All About Commercial Real Estate

Commercial Real EstateHey everyone, thanks for swinging by. Today, I’m going to talk a bit about commercial real estate. If you’ve been following my blog since the switch to the new CNA Finance, you’ve watched as I finally started to enter the investment market. Now, I’m an investor and, I’ve gotta start thinking like one.

As any good investor would, I did a bunch of research to figure out which investment platform would be best and eventually, I decided to go with Betterment. However, I think I’m missing something big. When we think about investing, we often think about investing in stocks, bonds, etc… or, at least I do. What I was missing is that there are tangible things that I can be investing in. Things like buying properties. I’ve been doing a bit of reading around the blogosphere and, it seems like commercial real estate is a big topic these days. So, I decided to do some digging to see if that would be a good option for me.

Does Investing In Commercial Real Estate Come With A Good ROI?

One of the first questions I had to ask myself was “What kind of ROI can I expect?”. As far as my Betterment account goes, it’s been four weeks and I’m up 1.6%. If we take this along an annual average, that’s an ROI of 20.8%. That’s pretty good if you ask me. Can commercial real estate even come close to that?

Well, what I found in my research was very interesting. I’ve read the stories of bloggers that make over 50% annual ROI when it comes to their commercial real estate investments. That’s amazing! The best part is, this isn’t a ROI that’s incredibly hard to obtain. From what I understand, owners of companies are willing to pay about $1 per square foot per month in my area. That means, if I mortgage out a 1,000 square foot commercial property, I can ask for $1,000 per month and that would be very fair. After looking into what it would cost me, the mortgage would run around $550 per month for something like this, which is very feasible.

Understanding Location When Purchasing!

When it comes to investing in an office space, business owners can be very particular about where their office is going to be located. Let’s face it, foot traffic for many brick and mortar businesses is as important as is virtual traffic for blogs. That being said, if I’m going to buy a piece of commercial real estate, I may want to consider paying more for a better location. But, how do those numbers look when I’m buying it to rent it out?

I looked into my local community and found that commercial properties in high traffic areas often cost more than double the same type properties in low traffic areas. So, I had to take a look at what they were getting for rent. In low traffic areas, commercial space in my neck of the woods runs about $0.35 per square foot. Now, in the high traffic areas, the same property can easily be rented for $1.00 per square foot as I mentioned above. That’s a good chunk in extra rent.

After Looking At All Of These Prices, I Came Back To Reality!

Young bloggers are often looked at as starving artists who work for years before making any money. Luckily, I don’t have it that bad…I make a pretty good living for a simple guy like myself. But, I don’t have $100,000.00 cash to put down on a commercial mortgage! Ouch! Well, I’ll get there one day, until then, I’m sticking with my stocks and bonds!

Do you invest in commercial real estate? If not, do you plan to one day?

13 thoughts on “All About Commercial Real Estate”

  1. I thought about how great it would be to invest in Commercial Real Estate and then I came to my senses. I don’t have that kind of money yet and I haven’t even gotten my first real estate investment in single family homes. I think I will take baby steps and work my way up to CRE.

  2. I would imagine that investing in commercial real estate would be even more lucrative than residential real estate. But the real property is crazy expensive in NYC, just imagine the commercial property…so unfortunately I don’t think I’ll be able to get into it anytime soon.

  3. CRE is a very different ballgame than residential real estate. There’s so much more involved and that’s why you don’t see too many individuals investing directly in and managing CRE. Unlike renting out a home, there’s so much more to account for with CRE and, in general, it’s wise to have some background experience before going that route as an investment.

  4. I wouldn’t touch commercial real estate, one the barriers to entry (ie. cash) is much higher. Insurance is really going to cut into your profits. As you indicated, location is key and you have to find a tenant that will stay for a good amount of time. There are so many empty commercial spaces around my area that it wouldn’t be worth it to me.

  5. Commercial Property like any other investment it’s about taking a risk and having all the information you need to succeed. Before investing in a commercial property I would consider finding someone who has experience already and can mentor you. I read a book a few years ago that stated to find streams of income before buying a personal residence, because those streams will help you pay down your future home.

  6. Super interesting! Sounds like a great return and I’ve never even considered it before! As far as the location goes, I’d also want to make sure I was in a good neighborhood. As sad as it is, if you’re located in a neighborhood with a bad economy and high crime, a business owner logically isn’t going to want to move in there even if there is a massive amount of foot traffic.

  7. Joshua, when i read that ‘$1000 rent/month is possible with $550 mortgage” I felt it should be a great investment. But then again, commercial real estate requires upfront investment which changes the equation. Also, then there is an inherent risk if the rental rates go down or worse if there are no takers.

  8. Commercial real estate is an interesting space to invest especially if you can secure long term triple-net leases where your tenants pay the property taxes, insurance and maintenance.

    This is an area of real estate that is often overlooked as many investors feel it’s “beyond their area of expertise” or “outside of my snack bracket” meaning they can’t afford the down payments.

    One thing that can be nice about commercial real estate, a strip mall or a multi-family residential property, is that lenders will qualify the loan based on the property and not you personally.

  9. Commercial real estate is great because it’s one of the few areas where you can make a million dollars or even a few hundred thousand dollars, in a single deal if you buy it “on sale.” Of course that comes with huge risk as well. I’ve done a few bigger deals and we typically look for owner financing, 10% down (older owner who has it paid for), and at least 10% less than fair market value based on cap rates, irr, comparables, and price per square foot. It’s a bit like panning for gold, but hopefully you find yourself a good deal when you make the plunge!


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