Author Topic: Commercial Real Estate  (Read 835 times)

Archipelago

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Commercial Real Estate
« on: July 28, 2019, 05:19:47 PM »
A few members around these forums have purchased CRE and done very well with it. It's very different than residential investing. How did you get started and how do you go about looking for properties? To my understanding, it's a very "influence" type of business, meaning you need to know the right players. A lot of these deals happen off market. I hear the best way to get started is to find a good commercial broker.

I've met one CRE investor (now retired) in my area. He had hundreds of apartments. He even had a shopping plaza he bought for $1.2 million which was clearing $300k/year.

Stories and advice wanted.

Archipelago

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Re: Commercial Real Estate
« Reply #1 on: July 28, 2019, 05:20:22 PM »
Obligatory mention for @waltworks

Papa bear

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Re: Commercial Real Estate
« Reply #2 on: July 28, 2019, 07:27:25 PM »
I havenít bought any, but I do look from time to time.  I canít grasp how the cap rates on offices or other commercial buildings makes any sense at all.  I can crush those numbers on residential.

I tend to think of 4+ residential buildings as different than office/retail. If you were to buy an apartment building, you are just buying multiples of residential.  The cap rates on the office/retail is atrocious.  I have a few real estate investors I talk with and they like to buy apartments in the 30-40k/ unit range and get them up to 800/month rent.  Those numbers make sense to me.

And posting to follow. 


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oldmachines

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Re: Commercial Real Estate
« Reply #3 on: July 29, 2019, 01:42:51 AM »
Here's my personal story.
I have 3 metal commercial building with 5 total rental units. I bought the lots and acted as my own contractor but hired most of the construction work to build them. The lots cost me 50k, 25K and 25K. The buildings cost me between $120K, $115K and $130K each to build and were each worth around $225K the day they were finished so I had $100K equity in each one immediately. My cap rates are at 9%. They are currently occupied as a transmission repair shop, an auto detail shop, a children's gymnastics school, a beverage company warehouse hub and a cabinet shop.
There have been several times that I have found some really good deals on residential properties and considered dipping my toes in but always talked myself out of it. Commercial is very hassle free. I realize that my model for commercial land lording may not be repeatable in most places and that maybe I got lucky when I found the light industrial/retail area where mine are located. (they are neighboring properties) I bought the first lot and built in 2006 during the boom, the second in 2010 and the last in 2017. They are responsible for my financial independence. A good friend of mine's wife is a hair stylist. He recently built a building down the street from mine that has a common lobby and six interior rental rooms for hair stylists/manicurists etc. He is fully rented and very happy with his investment.

Fishindude

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Re: Commercial Real Estate
« Reply #4 on: July 29, 2019, 07:25:54 AM »
My career was a general contractor, so have a leg up on most in in terms of knowing how to get things built efficiently, economically and navigating through all of the code and permit issues.
Two partners and myself designed and built a $1 mil custom commercial facility for a company we were familiar with and leased it from 2000 thru 2018.   We paid cash for the build (no loan), and took approx. $14,000 per month / $168,000 per year in rent for a total of approx. $3 mil total over 18 years.   In 2018 The tenant exercised their purchase option and bought the place from us for approx. $900,000.

A $333,000 initial cash investment paid me approx. $1.3 mil over 18 years.   I'd do it again.

Archipelago

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Re: Commercial Real Estate
« Reply #5 on: July 29, 2019, 07:51:52 AM »
I havenít bought any, but I do look from time to time.  I canít grasp how the cap rates on offices or other commercial buildings makes any sense at all.  I can crush those numbers on residential.

I tend to think of 4+ residential buildings as different than office/retail. If you were to buy an apartment building, you are just buying multiples of residential.  The cap rates on the office/retail is atrocious.  I have a few real estate investors I talk with and they like to buy apartments in the 30-40k/ unit range and get them up to 800/month rent.  Those numbers make sense to me.

And posting to follow. 


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Here's why it works (and why the type of property use doesn't necessarily matter):

Let's say I purchase a property for $1m which has an NOI of $50k. This is a 5% cap.

