Samachar 4u

You may be considering a small commercial real estate property purchase. You have heard that there is good cash flow in commercial real estate. You have looked around and a lot of properties seem to be for sale at really good prices.

How can you figure out if commercial real estate is a venture that you would like? There are some questions that you need to ask yourself before you buy that commercial real estate property.

1. What type of property should you invest in? There are a number of types of commercial real estate properties; Apartment building, office building, retail buildings, mobile home parks, self-storage units, mobile home parks, an existing business, and many more.
2. How do you want to be involved in your investment? Do you want to invest you time and energy as well as your money? Do you want to just invest your money and let someone else do the heavy lifting?
3. How long do you want to be involved with this investment? Do you want to be involved in this venture for less than a year or more than 10 years?
4. In what area do you want to invest? Do you want the investment property to be close enough to check on frequently? Do you want the property to be easy to get to so you can work in or on the property?
5. Are you going to finance the investment? If so can you qualify for the funds? Can the investment property qualify for the amount of money that you need?
6. What return on investment are you expecting? Can the property investment that you are considering return that rate? Is commercial real estate a better return on investment than other investments? Is the risk greater?
7. What are the government regulations affecting the commercial property. Every state, county and city and small community has their own set of regulations. Part of your research is to find out what those regulations are and when and if they may change in the near future.
8. What about income tax, does the investment leave any room for profit after taxes? Of course you will be hiring a good tax person to help you with the ongoing business. But consider getting advice from a real estate tax attorney before you buy. You want to know how to buy a commercial property that will take advantage of the tax laws.
9. Is this investment a high risk or low risk? There are a lot of commercial property investments that are low risk, if you know what you are doing. These same investments become high risk when you do not know what you are doing. Also, there are high risk investments even when you know what you are doing. It is a very bad thing to take on a high risk investment when you are also a high risk investor (not experienced and/or do not have any knowledge in that particular area).
10. Are you looking for an income producing property or a property that will grow in value? Of course you would like to have both. A few years ago you could have both, but that is not generally the case now. There are always exceptions.

Deciding to make an investment in commercial real estate property is a big decision. It is very important to ask yourself many questions about this decision. It is equally important that you ask many questions about that particular property.

The biggest problem that investors have is that they do not even know the questions to ask. Believe it or not, the questions are more important than the answers.

Let me give you an example. A few years ago I was looking at a property in Utah. I asked my usual long list of questions. Everything seemed to be going well. I was ready to make an offer, and then my friend asked me about the water rights. Water rights? What is that? Were I live water rights are not an issue so I never need to ask about water rights, we have plenty of water.

I found out that I could not use the property for the purpose for which I was buying because of the water rights. I almost lost a lot of money just because I did not know all the questions.

Get advice and information on commercial property investing, including multifamily, office and retail buildings, mobile home parks, warehouse, self-storage and other property types. Get good ideas and strategies for buying, selling and managing your commercial investment property.
The next question you may ask yourself would be, where and how can I get more information and training?

Selling commercial real estate is a little different than residential property. For a start, you are usually selling the property to a company rather than an individual. Most professional real estate agents can handle this type of transaction, but the best agents are those that specialize in commercial property. There is a lot of money involved in this kind of transaction, and if you are interested in becoming an agent it can make for an extremely lucrative career.

Firstly you need to ensure that your property has the correct classification as commercial real estate. This can make a huge difference, as there are different classifications for different types of property, and different rules for each classification within any given city. You should make sure you understand all of these rules and classifications for the area in which you live.

You also need to make sure you hire a solicitor and accountant to handle all the contract and tax details. This can save you time and money and will make sure that the transaction is completed in a legal manner.

These are just a few factors to bear in mind when it comes to learning how to sell commercial real estate. There are a number of other factors in play, so take care to do your research and get all the facts in order to make a success of this career. If you simply want someone to sell your commercial property for you there are many specialist real estate agents around the country that can help!

One of the first questions you’ll ask yourself when you are looking at a new property to purchase is: What is this property worth? That is a different question then: How much can I pay? And it’s still different then: What can I get this property for? But all of those questions need answers before you put in an offer to purchase a new property.

How an investor chooses to value a property can depend on the size of the property or the sophistication of the purchaser. We rely on the simple methods, both because we are new to commercial investing, and because we’re looking at small properties. But, simple doesn’t mean less reliable or less accurate when it comes to commercial valuation.

Essentially, there are three ways to value a commercial property:

1. Direct Comparison Approach

2. Cost Approach

3. Income Approach (which includes the DCF method and the Capitalization Method).

The direct comparison approach uses the recent sale details of similar properties (similar in size, location and if possible, tenants) as comparables. This method is quite common, and is often used in combination with the Income Approach.

The cost approach, also called the replacement cost approach, is not as common. And it’s just what it sounds like, determining a value for what it would cost to replace the property.

The third, and most common way of valuing commercial real estate is using the income approach. There are two commonly used income approaches to value a property. The simpler way is the capitalization rate method. Capitalization Rate, more commonly called the “Cap Rate”, is a ratio, usually expressed in a percent, that is calculated by dividing the Net Operating Income into the Price of the Property. The cap rate method of valuing a property is where you determine what is a reasonable cap rate for the subject property (by looking at other property sales), then dividing that rate into the NOI for the property (NOI is The Net Operating Income. It’s equal to income minus vacancy minus operating expenses). Or, you could figure out the asking cap rate of the property by dividing the NOI by the asking price.

For example, if a property has leases in place that will bring in, after expenses (but not including financing) an NOI of $10,000 in the next year and comparable properties sell for cap rates of 6% then you can expect your property to be worth approximately $166,666 ($10,000/.06 = $166,666). Or, said another way, if the asking price of a property is $169,000, and it’s NOI is estimated at $10,000 for the next year, the asking cap rate is approximately 6%.

Where this gets tricky is when properties are vacant, or where the leases are set to expire in the upcoming year. This is often when you are forced to make some assumptions. (We’ll save how you deal with this for another day.)

The other income method is the DCF method, or the Discounted Cash Flow method. The DCF method is often used in valuing large properties like downtown office buildings or property portfolios. It’s not simple, and it’s a bit subjective. Multiple year cash flow projections, assumptions about lease rates and property improvements and expense projections are used to calculate what the property is worth today. Basically, you figure out all of the cash that will be paid out and all of the cash that will be brought in on a monthly basis over a specific period of time (usually the time you plan to hold the building for). Then you determine what those future cashflows are worth today. There are computer programs like Argus Software that help in these types of valuations because there are many variables and many calculations involved.

For the small investors, like us, using a combination of comparable property sales and income valuation using cap rates, will provide a reliable valuation. The real issue is convincing the seller that they should sell based on today’s income and today’s comparable properties. In the case of a mixed use commercial building we just tried to buy, the seller was pricing their property based on assumptions that leases will renew in the next 6 months at substantially higher rates and that the area of the property will continue to improve making the property more desirable. Unfortunately, we don’t buy properties hoping for appreciation. We buy properties today because the property will put more money in our pocket each month then it takes out, and the property fits within our investing goals.