Commercial Real Estate Investing: A Beginner’s Guide to Getting Started

A Beginner's Guide to Getting Started in Commercial Real Estate Investing

Commercial real estate (CRE) encompasses properties used for business purposes, ranging from office spaces to retail storefronts, medical facilities, and industrial warehouses. Contrary to popular belief, CRE isn’t limited to just business buildings; it also includes land used for profit and large residential rental properties like apartment complexes.

Types of Commercial Real Estate

CRE covers a variety of property types:

  • Office Spaces: Buildings used for business operations.
  • Industrial Spaces: Warehouses and manufacturing sites.
  • Retail Spaces: Storefronts and shopping centers.
  • Medical Buildings: Hospitals and healthcare facilities.
  • Storage Facilities: Spaces for storing goods.
  • Apartment Buildings: Structures with five or more units.
  • Restaurants, Hotels, and Resorts: Properties for dining and accommodation.

How Commercial Leases Work

When a business leases a space, they enter into a lease agreement with the property owner. There are three main types of commercial leases:

  1. Gross Lease: The landlord covers all property expenses, including taxes and maintenance.
  2. Net Lease: The tenant pays rent plus additional expenses like taxes and insurance. Variants include single, double, and triple net leases.
  3. Modified Gross/Net Lease: Offers flexibility in expense negotiations, with a fixed monthly rent.

Triple net leases are common, where tenants cover all operating expenses, leaving the landlord with only mortgage and tax responsibilities.

Investing in Commercial Real Estate

Investors can choose between direct and indirect investment options:

  • Direct Investment: Buying and managing a property personally or through a partnership. This method offers control and potential tax benefits but requires substantial capital and is less liquid.
  • Indirect Investment: Purchasing shares in a real estate investment trust (REIT) or through crowdfunding platforms. This approach allows for smaller investments and offers diversification without hands-on management.

Key CRE Terms to Know

Familiarize yourself with essential CRE vocabulary:

  • Net Operating Income (NOI): Income after operating expenses.
  • Cap Rate: NOI divided by the property’s purchase price.
  • Debt Coverage Ratio (DCR): NOI divided by annual debt payments.
  • Zoning: Regulations on property use and construction.
  • Triple Net Lease: Tenant pays all building expenses beyond rent.

Building Your CRE Network

To succeed in CRE, build relationships with:

  • Commercial Real Estate Agents: Assist with property searches and market trends.
  • Property Managers: Handle tenant interactions and maintenance.
  • Lenders/Mortgage Brokers: Facilitate property financing.
  • Insurance Agents: Provide property and liability coverage.
  • Contractors/Handymen: Manage repairs and renovations.
  • Attorneys: Handle legal matters and contract reviews.

Is CRE Investing Right for You?

CRE investing offers diversification and potential profitability, particularly for those with substantial capital or those who can start with smaller investments through modern platforms like REITs and ETFs. Evaluate if CRE fits your goals by considering:

  • Initial investment size.
  • Competition and market demand.
  • Lease stability and income consistency.
  • Professional assistance needs.

In summary, commercial real estate presents diverse opportunities and requires a solid understanding of property types, lease structures, and investment strategies. Whether starting with small investments or diving into larger deals, having the right knowledge and team is crucial for success.

Works Cite

Lee Huffman                                                                                                                                                                  Edited by : Becca Borawski Jenkins. “Commercial Real Estate Investing: A Beginner’s Guide to Getting Started [2024].” FinanceBuzz, 13 May 2024, financebuzz.com/commercial-real-estate-investing. Accessed 26 Aug. 2024.

https://financebuzz.com/commercial-real-estate-investing

Best Practices in Buying Commercial Real Estate

Navigating the commercial real estate (CRE) market can be a rewarding venture, but it requires careful planning and execution. Whether you’re eyeing shopping centers, warehouses, or multi-family residential buildings, understanding the best practices can make your investment process smoother and more successful. Here’s a comprehensive guide to help you on your journey.

