Commercial RE 101: Any suggestions

[investor]

Call marcus millichap, the largest commercial real estate agents in the US. Ask about financing, which is key for commercial. Most financing is based on 20 year amortization with a baloon (with re-appraisal) at 3-10 years. This is what is getting most commercial owners/lenders right now. The loans should be non-recourse and most leases are triple net, which means that the tenant pays for taxes, upkeep and utlities. No, there isn’t a course that I know of. It’s amazing that something so important should be taught by the school of hard knocks but it is. Advice: do not value a property by projections of future rents. Value the buy on the past performance. Values are based on cap rates, which are simply the yearly rate of return divided by the purchase price. Inverse of a P/E ratio of stocks. There is much confusion over what cap rates are but it is as I have explained.Commercial is in a free fall and is related strongly to rents. You are buying cash flow (rents) so if the economy is not good and won’t be good for awhile, the property may not be a good value. Good luck!!!

[clearfund]

Flu – We’ve bought/sold/developed over $1B of commercial real estate in the western US over the past 10 years.

In summary, commercial is all about cash flow, cash flow, cash flow.

This makes the asset class completely different from the residential world where most investors are simply “hoping” for appreciation and profits. Homes rarely turn a positive cash flow.

To be brief, there are 3 deadly problems in commercial: 1) vacancy; 2) rising expenses; 3) reliance on profits/sale

Vacancy: when you lose a tenant, you NEVER get that rent back and your montly check drops immediately. Be scared of lots of small, local mom/pop type of tenants as they disappear regularly.

We own bldgs leased to Fortune 500/100 clients exclusively with investment grade credit (s&p BBB or better). NO VACANCY RISK

Expenses: do not be exposed to paying expenses yourself as they will rise over time yet if your rent income drops (vacancy) then you get hit, hard. We prefer NNN leases where the tenant pays 100% of the expenses thus reducing our risk/exposure to inflation, etc. Couple that with high credit Fortune 500 tenants and our expense exposure is minimal.

Profits: most people think the sale is where profits are made, no. Over 50% of your profits should come from dividends and distributions. Remember, the odds of needing to sell at the peak of the market is rare, thus don’t use a projected sale price to guage your purchase price. Buy based on cash flow/credit then as the market improves consider selling into a rising market. Don’t expect a huge killing from the sale, but rather enjoy the huge cash flows you can earn/grow.

Over all its the best vehicle (done correctly) for generating cash flow & upside potential that I can imagine.

Someone else already hit on the cap rate/value topic so we’ll leave that alone.

Feel free to PM me if you want add’l insight from an investor’s perspective.

[clearfund]

Flu – We’ve bought/sold/developed over $1B of commercial real estate in the western US over the past 10 years.

In summary, commercial is all about cash flow, cash flow, cash flow.

This makes the asset class completely different from the residential world where most investors are simply “hoping” for appreciation and profits. Homes rarely turn a positive cash flow.

To be brief, there are 3 deadly problems in commercial: 1) vacancy; 2) rising expenses; 3) reliance on profits/sale

Vacancy: when you lose a tenant, you NEVER get that rent back and your montly check drops immediately. Be scared of lots of small, local mom/pop type of tenants as they disappear regularly.

We own bldgs leased to Fortune 500/100 clients exclusively with investment grade credit (s&p BBB or better). NO VACANCY RISK

Expenses: do not be exposed to paying expenses yourself as they will rise over time yet if your rent income drops (vacancy) then you get hit, hard. We prefer NNN leases where the tenant pays 100% of the expenses thus reducing our risk/exposure to inflation, etc. Couple that with high credit Fortune 500 tenants and our expense exposure is minimal.

Profits: most people think the sale is where profits are made, no. Over 50% of your profits should come from dividends and distributions. Remember, the odds of needing to sell at the peak of the market is rare, thus don’t use a projected sale price to guage your purchase price. Buy based on cash flow/credit then as the market improves consider selling into a rising market. Don’t expect a huge killing from the sale, but rather enjoy the huge cash flows you can earn/grow.

Over all its the best vehicle (done correctly) for generating cash flow & upside potential that I can imagine.

Someone else already hit on the cap rate/value topic so we’ll leave that alone.

Feel free to PM me if you want add’l insight from an investor’s perspective.

