Archive for June, 2015

Reasons to Invest in Commercial Real Estate

June 8, 2015

buy_commercial_real_estateThere are many reasons to invest in commercial real estate, especially in metro Atlanta and north Georgia. I’ve seen many savvy investors taking the steps to purchase a commercial property such as a retail store, shopping center or more. These types of opportunities won’t last long, so it’s time to get off the fence!

Here are some of my reasons that you should look at the commercial market today:

Income Potential

The best reason to invest in commercial over residential rentals is the earning potential. Commercial properties generally have an annual return off the purchase price between 6% and 12%, depending on the area, which is a much higher range than typically exists for single family home properties (1% to 4% at best).

Professional Relationships

Small business owners generally take pride in their businesses and want to protect their livelihood. Owners of commercial properties are usually not individuals, but LLCs, and operate the property as a business. As such, the landlord and tenant have more of a business-to-business customer relationship, which helps keep interactions professional and courteous.

Public Eye 

Retail tenants have a vested interest in maintaining their store and storefront, because if they don’t, it will affect their business. As a result, commercial tenants and property owner interests are aligned, which helps the owner maintain and improve the quality of the property, and ultimately, the value of their investment.

Limited Hours of Operation 

Businesses usually go home at night. In other words, you work when they work. Barring emergency calls at night for break-ins or fire alarms, you should be able to rest at night without having to worry about receiving a midnight call because a tenant wants repairs or has lost a key. For commercial properties it is also more likely you will have an alarm monitoring service so that if anything does happen at night, your alarm company will notify the proper authorities.

More Objective Price Evaluations 

It’s often easier to evaluate the property prices of commercial property because you can request the current owner’s income statement and determine what the price should be based on that. If the seller is using a knowledgeable broker, the asking price should be set at a price where an investor can earn the area’s prevailing cap rate for the commercial property type they are looking at (retail, office, industrial, etc.). Residential properties are often subject to more emotional pricing.

Net Leases

There are variations to net leases, but the general concept is that you as the property owner do not have to pay any expenses on the property (as would be the case with residential real estate). The lessee handles all property expenses directly, including real estate taxes. The only expense you’ll have to pay is your mortgage. Companies like Walgreens, CVS, and Starbucks typically sign these types of leases, as they want to maintain a look and feel in keeping with their brand, so they manage those costs, and you as an investor get to have one of the lowest maintenance income producers for your money. Fewer consumer protection laws govern commercial leases, unlike the dozens of state laws, such as security deposit limits and termination rules that cover residential real estate.

These are some of the best reasons that make investing in commercial real estate appealing. Do you have any additional items you’d like to add? Sound off below!