Investing in Commercial Property

A commercial property is a building or land intended to generate profit, either from capital gain or rental income.  Commercial and residential properties are a good investment. Commercial properties include retail buildings, office buildings, warehouses, industrial buildings, and apartment buildings. These buildings are usually handled by a property manager. A property manager oversees the day-to day operations of buildings and complexes. Their duties usually include collecting rent, negotiating leases, and supervising cleaning and maintenance activities.

Commercial Property

Cash Flow

Every commercial property investor’s goal is to generate positive cash flow from his or her property. A positive cash flow is the income which is received from the property after operating expenses and mortgages have been paid. Along with cash flow are two very important things that should be considered; return on investment and return of investment. Return on investment indicates that the percentage return that the investor is receiving in relation to the equity which they put in. The return of investment would be the ability to increase the value of the property thru re-development whereby they would be able to pull their initial investment out of the property thru financing or recover the initial investment over time thru annual cash flow.

Objective Price Evaluations

When evaluating the property prices of commercial property you can request the current owner’s income statement and determine what the price should be based on that. If the seller is using a knowledgeable broker, the asking price should be set at a price where an investor can earn the area’s prevailing cap rate for the commercial property type.

Triple Net Leases

In a triple net lease, you as the property owner do not have to pay any expenses on the property in comparison to owning residential real estate. The lessee handles all property expenses directly, including real estate taxes. The only expense you will need to worry about is the mortgage.

Tenancy Agreement

Tenants

Retail tenants are interested in maintaining their store and storefront, because if they don’t it can affect their business.  This means that both property owner and tenants are on the same page, which helps the owner maintain and improve the quality of the property. Owners of commercial properties are usually LLC’s and operate the property as a business. This means the landlord and tenants have more of a business-to-business customer relationship, which helps keep interactions professional.

Economy of Scale

If you have more units in one place, you can often develop more favorable contracts with you contractors or outside vendors and negotiate lower costs for improvements and maintenance.

Investing in your Future

Purchasing commercial real estate provides a long-term investment for your business and the building itself. As you pay down your mortgage you can build substantial equity by taking advantage of depreciation and interest deductions for tax purposes.

Do you still have questions about commercial properties or property managers? Here are a few topic you may be interested in.