[clearfund]

Flu – We’ve bought/sold/developed over $1B of commercial real estate in the western US over the past 10 years.

In summary, commercial is all about cash flow, cash flow, cash flow.

This makes the asset class completely different from the residential world where most investors are simply “hoping” for appreciation and profits. Homes rarely turn a positive cash flow.

To be brief, there are 3 deadly problems in commercial: 1) vacancy; 2) rising expenses; 3) reliance on profits/sale

Vacancy: when you lose a tenant, you NEVER get that rent back and your montly check drops immediately. Be scared of lots of small, local mom/pop type of tenants as they disappear regularly.

We own bldgs leased to Fortune 500/100 clients exclusively with investment grade credit (s&p BBB or better). NO VACANCY RISK

Expenses: do not be exposed to paying expenses yourself as they will rise over time yet if your rent income drops (vacancy) then you get hit, hard. We prefer NNN leases where the tenant pays 100% of the expenses thus reducing our risk/exposure to inflation, etc. Couple that with high credit Fortune 500 tenants and our expense exposure is minimal.

Profits: most people think the sale is where profits are made, no. Over 50% of your profits should come from dividends and distributions. Remember, the odds of needing to sell at the peak of the market is rare, thus don’t use a projected sale price to guage your purchase price. Buy based on cash flow/credit then as the market improves consider selling into a rising market. Don’t expect a huge killing from the sale, but rather enjoy the huge cash flows you can earn/grow.

Over all its the best vehicle (done correctly) for generating cash flow & upside potential that I can imagine.

Someone else already hit on the cap rate/value topic so we’ll leave that alone.

Feel free to PM me if you want add’l insight from an investor’s perspective.

[clearfund]

Flu – We’ve bought/sold/developed over $1B of commercial real estate in the western US over the past 10 years.

In summary, commercial is all about cash flow, cash flow, cash flow.

This makes the asset class completely different from the residential world where most investors are simply “hoping” for appreciation and profits. Homes rarely turn a positive cash flow.

To be brief, there are 3 deadly problems in commercial: 1) vacancy; 2) rising expenses; 3) reliance on profits/sale

Vacancy: when you lose a tenant, you NEVER get that rent back and your montly check drops immediately. Be scared of lots of small, local mom/pop type of tenants as they disappear regularly.

We own bldgs leased to Fortune 500/100 clients exclusively with investment grade credit (s&p BBB or better). NO VACANCY RISK

Expenses: do not be exposed to paying expenses yourself as they will rise over time yet if your rent income drops (vacancy) then you get hit, hard. We prefer NNN leases where the tenant pays 100% of the expenses thus reducing our risk/exposure to inflation, etc. Couple that with high credit Fortune 500 tenants and our expense exposure is minimal.

Profits: most people think the sale is where profits are made, no. Over 50% of your profits should come from dividends and distributions. Remember, the odds of needing to sell at the peak of the market is rare, thus don’t use a projected sale price to guage your purchase price. Buy based on cash flow/credit then as the market improves consider selling into a rising market. Don’t expect a huge killing from the sale, but rather enjoy the huge cash flows you can earn/grow.

Over all its the best vehicle (done correctly) for generating cash flow & upside potential that I can imagine.

Someone else already hit on the cap rate/value topic so we’ll leave that alone.

Feel free to PM me if you want add’l insight from an investor’s perspective.

[clearfund]

Flu – We’ve bought/sold/developed over $1B of commercial real estate in the western US over the past 10 years.

In summary, commercial is all about cash flow, cash flow, cash flow.

This makes the asset class completely different from the residential world where most investors are simply “hoping” for appreciation and profits. Homes rarely turn a positive cash flow.

To be brief, there are 3 deadly problems in commercial: 1) vacancy; 2) rising expenses; 3) reliance on profits/sale

Vacancy: when you lose a tenant, you NEVER get that rent back and your montly check drops immediately. Be scared of lots of small, local mom/pop type of tenants as they disappear regularly.

We own bldgs leased to Fortune 500/100 clients exclusively with investment grade credit (s&p BBB or better). NO VACANCY RISK

Expenses: do not be exposed to paying expenses yourself as they will rise over time yet if your rent income drops (vacancy) then you get hit, hard. We prefer NNN leases where the tenant pays 100% of the expenses thus reducing our risk/exposure to inflation, etc. Couple that with high credit Fortune 500 tenants and our expense exposure is minimal.

