Successful Commercial Property Analysis

As a successful property investor, you will want to make a commercial property analysis of any real estate deal before you consider making the purchase. There are many factors which you should take into account while making your property analysis. Some of these factors which you should look at are: the location of the property, the price, taxes, local government and zoning laws, potential rental income, as well as the options you have for obtaining the property using an investment property mortgage loan.

Commercial property has many guidelines and regulations which must be followed. The last thing that you want to do is purchase investment commercial property, and then find out once you own it that you cannot lease it to the business you want, or that zoning permits you from using the property how you would like to. Whenever you are reviewing a commercial property analysis, it is vitally important to find out about the local governmental rules and regulations which will govern what you can and cannot do with the property in question. Look at what you had planned for the property and make sure everything is in agreement.

Taxes can be a big consideration when you are making a commercial property analysis. Some local areas offer tax incentives for commercial property owners and to certain businesses. If your property can meet the guidelines then you could possibly see a nice tax reduction. Also, if the area taxes commercial real estate at a high rate, you could be in for a real surprise if you did not consider taxes in your commercial property analysis.

Just as there can be tax incentives to buying commercial property in a particular area, the same can be said for financing options. Many commercial lenders have programs which fit a variety of different business and community needs. If your property qualifies you can see a nice reduction in your mortgage interest rate.

Another consideration is the rental rate of other commercial properties in the area. If many properties are sitting vacant that is a sign that you may have serious trouble renting to a business and keeping them for the long-term. This is important for your commercial investment analysis because the rent money is your income on the property.

In addition to all of the above considerations, the usual considerations still apply. You need to look at the location of the property and determine if it is in a good enough location for what it will ultimately be used for. What is the area around the property like? Will people likely come to the location if a business starts there? Who are the residents of the local area and will they benefit from your property’s use?

You will need to look at the land and buildings and determine how much work and cost is likely involved in bringing things up to code and working order. Look at the offering price and consider if it is reasonable or if it needs to be adjusted because of the things you have found while looking at the other factors for your commercial property analysis.

While performing a commercial property analysis you should take all of the above into consideration. You also might want to consider hitting the pavement and talking to people in the area of your potential property purchase. See what the people who already live and work in the area think about the property.

Are you looking for a place to build your business? But scarcity of funds is disrupting your way to buy a property for the promotion of your business. Need not worry. Commercial property secured loan is right at your disposal to help you purchase the desired property for your business.

Commercial property secured loan is the flexible way to get the property you want for a long-term commercial investment. It helps the entrepreneur to construct a new building, acquire an existing property, and much more.

Before applying for commercial property secured loan, it is important for the entrepreneur to choose the right kind of property. A property other than vacant land, a single family residence, a duplex or a triplex which is a five unit apartment building and comes under a commercial complex is considered as a commercial property. A property consisting of a single apartment unit over a storefront is considered as a mixed use property and can be used for commercial purposes.

Commercial property secured loan is usually secured on the property that you purchase with the loan. Other things such as equipments, plants etc can also be placed as collateral. If the borrower fails to repay the loan, the lender has the authority to seize the property.

Commercial property secured loans can be use to purchase different properties for commercial use. These could be shopping centers, motels, truck stops, office buildings, retail shopping centers, storage buildings etc. The choice of property entirely depends upon the requirements of the entrepreneur.

The borrower can avail finance ranging up to $250,000,00. The amount differs from lender to lender. The repayment period is usually of 25 years which enables the borrower to repay conveniently. The interest rate and monthly installments are generally arranged according to the type of property, location as well as the minimum and maximum loan amount. The financial status and repayment capacity of the entrepreneur is also considered.

Bad credit history can no more cause you troubles. Commercial property secured loan is capable of providing you with enough funds to buy a property for the development of your business. Knowledge of the credit score can help you get the loan at favorable rates.
A number of lenders offering commercial property secured loan have occupied the commercial market. Banks and financial institutions involve lot of documentation work. Dealing with different physical lenders makes you face many hassles.

Therefore, an alternative to these financers is the availability of online lenders. You can access infinite lenders right from the computer sitting anywhere in the world. In order to get the best deal the entrepreneur needs to keep a trace of various lenders. He must have the knowledge of which lender will finance which kind of property. Hunting for the right lender will help you achieve a successful transaction.

Raise you business to new heights with commercial property secured loans. Expand your horizons and become a successful businessperson.

Investing in Real Estate – Should You Buy Residential Or Commercial Property?

We hear this often from real estate investors: “What’s the smarter move? Residential or commercial investment property?” It should come as no surprise that there isn’t a one-word answer to this question. You’ll arrive at your best choice — the one that maximizes your chances for success — by working through a decision process that includes some “global” issues, some local and some that are entirely personal.

Definitions

Let’s start with some terminology. For the purposes of our discussion, we’ll define as residential any property that derives all or nearly all of its income from dwelling units. Single-family homes, multi-families, apartment buildings, condos, co-ops are all residential. (FYI, the tax code classifies any property in which 80% or more of the gross income comes from dwelling units as residential, so many mixed-use properties can be classified as residential for tax purposes.)

For commercial property, we’ll use a typical layman’s definition: property that derives its income from non-residential sources, such as offices, retail space and industrial tenants.

