Author Topic: Owning Buildings  (Read 1649 times)

AJ41

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Owning Buildings
« on: January 20, 2017, 02:03:53 PM »
Real estate has vaguely interested me over the past couple of years. Flipping houses has always intrigued me with the big gains and such but honestly I think it's a very saturated market.

So while thinking one day I thought about buying actual buildings. The same buildings that businesses rent out. The same buildings Walmarts, Targets, Sprints rent out. It's time for people to own buildings and not just houses.

Does anyone on this forum actually own buildings and rent to stores? I'd be interested in learning and actually doing this soon. I know those buildings can bring way more income then what a house can.

ketchup

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Re: Owning Buildings
« Reply #1 on: January 20, 2017, 02:23:02 PM »
I don't own any but I do know it's a very different ballgame than residential rentals.

"Buildings" could mean a relatively-high-turnover strip mall (we've all seen that spot that's a nail salon one year, then a crappy restaurant, then a good restaurant, then an Ace Hardware, etc.) or something big and stable like a Walgreens.

From what I do know, in addition to bigger numbers all around, you're usually looking at lower cap rates and longer vacancy, made up for by often long leases (20 years is not uncommon in a Walgreens-type scenario) and often very low maintenance (the tenants usually pay for that anyway under these circumstances from what I understand). 

So best case, it's a lower-yielding, more stable, less labor-intensive investment.  However, for people with non-eight-figure wealth, such buildings are probably expensive enough that with even one your portfolio can't be all that diverse (doesn't leave room for much else).

waltworks

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Re: Owning Buildings
« Reply #2 on: January 20, 2017, 02:59:22 PM »
For individuals who are not extremely wealthy, the problem will be financing such an investment. Commercial lending is a totally different game than residential (no Fanny/Freddie means qualifying is very, very hard) and most of us would be hard pressed to pull it off.

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Mr Mark

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Re: Owning Buildings
« Reply #3 on: January 25, 2017, 03:13:11 AM »
If that's the sort of specific real estate market you want exposure to, there are REITs that specialise in this sort of commercial property deal. Or in Hotels, Prisons, Hospitals, or Retirement Communities or... pretty much anything these days it seems.

They spread their investments around and have access to debt from commercial lenders, and are hopefully well managed by people who specialise in buying/selling/managing that type of property. Because they are REITs they don't pay company tax, and must return at least 90% of net earnings to shareholders, and they are best kept inside a tax advantaged account [IRA/Roth] to reduce your tax impact as the payouts are ordinary dividends and/or capital gains, not qualified dividends.

You can go further and have REIT ETFs that invest in a collection of different REITs, and vanguard has a REIT index mutual fund. Some REITs don't hold the properties but the debt of such properties.

Last few months, a lot of REITs have dropped in price a bit over fears that rising interest rates will lower yields.

Overflow

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Re: Owning Buildings
« Reply #4 on: January 25, 2017, 07:16:27 AM »
Real estate has vaguely interested me over the past couple of years. Flipping houses has always intrigued me with the big gains and such but honestly I think it's a very saturated market.

So while thinking one day I thought about buying actual buildings. The same buildings that businesses rent out. The same buildings Walmarts, Targets, Sprints rent out. It's time for people to own buildings and not just houses.

Does anyone on this forum actually own buildings and rent to stores? I'd be interested in learning and actually doing this soon. I know those buildings can bring way more income then what a house can.

Yes there is a space for owning commercial space, but it has some draw backs as well (some of which has already been mentioned - financing, vacancy, etc).

Additionally, you have very low liquidity - which is a significant factor when I analyze investments. The market for selling WalMart sized commercial building is VERY small. Compare that to the market for a 3/2 single family home. If I need to pivot in my investment strategy for any reason, residential property give me better mobility.

Commercial properties also don't appreciate in the same way as residential. The market value of a commercial property is based on its cap rate, which is based on it being rented. Single family homes will appreciate regardless of whether it is occupied or not, or whether rents have risen or fallen.




tallen

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Re: Owning Buildings
« Reply #5 on: January 25, 2017, 12:54:49 PM »
I haven't browsed Biggerpockets lately but I know they have a forum section for commercial real estate investing you may want to give a look.

Kriegsspiel

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Re: Owning Buildings
« Reply #6 on: January 25, 2017, 04:28:34 PM »
Granola Shotgun just put up a video that might give you some ideas.