Commercial Real Estate

[classicrando]

Does anyone have any experiences with or book/education resource recommendations for commercial real estate?  My partner has expressed an interest in us looking into real estate and I figured I would supplement my Google and LLM research with asking you folks here.  I know that one of their primary goals is looking for ways to reduce our overall taxes (e.g. "If Warren Buffet can pay a lower tax rate than his secretary, we can damn sure pay less than 24% marginal."), and they figure we should be able to find a way to leverage a small business or real estate investments to do that.

Thanks in advance, y'all.

[clarkfan1979]

Does anyone have any experiences with or book/education resource recommendations for commercial real estate?  My partner has expressed an interest in us looking into real estate and I figured I would supplement my Google and LLM research with asking you folks here.  I know that one of their primary goals is looking for ways to reduce our overall taxes (e.g. "If Warren Buffet can pay a lower tax rate than his secretary, we can damn sure pay less than 24% marginal."), and they figure we should be able to find a way to leverage a small business or real estate investments to do that.

Thanks in advance, y'all.

Commercial Real Estate is a very different animal than regular single family homes. The normal path for an "average" commercial real estate investor is around age 50 after about 20 years of residential real estate investing. I'm referencing apartment complexes greater than 4 units.

You typically need 50 units to hire one person full time (40 hours). This would be tenant placement and handyman repairs. If it's 100 units, you can hire 1 full-time person for tenant placement (40 hours) and another full-time person (40 hours) for handyman repairs.

Commercial real estate is also run by an inner circle. The relationships between real estate brokers and lenders is very important. It would be difficult to buy commercial real estate after reading a couple of books and have nothing else. However, I think it would be reasonable to buy a duplex on a 30 year fixed mortgage, after only reading a couple books.

[GilesMM]

You can find local real estate investor groups who will take your money and let you share in the profits as they develop properties (apartments, retail, office space, you name it).  They will give themselves better terms than you get, but they will do all the legwork.  As you learn from this process you and increase your investment, your returns, and your control. You can usually find them locally or just ask a commercial realtor.

[classicrando]

Does anyone have any experiences with or book/education resource recommendations for commercial real estate?  My partner has expressed an interest in us looking into real estate and I figured I would supplement my Google and LLM research with asking you folks here.  I know that one of their primary goals is looking for ways to reduce our overall taxes (e.g. "If Warren Buffet can pay a lower tax rate than his secretary, we can damn sure pay less than 24% marginal."), and they figure we should be able to find a way to leverage a small business or real estate investments to do that.

Thanks in advance, y'all.

Commercial Real Estate is a very different animal than regular single family homes. The normal path for an "average" commercial real estate investor is around age 50 after about 20 years of residential real estate investing. I'm referencing apartment complexes greater than 4 units.

You typically need 50 units to hire one person full time (40 hours). This would be tenant placement and handyman repairs. If it's 100 units, you can hire 1 full-time person for tenant placement (40 hours) and another full-time person (40 hours) for handyman repairs.

Commercial real estate is also run by an inner circle. The relationships between real estate brokers and lenders is very important. It would be difficult to buy commercial real estate after reading a couple of books and have nothing else. However, I think it would be reasonable to buy a duplex on a 30 year fixed mortgage, after only reading a couple books.

Thank you, this is a valuable insight regarding the inner circle and relationships involved.  Does any of what you've said change if I wanted to avoid housing entirely (no apartments, duplexes, etc.) and only focus on things like small four-door strip malls, warehouses, or the standalone buildings that some corporate brands rent as triple net leases?

[rocketpj]

Commercial is hard to break into in large cities - high cost being a big barrier.  Multifamily are one option, depending on the tenancy laws where you are.

I'd recommend looking at mini-storage properties.  That was my path in, and it can be excellent.

The best thing about commercial real estate is that it is much more hard nosed that residential.  What I mean is that a commercial property is mostly just worth a multiple of what you can make from it, and you can scale your price using that metric.  There is no premium for a view or being close to a school for a warehouse.

That can make for some funny bargains.  My first commercial property had 34 storage units, 8 one-room office units and 2x2 br apartments.  I could not have bought a duplex for what I paid for the entire commercial property, and it came with 42 other paying units.  Granted, it needed a lot of work (1.5 yrs of renovations) but the upside was enormous.  Because it was commercial and I am in a smallish town there was very little competition for the property and I got it at a 12% cap rate.  This is not normal, but it is something to look for because they do happen.

[classicrando]

Commercial is hard to break into in large cities - high cost being a big barrier.  Multifamily are one option, depending on the tenancy laws where you are.

I'd recommend looking at mini-storage properties.  That was my path in, and it can be excellent.

The best thing about commercial real estate is that it is much more hard nosed that residential.  What I mean is that a commercial property is mostly just worth a multiple of what you can make from it, and you can scale your price using that metric.  There is no premium for a view or being close to a school for a warehouse.

That can make for some funny bargains.  My first commercial property had 34 storage units, 8 one-room office units and 2x2 br apartments.  I could not have bought a duplex for what I paid for the entire commercial property, and it came with 42 other paying units.  Granted, it needed a lot of work (1.5 yrs of renovations) but the upside was enormous.  Because it was commercial and I am in a smallish town there was very little competition for the property and I got it at a 12% cap rate.  This is not normal, but it is something to look for because they do happen.

This is more along the lines of what I am talking about.  So, mini-storage properties were your way in.  Did you have any preexisting relationships with any realtors, brokers, or investors?  Or did you DIY your entry?  Did you find this property through a listing on something like LoopNet, or did you just know about it because smallish town?  Did the whole thing need extensive renovations, or were there leasable units from day one?