Then let's say over the next 2 years I raise the NOI to $60k. This is done by raising rents, reducing expenses, etc. Using the same 5% cap rate, the asset value would become $1.2 million.
(60,000/.05) = $1.2m

That's what CRE can accomplish but on a much larger scale (the only limitation is raising money to buy more). As an added bonus, one can use a 1031 exchange to defer capital gains, rinse & repeat with the next property.

That's how these guys are able to buy thousands of properties and make millions upon millions. It's crazy if you think about it.

Archipelago

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Re: Commercial Real Estate
« Reply #6 on: July 29, 2019, 07:56:24 AM »
Here's my personal story.
I have 3 metal commercial building with 5 total rental units. I bought the lots and acted as my own contractor but hired most of the construction work to build them. The lots cost me 50k, 25K and 25K. The buildings cost me between $120K, $115K and $130K each to build and were each worth around $225K the day they were finished so I had $100K equity in each one immediately. My cap rates are at 9%. They are currently occupied as a transmission repair shop, an auto detail shop, a children's gymnastics school, a beverage company warehouse hub and a cabinet shop.
There have been several times that I have found some really good deals on residential properties and considered dipping my toes in but always talked myself out of it. Commercial is very hassle free. I realize that my model for commercial land lording may not be repeatable in most places and that maybe I got lucky when I found the light industrial/retail area where mine are located. (they are neighboring properties) I bought the first lot and built in 2006 during the boom, the second in 2010 and the last in 2017. They are responsible for my financial independence. A good friend of mine's wife is a hair stylist. He recently built a building down the street from mine that has a common lobby and six interior rental rooms for hair stylists/manicurists etc. He is fully rented and very happy with his investment.

This is a very cool story, exactly what I'm looking for. Just common day investors who have had success in CRE. I might PM you for more info if that's alright.

But I'm still wondering, how did you know it was a good time to just put up these metal buildings? What was your thought process? Was the first one a trial and when you realized it was economically viable, built two more?

oldmachines

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Re: Commercial Real Estate
« Reply #7 on: July 29, 2019, 03:52:24 PM »
Here's my personal story.
I have 3 metal commercial building with 5 total rental units. I bought the lots and acted as my own contractor but hired most of the construction work to build them. The lots cost me 50k, 25K and 25K. The buildings cost me between $120K, $115K and $130K each to build and were each worth around $225K the day they were finished so I had $100K equity in each one immediately. My cap rates are at 9%. They are currently occupied as a transmission repair shop, an auto detail shop, a children's gymnastics school, a beverage company warehouse hub and a cabinet shop.
There have been several times that I have found some really good deals on residential properties and considered dipping my toes in but always talked myself out of it. Commercial is very hassle free. I realize that my model for commercial land lording may not be repeatable in most places and that maybe I got lucky when I found the light industrial/retail area where mine are located. (they are neighboring properties) I bought the first lot and built in 2006 during the boom, the second in 2010 and the last in 2017. They are responsible for my financial independence. A good friend of mine's wife is a hair stylist. He recently built a building down the street from mine that has a common lobby and six interior rental rooms for hair stylists/manicurists etc. He is fully rented and very happy with his investment.

This is a very cool story, exactly what I'm looking for. Just common day investors who have had success in CRE. I might PM you for more info if that's alright.

But I'm still wondering, how did you know it was a good time to just put up these metal buildings? What was your thought process? Was the first one a trial and when you realized it was economically viable, built two more?
Yes. I built the first one because I wanted a shop for myself. I decided to build it as an investment as well so I chose a commercial location and made it a duplex so I could rent the other half to subsidize my investment.
 It was very successful and as opportunities to buy the adjoining lots came up I bought them and expanded to where I am now.

Archipelago

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Re: Commercial Real Estate
« Reply #8 on: July 30, 2019, 11:33:54 PM »
Bumping this thread for more stories and insight.

Archipelago

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Re: Commercial Real Estate
« Reply #9 on: August 13, 2019, 11:27:04 PM »
Bump again!