Posts Tagged ‘Commercial Real Estate’

3 Reasons Commercial Real Estate is better than Residential Real Estate

Friday, March 9th, 2012

1.) Commercial Real Estate Gives You More Access to More Capital

If you are unable to raise capital from one of these three avenues, then you are forced to acquire property in more of a creative manner with owner financing, subject to strategies, lease options, etc. This in itself is not a bad thing, but unfortunately you will have to walk away from some good deals that can’t be acquired with creative financing techniques.

2.) Commercial Real Estate is Less Competitive

When you think about it from a marketing perspective, most investors target residential property owners, thus making the residential market more competitive. In many arenas from industry news sources, the World Wide Web, all the “We buy Houses” signs on virtually every city corner, discuss marketing tactics targeting residential property owners. If you take the same marketing strategies discussed and apply them to commercial real estate, you will probably find that you are the ONLY person contacting these commercial property owners in regards to selling their property.

3.) Commercial Real Estate allows for “Forced” Appreciation

Residential real estate is typically valued based on other comparable properties that have sold in the area that are similar in features. If the “comps” for a 3 bedroom/2 bathroom house in a particular neighborhood is roughly $100,000, then your property is probably going to be worth $100,000. It doesn’t matter too much that you have additional features, or that your house is getting $900 a month in rent as opposed to the house down the street that is only renting for $700 a month. All things considered, your property will still be valued pretty close to the “comps” of the area.

However, in commercial real estate, the valuation of a property is based on the revenue that the property generates. Now, commercial real estate is still subject to the “comps” of the area as it pertains to “How” that revenue is valued in terms of capitalization rates. But, the overall premise is that, the more revenue a property generated, the more that property is worth.

So, in order to “force” the appreciation of your commercial property, you need to find additional ways to increase the revenue that the property generates. A small increase in revenue can increase the value of a property significantly depending on the “Cap Rates” in the area for that type of commercial real estate. Unfortunately, with residential real estate this isn’t an option as you really can’t force appreciation; your property will be valued in the general range of the market comps.

Commercial Real Estate Investing

Thursday, June 25th, 2009

Although the residential real estate market has pretty much bottomed out throughout most of the United States, the commercial real estate market is thriving. If you have always wanted to invest in the real estate market but are hesitant about the current residential market. Investing in commercial real estate is a great way to make money. Unlike housing and property real estate, commercial is something that you can market as a no lose situation to all of your potential buyers. If you are looking for a way to create a steady flow of income then commercial real estate investing is right for you. No matter what kind of commercial real estate you put your money in there is always going to be money coming to you monthly.

When you invest in commercial real estate, you need to understand that there is a vast difference between commercial real estate and residential. Not only is the market different, but so are the laws. Due diligence in commercial real estate is different than that in the residential market. You still want to make sure you get an inspection of the property prior to the settlement as well as a survey of the property. You also have to make sure that you get any easements included in the sale if they are needed.

Most people think of easements as those that burden the property, such as those for utilities and sewer. With commercial property, there are often easements that benefit the property. In some cases, in order to get to a property people have to drive their vehicles over other property owned by other people. In such a case, the person who purchases the commercial real estate will want to make sure that they get the easements needed for parking or entering and exiting. These can be included in the deed or in an easement agreement.

The only way to see if you need easements is to get a survey of your property depicting not just the property but any easements that pertain to the property. The title insurance commitment should also reflect a legal description of the easements. The title company needs to search not only the commercial real estate property that you are purchasing but also any other property in which you are receiving an easement. The reason for having this property searched includes the following points:

You need to know that the person who signs the easement agreement or deed is legally entitled to convey interest in the property.You need to know that there are no burden on the easement property that would prevent you from using it.You need to know that the taxes on the easement property are current. It would be unfortunate to purchase commercial real estate property that is dependent on easements and discover that the property is in a tax sale. A person who purchases the property could insist that you pay money to use their property; they may even erect a fence to prevent you from using the land.

Keep in mind that investing in commercial real estate is fun and exciting. However, like every other financial investment that you make there is a risk involved. The risk is smaller in commercial real estate than it is in other investing options. When you invest in commercial real estate, make sure that you have an attorney who is well versed when it comes to commercial real estate, not just residential real estate. Commercial real estate is an entirely different than residential real estate and your attorney should be knowledgeable in this aspect of the real estate industry.