Introduction to Commercial Real Estate Investing

Frank Chen

Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I've got quick video on the many types of commercial real estate and some quick benefits to each.

Types of Commercial Real Estate

Multi-Family Apartment Buildings
Self Storage
Mobile Home Parks
Retail Space/Center/Complexes
Office Buildings
Industrial, Manufacturing and Warehouses
Land Development
Hotels and Resorts
Health Care Facilities

Difference between commercial and residential

VALUATION

Residential: Purchase – land value and property value, Rent – FMR – determined by area

Commercial: Purchase – determined by income potential, Rents are determined by $/sq.ft, demand vs. supply

FINANCING

Residential: Smaller deposit, 100% loan to purchase, lower rates, but not as easy to get seller financing

Commercial: 30% deposit, higher rates, but better chance of leveraging – seller financing or using OPM.

RENTAL COMMITMENT

Residential: 1 year with option to renew, tenant quality fluctuates, vacancies hurt

Commercial: 3-20 Years, annual rent increase, better tenants, more flexibility with vacancy

MANAGEMENT

Residential: Most of the time YOU are the manager, time consuming, not budgeted for management

Commercial: Property management expenses built right into the valuation of property, professional companies to manage the building

COSTS

The cost “per door” for a 20 unit multifamily is significantly less than the average cost of twenty single family homes.

BENEFITS

Huge income potential and High Returns
longer lease periods – 5-20 years
rent increases are built into the agreement with the tenant
Numerous Tax Benefits – Tax-Deferred 1031 Exchanges
Sellers can be more Flexible in Pricing and Financing Options
A lot of expenses are paid by the tenant – triple net
High appreciation potential

DISADVANTAGES

more risk vs. residential
Lots to learn
Ties up capital
Downturns in economy have bigger effects
Mechanics of purchase are more complicated
More legalities – vary per city/state

As you can see there are tons of ways to get involved with commercial real estate investing. But its not for everyone. It takes anexperienced real estate investor and the right financial backing in order to even enter the commercial real estate market. The risks are higher, but the pay-outs are too, so always make sure that you can handle the time and costs associated with commercial

Again, this is Frank Chen with REIClub.com. Please take the time to leave your comments for this video below and please subscribe to our YouTube channel so you'll be automatically notified when we upload more quick video tips for you. Take care and good investing.