COMMERCIAL PURCHASE AND SALE
At Trivedi Law Group, P.C., we help you navigate through the process of buying, selling, leasing, financing, and investing in commercial real estate. Commercial real estate is all around us, and includes apartments, offices, retail space, hotel/motel, and more. In general, commercial real estate is more associated with commercial properties, which is investing in properties that general income. Income and appreciation are the two ways commercial real estate earns money. Upon investing money into a commercial investment, income is produced and generated, while appreciating the value of the property over time. Just investing in commercial investment could be very lucrative. While not all investing in commercial properties can but lucrative and there are many hidden and challenges that an investor must overcome.
First, investing in commercial real estate normally requires more capital, expertise and time than purchase of a residential property. Second, lender willing to lend funds to an investor are less compare to lenders for residential and their requirements are more difficult.
Trivedi Law Group P.C. has the necessary knowledge and expertise for any investor who is interested in investing in commercial market place. It is a great way for any investor to diversifying his/her portfolio. Trivedi Law Group P.C. has worked with large and small lenders, such as TD Bank, Capital One Bank, HAB Bank, Bank of America, People’s United Bank, First Fidelity National Bank and others in order to be familiar with the banking requirements, so that your closing can be completed successfully.
Below is some information on how and what to look for when investing in commercial real estate and requirements of a commercial lender. If anybody is thinking of investing in commercial real estate, please do not hesitate to contact Mr. Trivedi.
How To Get Started In Commercial Real Estate
The question of ‘how to invest in commercial real estate’ has only one answer: with due diligence. Since commercial real estate involves different array of properties and investment, it is imperative that the investor perform necessary due diligence. Regardless of what sector or niche you are in, doing your homework and minding your due diligence is a critical element in ensuring your success in real estate. In addition to learning the ins and outs of commercial investing, make sure you understand the commercial real estate market and how it can differ from the residential real estate market. If you are ready to embark on your first commercial endeavor, be sure to abide by the following tips:
1) Understand How Commercial Real Estate Is Different
The first step as a commercial investor is understanding that commercial real estate is valued differently from residential properties. Unlike residential real estate, the income from commercial real estate is typically related to usable square footage. In addition, commercial property leases typically last longer than those of residential leases. These two factors help illustrate why a commercial real estate investor has a better potential to earn a higher income.
Location is an important factor regardless of your investing niche, with commercial investing as no exception. However, commercial investors also need to pay close attention to their tenant type. The location and intended tenant type are two factors that intersect closely when determining demand. For example, a space intended for corporate offices will likely have better performance in an urban center compared to a primarily residential neighborhood. Analyzing recent comparables can provide you with a better clue as to how your property of interest might perform.
2) Analyze Comparables
The next step is to analyze comparables in the area and research future developments. Otherwise known as “comps,” these assets refer to prices paid for recently sold properties that are similar in location, size and style. Analyzing comps will help you determine the current market value of a property. A general rule of thumb when determining comps is to choose a property where the square footage does not go beyond 10 percent higher or lower than that of the property being evaluated. This will allow for the most accurate comparables possible. Read more on tips for pulling the most accurate comparable sales.
3) Use The Right Success Metric
Commercial real estate investing involves a wide array of calculations, as well as an understanding of real estate finance. To be a player in commercial real estate, there are several formulas you should know.
- Net Operating Income: This is a calculation that equals all revenue and costs from a particular property. Configured before taxes, this number provides investors with an idea of how much they’ll make from an investment minus all necessary operating expenses. Operating costs typically consist of insurance, property management fees, utilities, repairs and janitorial fees, utilities and property tax.
- Cap Rate: Used to calculate the value of income producing properties, the “cap rate” — short for capitalization rate — will provide investors with an estimate of future profits or cash flow. This is essentially the ratio of net operating income to property asset value.
- Cash On Cash: Cash on cash is a metric that provides investors with a rate of return on their commercial real estate transactions. It’s typically used by investors who rely on financing to purchase their properties. Cash on cash measures the return on out-of-pocket cash invested relative to the portion that was financed. This will provide an accurate analysis of an investment’s performance.
The above formulas serve as an introduction to complement our complete guide to real estate calculators that every investor should know.
