Basically, commercial real estate properties are those that generate income. These are pretty much business infrastructures, such as stores, warehouses, restaurants, office buildings, accommodation spaces, leisure and entertainment buildings, and others.
CREs are considered to have a higher-risk, but take note that in the world of investments, the higher the risk, the higher the reward is. It may sound overwhelming at first causing some hesitation, so here are 8 reasons why you should consider pursuing investing in commercial real estate.
Bigger Profit
Let’s talk money. Commercial real estate properties are commonly rented out or sold at a higher price, often tenfold higher in comparison to residential real estate properties. As a matter of fact, *the commercial real estate industry in the US alone accumulated a whopping total of $27 billion in annual revenue from year 2020. **If we are to reference the report from the National Council of Real Estate Investment Fiduciaries (NCREIF), 12.7% of that, or more than $3 billion dollars, goes back to investors as profit. This is in comparison to the 8.8% annual return of investment in residential real estate properties.
More income stability
Residential real estate properties are often limited to a one-year lease agreement. While this is a good thing for tenants, the concern this entails for investors is the high turnover rates. With these one-year lease agreements, investors are only assured a year in each tenant, as they are free to decide whether to stay or move out after a year.
Meanwhile, commercial real estate properties have longer lease agreements of three years in minimum, generating a more stable income flow for investors. Another great thing about this is that it also reduces the hassle that goes with finding new tenants.
Less Competition
Commercial real estate properties are commonly fewer in number as compared to residential properties. This means that your CRE property has a higher chance of being sought out and can be easily accessible to business owners. Businesses aspire to grow and expand their market reach and they typically do this by branching out. With this, they will be in search of commercial real estate properties. That is when you enter the picture.
On the other hand, residential real estate properties are growing in number. Therefore, the competition is tight and challenging. Needless to say, the presence of numerous competitors reduces the chances of profit.
Freedom on scale of investment
With commercial real estate properties, you have full liberty to decide whether to invest in full-scale establishments, such as malls, hotels, and casinos, or choose to put your money on small-scale individual facilities. It is all up to you.
If you are a beginner in the industry, it is recommended that you start with small-scale establishments or infrastructures. It can be your way of testing the waters. Once you get a hold of it, you can start increasing and diversifying your investments.
Property Maintenance isn’t Always on You
Commercial real estate properties are often rented out by business owners. Regardless if these are large-scale or small-scale businesses, there are investment opportunities, like absolute net investments where the tenant takes care of the building, maintains their space, even improve the property since space maintenance and appearance is tagged crucial in generating customer sales and customer retention. This is good news for you, as an investor, since a well-maintained and improved property increases in value over time and reduces the investor’s total cost.
In instances where renovations are needed or maintenance concerns are encountered, most commercial real estate properties operate on triple net leases. This means that majority of these property-related expenses, such as utilities, insurance, and taxes, are taken care of by the tenants.
This is contrary to residential real estate properties which must be maintained at all times. Otherwise, tenants would complain of maintenance concerns.
Professional tenant-renter relationship
Another advantage of having business owners as tenants is a more professional dynamic in tenant-renter relationship. Business owners maintain a certain image of credibility. With this, concerns are typically settled in a more professional approach; whereas, residential tenants often cause concerns on payment, unnecessary demands, and policy compliance.
This may seem a simple advantage in text but in reality, residential clients are more likely to demand more and cause stress over time as compared to commercial clients.
More time to rest and relax
Imagine getting a phone call from your residential tenant in the middle of the night, complaining about a leak in the property you are renting out. Even just the thought of it stresses you out, right?
This is one of the reasons why you should opt for commercial real estate properties. As mentioned, CRE clients generally require less attention. If they do, they are typically requested in the day since businesses operate in the standard 9-5 schedule.
Less demands from clients means less time to tend to your commercial real estate property. Consequently, you have more time to spare, which you can use to spend with your family, in venturing out to other investment options, or a quality time for yourself to rest and relax.
CRE Can Generate Great Wealth
If you’re still in doubt of the CRE’s ability to generate income for your investments, remember that it has produced billions across the globe. This is a testament of how established this investment platform is. The initial investment is bigger as compared to residential real estate properties. However, the pay-out is also bigger. When pursuing investing in CRE be sure to seek advice and help from those professionals associated with CRE. You can opt to work with smart and experienced commercial real estate brokers or ask advice from real estate lawyers. This way, you can reduce any risks of income loss and instead maximise your investments to reap great results.
With such high income return and numerous advantages, CRE is a good option when looking to diversify your investment dollars. People have already taken their share from this great investment option. Of course, you want to make the most out of your money, and from the advantages you just read, where best to invest but in commercial real estate. Planning to invest in commercial real estate? Read our article 5 Steps to Buying Your First Commercial Property that will walk you through the steps on how to get started investing in CRE.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
Sources:
*https://www.firstresearch.com/Industry-Research/Commercial-Real-Estate-Management.html?fbclid=IwAR2mYwSyWc68eMoNpsXq1xZtSKTv528d2LNk0u1p9TJpGcYwvq7bxRwKwes
**https://www.fortunebuilders.com/commercial-vs-residential-real-estate/?fbclid=IwAR3WajMYzM1B0xCog6m1QwqTz7J-ppm1PrSy_lLWoD252mM456duho5S7WA
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