Understanding Commercial Real Estate

Commercial real estate refers to properties used primarily for business purposes and income generation. These properties include:

  • Shopping Centers and Storefronts: Retail spaces designed for various businesses.
  • Warehouses and Industrial Properties: Facilities for manufacturing, storage, and distribution.
  • Large Residential Rentals: Condominium buildings or apartment complexes with more than five units.
  • Medical Buildings: Hospitals, clinics, and other healthcare facilities.

Seven Essential Steps for Buying Commercial Real Estate

  1. Clarify Your Investment Goals: Before diving into the property market, understand why you’re investing in commercial real estate. Are you seeking income, tax benefits, or portfolio diversification? Defining your goals will provide direction and help you stay focused throughout the process.
  2. Evaluate Your Options: Commercial real estate comes in many forms, from office spaces to industrial sites. Determine which property type aligns with your investment strategy and comfort level. Each type has distinct management and operational requirements.
  3. Secure Financing Early: Obtain financing before you start searching for properties. This step will not only streamline your search but also prevent potential disappointments. Knowing your budget in advance allows for quicker decision-making and smoother transactions.
  4. Partner with Experts: Engage with experienced professionals such as commercial real estate agents or attorneys. Their expertise can guide you through the complexities of the market and ensure that your transactions are handled efficiently and legally.
  5. Find the Right Property: With your goals and financing in place, begin your property search. Stick to properties that align with your investment criteria and objectives. A great property is one that helps you achieve your investment goals, not just a good deal.
  6. Conduct Due Diligence: Thoroughly investigate each potential property. Evaluate risks, rewards, and how well the property fits your needs. Detailed analysis will help you avoid costly mistakes and ensure the property benefits your investment portfolio.
  7. Close the Deal: Once you identify a suitable property, make an offer with a contingency clause, such as an inspection contingency, to protect yourself. Ensure that all necessary insurance is in place and that all documents are reviewed before finalizing the purchase.

The Bottom Line

Investing in commercial real estate can offer significant benefits, including income potential and portfolio diversification. By following these best practices and working with knowledgeable professionals, you can navigate the CRE market with confidence and make informed decisions that align with your investment goals.

Find more wonderful Commercial Real Estate information at Forbes.com! Sonenreich, Aviva. “Council Post: Best Practices When Buying Commercial Real Estate.” Forbes, Forbes Magazine, 13 Aug. 2024, www.forbes.com/sites/forbesbusinesscouncil/2023/01/24/best-practices-when-buying-commercial-real-estate/. Accessed 21 Aug. 2024.

A Comprehensive Guide to Obtaining a Commercial Real Estate Loan

When it comes to expanding your business or securing a new operational space, a commercial real estate loan can be instrumental. Unlike residential mortgages, these loans are tailored for properties primarily used for business purposes, where at least 51% of the space must be occupied by your own enterprise. Here’s everything you need to know to navigate the complexities of obtaining a commercial loan.

When You’ll Need a Commercial Real Estate Loan

Commercial real estate loans are indispensable when:

  • Purchasing an office building for your company’s headquarters.
  • Expanding or relocating retail space for your store.
  • Acquiring a warehouse to manage inventory efficiently.
  • Developing or renovating a hotel you intend to operate.

Types of Commercial Real Estate Loans

Several loan types cater to different business needs:

  • Bank Term Loans: Ideal for borrowers with established banking relationships.
  • Small Business Administration (SBA) Loans: Suited for businesses needing flexible terms and government-backed support.
  • Line of Credit: Utilized by property owners looking to leverage equity for ongoing financial needs.
  • Portfolio Loans: Beneficial for businesses managing multiple properties for internal use.

Choosing the Right Lender

Selecting the right lender involves considering:

  • Loan Options: Ensure the lender offers the type of loan that aligns with your business goals.
  • Interest Rates and Fees: Evaluate origination fees, interest rates, and potential prepayment penalties.
  • Documentation Requirements: Prepare financial statements, tax returns, and proof of property insurance.
  • Credit and Equity Requirements: Expect to provide a down payment of at least 25% and demonstrate adequate income to cover loan payments.

