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Investment Properties for Commercial Real Estate

Wednesday, May 2nd, 2012

Customers have understandably wanted to pursue every avenue to sell their property. To do so, they often request that I list their property as an investment in addition to listing it under a particular commercial real estate category. While this may seem like a good idea, in my opinion, unless you really have a property that can be considered an investment property, it is not particularly helpful.

Recently, one client asked to have their office building listed as an investment property. Office properties can be an investment but in my opinion, this property did not qualify. It was about 50% vacant and all of the leases in place were short term leases.

Similarly, I have had clients ask to have land listed as investment property. Certainly, there are people who will buy and hold land for a potential windfall down the road but unless the land has a lease or some sort of on-going income potential, I do not think that it is appropriate to consider it an investment property.

For a true investor, neither of these cases would get you past first glance. For something to be an ideal Investment property, it should have the following –

Ongoing income streams – Usually this would be rent. In the past, some people have assumed an appreciation of the property over time in their decision process. In my opinion and in light of the tremendous devaluation of real estate over the last few years, that is a mistake. When making an investment decision, the best practice is to consider the actual income streams themselves in valuing the asset.

Long terms on the income streams – Ideally lease terms remaining should be 10 to 20 years. When buying an income property, a new owner does not want to pay for a property that may be vacant in 1 or 2 years.

Single tenant users – This is not to say that people will not consider multiple tenant properties however, as you increase the number of tenants, you also increase the number of potential headaches associated with the property.

Credit Tenants – Whether you have a single tenant or multiple tenants, the leases associated with the property are only as strong as the tenants.

Triple Net Leases – Ideally, an investor will simply want to collect rent and deposit a check. For them the best leases have the tenant responsible for the property taxes, insurance, utilities and maintenance of the building.

Full or nearly full occupancy – Some properties are advertised as income properties which have significant vacancy. These properties often advertise a cap rate for the property that assumes the vacant area will be leased at the asking lease rate and the asking price for the property. In my opinion, this is misleading. If a property is not fully leased, quoting a cap rate in this way makes no sense. An investor making an intelligent decision would be best served selecting a property which is fully occupied.

For Investors to compare apples to apples, they need an investment alternative that is basically as simple as any other investment option. With stocks, bonds, or interest bearing accounts, you simply invest the money and do not have to take on property maintenance, leasing and other chores and expenses. Of course, these criteria significantly reduce the number of properties which you might consider and I realize that not every property will have all of these features. But I will also tell you that properties like this do exist and can be found.

There are definitely properties which will sell that do not have all of these features and expectations of these features differ somewhat with the type of property (i.e. retail vs. office). However, if you are marketing the property as an Investment option, the successful seller will try to match these criteria as closely as possible.

How to Find the Best Deals in Commercial Real Estate

Wednesday, May 19th, 2010

As an investor, it is important that you find excellent deals in order to make money, but you have to remember that it takes some work on your part as an investor to find the best deals. The following are several tips that can help you find the very best deals in commercial real estate so you can make a profit and earn success as an investor.

Know the area and the market – The most important thing you need to know if you want to find the best deals in commercial real estate is the area and the market. You need to be very familiar with the area that you are planning to invest in and you also need to be very informed on the market in that specific area. If you are not familiar with the area you plan on investing in, then you should make it your business to learn about the area and the market trends.

Make use of pocket listings – Another tip that can help you find the best deals in commercial real estate is to make use of pocket listings that you may have access to. These listings can help you find and keep track of great investment opportunities. Many times you can get these listings from a broker to help you in your pursuit of excellent real estate investment opportunities. Pocket listings are commercial real estate opportunities that have not yet hit the market.

Use online resources – Many real estate investors today really make use of their online resources when looking for the best commercial real estate deals. Using online resources can save you a huge amount of time; however, you will still need to be sure that you take the time to do the investigating that you need to do. There are many online websites that are geared towards investors in the commercial real estate market.

Use business contacts to find deals – If you have a variety of great business contacts within the commercial real estate market, you can make use of them. These business contacts can help you find some great commercial real estate deals. It is important that you take the time to build up good relationships with these business contacts so that you are the one they inform when they hear of a great commercial real estate deal. Cultivating business contacts can take some work; however, it is worth the work if you can get a great business deal out of it.

Know your financial capacity and strategy – Knowing your financial capacity and strategy is important as well if you want to find the best deals in commercial real estate. You will never want to overextend yourself financially, so you need to know your financial capacity. It is also important that you have a good strategy for investing as well in order to be successful with finding great deals in the commercial real estate market.

Be sure to practice due diligence – It is imperative that you practice due diligence if you want to find the best commercial real estate deals. Due diligence is one of the most important steps in finding a great deal. Some of the things that you’ll need to consider when practicing due diligence is the existing conditions of the property, the actual value of the property, how much you can make from the property, title issues, zoning issues, and many other important aspects.

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