Author Topic: Commercial Real Estate Advice  (Read 2202 times)

Snowboard junkie

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Commercial Real Estate Advice
« on: February 16, 2013, 09:53:40 AM »
Hi everyone,

I have recently been offered a deal regarding a piece of commercial real estate.  I am not experienced in this area, so I'm asking for general comments and advice - anything, even an internet link to a relevant site may be helpful.

As a bit of background:  I have residential properties that I rent - 1 is leased, another is a vacation property I rent out when I'm not using it.  I have had rental real estate of one form or another for 8 or 9 years.  So I am not a real estate newbie, but I am not experienced in this area either.

The deal is:  950k for the property.  income is 64k/ year triple net.  Renters seem fairly stable for the most part.  Leases are staggered over the next 4 years.  I can borrow 650k at 4.25%.  (If I borrow more, interest rates go up)

So, my questions are:
1. what are the differences in commercial and residential renting?
    at first glance, managing a commercial property seems easier, and arguably more profitable.
2. any potential pitfalls I should actively avoid?  (and how?)
3. Has anyone here done this before who can share their experience?

KingCoin

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Re: Commercial Real Estate Advice
« Reply #1 on: February 16, 2013, 11:23:04 AM »
This was posted about a week ago on BiggerPockets:
http://www.biggerpockets.com/renewsblog/2013/02/04/triple-net-lease-nnn/
I suspect there are many more relevant resources available if you poke around on the website.

It's my understanding that commercial properties have a much higher risk of extended vacancies vs residential properties, so tenant evaluation becomes especially crucial.


Another Reader

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Re: Commercial Real Estate Advice
« Reply #2 on: February 16, 2013, 06:15:35 PM »
Multi-tenant commercial/industrial properties are different than houses.

What type of property and where is it located? 

What grade of tenants does the property have and how long have they been there?  What are the remaining terms on the leases and what are the scheduled rent increases?

What's the overall vacancy rate for this type of space in the area?  Are there better located, newer, more desirable properties that prospective tenants would pick over yours?

Is the $64k the total scheduled rent?  What is market rent?  Who typically pays for tenant improvements when a space turns over?

Do you understand that you will have vacancy and collection loss, and during those periods, you will be paying the expenses?  Are the triple net reimbursements sufficient to cover the actual rxpenses?

I could go on, but I suggest you research valuation of commercial and industrial properties before you write any checks.  Starting with the Appraisal Institute textbook on the subject wouldn't hurt.

Snowboard junkie

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Re: Commercial Real Estate Advice
« Reply #3 on: February 17, 2013, 03:14:07 PM »
Thanks very much to both of you for your help. 

After looking into this a bit more, I think this is not really going to be as good a deal as initially thought. 

My head is swimming after going over property tax abatement schedules, lease terms, and half complete poorly structured financial statements. (I'm going through the due diligence to look into the deal for my own education)

In any case, I definitely need to get a lot more background knowledge before I can comfortably move in this direction.