The Power of Commercial Real Estate Investing Explained

Izvor: KiWi

Because the lender must take into account a worst case scenario - either because they are a fiduciary lending funds from another investor, or because they must preserve their own capital against loss - the question becomes, how does a real estate lender view your commercial real estate?

Elements of Comparison Typically, commercial lenders which use real estate as collateral look at comparable sales, and adjust their findings with so called elements of comparison and an assessment of the property's marketability.

The commercial real estate development is as a matter of fact handled as the 1st sign for emergence of residential real estate. Once you acknowledge the possibility of significant commercial growth in the area (either due to tax breaks or whatever), you had better begin assessing the potential for appreciation in the prices of commercial real estate and then go for it promptly (as soon as you find a good deal). And you must really work towards getting a good deal.

Many investors don't understand the power of commercial real estate. I too had concerns until I understood the power and safety commercial real estate can provide. Commercial real estate is similar to trucks. Trucks come in all sizes and all shapes - a Ford Ranger to an 18 wheeler. Commercial properties come in all sizes and shapes - a standalone building that houses a small restaurant to the Empire State Building . People read in the newspapers that commercial property prices are crashing. People notice the strip malls have a lot of vacancies and it scares them away. Let's take a look at the power of commercial real estate and a quick note about market cycles.

Choose Your Property. There are many things to consider when looking for commercial real estate. Condition, location and accessibility are very important. Are there any zone restrictions on the operation of this business?

A small apartment complex (10 units) has an annual cash flow of $50,000 and is for sale for $500,000 It has a lot of long-term tenants paying below market rents. You put down 20% or $100,000 (there are ways to make it someone else's money). We'll assume it is a positive cash flow property even with the debt service (loan payments). First a storage area is made into a laundry facility that provides $5000 on annual basis. You just increased the value $50,000. Next rents are raised the first year to market rents. Raising rents $50 per unit increases cash flow $600You just increased the value $60,000 That means you have doubled your original $100,000 in the first year and you get to keep the $11,000 cash flow. There are many more ways to increase the cash flow including: separate utilities and have tenants pay utilities, decrease vacancy, work out a deal with dish network and get paid, reduce maintenance costs, and more. Just by raising the rent $10 a year increases cash flow $1200 a year and increases the value $12,000 In three to five years you'll have cash flows of $70,000 to $100,000 (less debt service which remains constant) and you can sell the property for $700,000 to $1,000,000 Now you see the power of commercial real estate.

Using the information that you have learned from this article, you should find that getting started in the real estate market, is not quite as difficult as it may seem at first. You will also find that there are some great opportunities out there, if you just know how to find them.