Profits: most people think the sale is where profits are made, no. Over 50% of your profits should come from dividends and distributions. Remember, the odds of needing to sell at the peak of the market is rare, thus don’t use a projected sale price to guage your purchase price. Buy based on cash flow/credit then as the market improves consider selling into a rising market. Don’t expect a huge killing from the sale, but rather enjoy the huge cash flows you can earn/grow.

Over all its the best vehicle (done correctly) for generating cash flow & upside potential that I can imagine.

Someone else already hit on the cap rate/value topic so we’ll leave that alone.

Feel free to PM me if you want add’l insight from an investor’s perspective.

[SK in CV]

When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing. The market is different in each one of them. The ups and downs in each move on their own tracks (somewhat like high end and low end residential, though there is at least one of those categories that has continued to perform very well over the last few years.) The current investment model is different in each one of them. The financing is not always the same either.

In most categories,(though not all) trends tend to follow residential rather than lead. With the exception of hotels, trends tend evolve slowly, both up and down.

Comparing commercial real estate to residential real estate is like comparing apples to fish. They’re not even in the same family. And when someone tells you that commercial real estate is “mostly” anything, they don’t know what they’re talking about.

[SK in CV]

When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing. The market is different in each one of them. The ups and downs in each move on their own tracks (somewhat like high end and low end residential, though there is at least one of those categories that has continued to perform very well over the last few years.) The current investment model is different in each one of them. The financing is not always the same either.

In most categories,(though not all) trends tend to follow residential rather than lead. With the exception of hotels, trends tend evolve slowly, both up and down.

Comparing commercial real estate to residential real estate is like comparing apples to fish. They’re not even in the same family. And when someone tells you that commercial real estate is “mostly” anything, they don’t know what they’re talking about.

[SK in CV]

When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing. The market is different in each one of them. The ups and downs in each move on their own tracks (somewhat like high end and low end residential, though there is at least one of those categories that has continued to perform very well over the last few years.) The current investment model is different in each one of them. The financing is not always the same either.

In most categories,(though not all) trends tend to follow residential rather than lead. With the exception of hotels, trends tend evolve slowly, both up and down.

Comparing commercial real estate to residential real estate is like comparing apples to fish. They’re not even in the same family. And when someone tells you that commercial real estate is “mostly” anything, they don’t know what they’re talking about.

[SK in CV]

When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing. The market is different in each one of them. The ups and downs in each move on their own tracks (somewhat like high end and low end residential, though there is at least one of those categories that has continued to perform very well over the last few years.) The current investment model is different in each one of them. The financing is not always the same either.

In most categories,(though not all) trends tend to follow residential rather than lead. With the exception of hotels, trends tend evolve slowly, both up and down.

Comparing commercial real estate to residential real estate is like comparing apples to fish. They’re not even in the same family. And when someone tells you that commercial real estate is “mostly” anything, they don’t know what they’re talking about.

[SK in CV]

When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing. The market is different in each one of them. The ups and downs in each move on their own tracks (somewhat like high end and low end residential, though there is at least one of those categories that has continued to perform very well over the last few years.) The current investment model is different in each one of them. The financing is not always the same either.

In most categories,(though not all) trends tend to follow residential rather than lead. With the exception of hotels, trends tend evolve slowly, both up and down.

Comparing commercial real estate to residential real estate is like comparing apples to fish. They’re not even in the same family. And when someone tells you that commercial real estate is “mostly” anything, they don’t know what they’re talking about.

[jpinpb]

[quote=SK in CV]When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing.
[/quote]

I think some apartment complexes are considered commercial.

[jpinpb]

[quote=SK in CV]When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing.
[/quote]

I think some apartment complexes are considered commercial.

[jpinpb]

[quote=SK in CV]When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing.
[/quote]

I think some apartment complexes are considered commercial.

[jpinpb]

[quote=SK in CV]When you say commercial real estate, that covers a whole lot of territory. Retail, hotels, industrial, office, public storage, mixed use, high rise, free standing.
[/quote]

I think some apartment complexes are considered commercial.

[Author]

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