Commercial Real Estate Loan Requirements

Unlike consumer loans, commercial loans require stringent criteria:

  • Security: The property serves as collateral, typically requiring 25-30% equity or down payment.
  • Income Verification: Demonstrating sufficient income via a Debt Service Coverage Ratio (DSCR) of 1.25 or higher.
  • Creditworthiness: Both business and personal credit histories are scrutinized, with minimum scores generally around 660-680.

Key Differences from Consumer Loans

Commercial real estate loans differ significantly:

  • Risk Profile: Lenders are more cautious due to higher risk, necessitating stricter eligibility criteria.
  • Loan Terms: While amortization periods can extend up to 25 years, loan durations are typically shorter, often with balloon payments.
  • Investor Risk: Unlike consumer loans often securitized and sold off, commercial loans often remain on lenders’ books.

Conclusion

Navigating the process of obtaining a commercial real estate loan requires careful planning and understanding of lender requirements. By preparing necessary documentation, improving credit profiles, and selecting the right loan type and lender, businesses can secure financing that supports growth and stability. Whether through traditional banks, SBA programs, or alternative lenders, each option offers distinct advantages tailored to specific business needs. With this guide in hand, businesses can confidently take the steps towards acquiring property that enhances operational efficiency and expands their footprint in the marketplace.

Subject Link: https://www.businessnewsdaily.com/15807-commercial-real-estate-loan.html

Pandemic prompts Wall Street to look south for Florida’s life and work benefits

Florida’s warm weather, low taxes, affordable space and quick, easy flights back to the Northeast have many Wall Street companies abandoning cities like New York for the Sunshine State. Companies like Elliott Management, Citadel and Goldman Sachs Group Inc are just a few to say they will open satellite offices for a location close to the beach. For commercial real agents, this is dream come true. Find out more about this positive pandemic trend by clicking here:

Giving back for the Holidays

In the spirit of the Holidays, Cohen Commercial is teaming up with Place of Hope again for their annual Holiday Toy Drive. There will be a box set up in the office for anyone wanting to donate unwrapped toys or clothing items by Friday, December 17. In addition, the annual Cohen Holiday Party will also be accepting gifts for foster kids. Marketing Coordinator, Samantha Burckhard, has been working fiercely on thinking of ways to give back to the community this season. This isn’t Ms. Burckhard’s first time working with Place of Hope. Back in November, she spearheaded a food drive in which members of the Cohen team placed canned goods in a box for delivery to Place of Hope. 

            For more information on how to donate or become involved this holiday season, please visit here.

Fall in Love with South Florida

Florida might be hot 99% of the year, but close to November/December the natives start to see a slight breeze fill the air. Fall begins to make an appearance starting with Clematis’ famous “Sandi Land”, and their tradition will be brought back to The Palm Beach’s on Thursday, December 2nd. “After she makes her 2021 debut, her famed nightly music and light shows will run every 15 minutes from 6 to 9 p.m. through December 30 (with some adjusted times during special events)”. For more information, please visit https://www.thepalmbeaches.com/top-event/holiday-paradise-sandi-hangs-10

Another seasonal event coming back to South Florida will take place in Delray Beach on Atlantic Avenue with their own Christmas Tree Lighting. The event is scheduled for November 30th from 6:00 to 9:00 p.m. For more information, please visit https://www.delraybeachfl.gov/our-city/things-to-do/100-ft-christmas-tree

2021 Hurricane Season Almost Over

As hurricane season reaches the height 2021 with showing no signs of slowing down, we still have a couple more storms forming out in the Atlantic. As of last week, Tuesday September 28, 2021, Hurricane Sam appeared with a few tropical waves following suit. According to AccuWeather, “At times, the 2021 season has been neck and neck with the record-setting 2020 Atlantic hurricane season, which spawned 30 named storms.” For more information, please click here.

Florida’s Small Business Owners are Optimistic About 2021

COVID- 19 not only affected households but also businesses in early 2020. Some employees were furloughed, and others found a joy in working from home as they were handed the option when offices decided to close. Florida business owners, however, are optimistic for revenue to continue growing in 2021 as new requirements have set into effect. Survey shows 57% of businesses made plans to extend their hours of operation. For more information, click here.

A Summer of Surprises

I think it is fair to say that the idea of being a receptionist is more mundane than most jobs; as that was my perspective before joining the team at Cohen Commercial Realty. After just wrapping up my freshman year at Clemson University, I knew it was time to start gaining professional experience, and CCR welcomed me with open arms. Not only have I been able to work in an extremely fast-paced, professional environment, but I have gained invaluable lessons about the importance of building relationships amongst coworkers and the positive influence that radiates throughout the workplace.

Every week is something exciting at CCR— I learned that quickly when in my first month the Cohens invited the team into their home for a Vegas themed office party with multiple casino tables, a luxurious raffle, and food for a whole village. It was the extension of their home and hospitality that truly instilled a feeling of family amongst a firm of hard-working individuals motivated by the success of this long-established firm. That is just the tip of the iceberg; the Cohens constantly provide their team with everything it takes to make their office feel like home— a baker’s dozen of bagels every Monday, an unlimited supply of k-cups and creamer, and office happy hours in their legendary lounge space.

While I thought I entered this summer job for the working experience, little did I know I would be getting to learn the secret to success that CCR possesses— the meticulous detail instilled by Bryan and Karen towards making each employee feel valued on top of their exciting work atmosphere. When work is produced in an environment that encourages humor, friendship, family and support, only success will follow.

On top of the clerical duties I perform as receptionist, I am also the Marketing Assistant, overseen by Jenna Moilanen. Jenna has allowed me to expand my skills by taking over the Cohen Blog, and that has improved my writing skills exponentially. Karen Cohen is not only Chief Operator, but an incredibly talented writer; as she graduated from Florida State University with a degree in English her guidance has allowed me to see what it is like to produce articles like this on the professional level. Whether I am posting on the CCR Instagram, writing a new blog, distributing mail or taking and transferring calls, I wouldn’t have wanted to spend my summer anywhere else. As my time at CCR slowly comes to an end, I am comforted by the relationships I have formed with the team and a newfound place to call home.

Hurricane Preparedness

Summer has arrived, but the beach days, sunny skies, and humidity do not come without a price. The state of Florida welcomes hurricane season every year at the beginning of June through the end of November. Gene Norman, CNN meteorologist, predicts that, “The 2021 season should be another above average one.” All things considered, it is imperative that we actively prepare ourselves and our properties to best withstand the potentially life-threatening tempest.

The Centers for Disease Control and Prevention (CDC) highlights the significance of taking premeditated steps in order to place yourself in a position the farthest away from plight. For yourself, families, and loved ones, the acquisition of non-perishable food, medical supplies and a sufficient water supply should be stored in your home and car. In case of a mandatory evacuation, it is also important to know your escape routes. While the unpredictability of hurricanes is inevitable, your preparedness doesn’t have to be. Stocking up ahead of time on medical, food, and safety supplies can lessen the effects of one of nature’s most savage tropical cyclones.

When building properties, Florida maintains a strict level of building codes to be able to withstand sustained winds up to 170 miles per hour. However, even commercial-sized properties must adequately prepare for these tumultuous wind gusts. Kirsty Kalley, a property administrator at Cohen Commercial, works diligently during hurricane season to help prepare properties for what lies ahead during these four months. “Preparation is the best protection against the dangers of storms, including knowing the difference between the different threat levels to plan accordingly. Have your property management contact details readily available to report any issues after a storm and to confirm it is safe to access your space,” she advises.

For more information about Hurricane preparedness, please visit https://www.weather.gov/wrn/hurricane-preparedness.