Why do I say that this is the layman’s definition? Because appraisers and lenders would consider large (>4 unit) apartment buildings to be commercial investment property since they are bought and sold strictly for their ability to produce income and not as a potential personal residence for the owner/investor. However, it will suit our discussion better to treat all apartment buildings as residential properties.

Global Issues

What are the global issues that should affect your choice to buy residential or commercial property? The state of the U.S. economy certainly tops the list. If you believe we are in or are on the brink of a recession, then it makes sense to be cautious regarding commercial property. You will have to rely on businesses to occupy your commercial space, and if they’re struggling to survive or simply deferring their plans to expand, then rental rates may soften and demand for space decline. Replacing a lost tenant — especially one lost unexpectedly (in the middle of a lease, or the middle of the night) because of a weak economy — can take longer than it might in unstressed economic times. When the economy and employment are strong, of course, you are likely to see the opposite. Service businesses need more space, retailers open more stores, distributors need more warehouses.

Another issue is the cost and availability of financing. Interest rates are always important to investors, but there is one situation that may strike you as counter-intuitive. When home loans are readily available and mortgage rates drop, it’s not uncommon to see an increase in apartment vacancies, making apartment buildings less desirable as investments. The reason? Low mortgage rates and easy credit often mean that individuals can own a home at a monthly cost that is the same — or less, after taxes — than renting. So part of your potential tenant pool may be lost to home ownership.

Local Issues

In the real world, each of these global issues comes with a “however” attached. You need to stay on top of your local market because that market may contradict the national trend. For example, highly restrictive zoning regulations can mean that commercial space is always in short supply in a particular location, recession notwithstanding. And the cost of single-family homes in your community may be so high that there will always be a strong demand for rentals. Think globally but act locally (with apologies to environmentalists for borrowing their slogan).

Personal Issues

You could buy a property and then insulate yourself from it by turning over every aspect of its operation to a management company. But if you’ve never operated a property yourself, how would you know if the management firm is doing an acceptable job? Most investors begin as hands-on managers and your chances of success will be greater if you choose a type of property that you’re comfortable with.

So, at the personal level, will residential or commercial suit you better?

Unless you were raised in the woods by wolves, there is a very good chance that you’ve spent most of your life in a residential dwelling unit: a single-family house, a condo or an apartment. You have a first-hand understanding of the rights, obligations and appropriate behavior of a residential occupant. If you were a tenant, you probably also know something about the roles and responsibilities of both tenant and landlord. It is for this reason that first-time investors often lean toward buying a small residential building. You may not know the fine points of leasing and landlording, but you understand the basic ground rules. This is familiar and comfortable territory.

Of course, some novice investors come to real estate with a background in business and perhaps as a commercial tenant. If that description fits you, then becoming a commercial landlord may be an easy transition. You already have firsthand knowledge of how commercial lease deals come together, and what the parties typically expect of each other.

The Pros and the Cons

Like any of your investment choices, each type of property has its pros and cons. For example:

Residential Pros:

1. Residential units are generally easy to rent. Turnover in housing is high, so your pool of potential tenants tends to be large.
2. Leases are generally short, especially for apartments, so you can keep pace with the rental market. This means cash flow tends to be fairly strong with a multi-unit residential property.
3. Financing residential property is usually fairly straightforward. For smaller properties, the process is similar to financing a home.
4. The cost per unit tends to be lower for residential than commercial. The more units you have, the less likely it is that a vacancy will severely impact your cash flow.
5. You could live in one of the units of a multi-family property. Obviously it’s easier to keep an eye on the property if your eye is actually there.

Residential Cons:

1. Residential properties usually require a lot of hands-on management.
2. Residential properties usually require a lot of hands-on management. (That’s not a typo. I said it twice.)
3. With a single-family home, one lost tenant equals 100% lost rent.
4. Multi-family houses tend to be older and therefore may require more repairs and maintenance.
5. Residential tenants don’t keep office hours, so you can get a call or complaint at any time of day or night.
6. Larger multi-unit properties generally have a lot of traffic in common areas and will require greater upkeep.
7. Did I mention that residential properties usually require a lot of hands-on management?

Dealing with commercial tenants is quite different. Ideally, it’s business, not personal. You may require a personal guarantee on a lease, but you should expect to have more of a business-to-business relationship.

Commercial Pros:

1. Typically leases are longer, with built-in rent escalations. Five years, with options to renew is not universal but certainly quite common. Except perhaps for small offices, few businesses would be willing to go to the expense of becoming established in a particular location without a guarantee of more than just one year.

2. Many commercial leases pass through to the tenant a pro-rata share of certain expenses (or a pro-rata share of the increase in certain expenses, over a base). For example, the tenant may be obligated to pay its pro-rata share of property taxes and common-area maintenance. This helps stabilize the cash flow for the landlord and makes that cash flow more predictable.

3. Management is less hands-on than with residential. Renewals are less frequent. Many commercial leases are written to include the requirement that the tenant be responsible for interior repairs, HVAC maintenance, glass breakage, etc.

4. Depending on the type of space (i.e. more common with retail and high-end office), the tenant may fit-up the space to suit itself. The landlord may give a one-time fit-up allowance or a period of free rent, but the interior finish then becomes the tenant’s responsibility to maintain.

5. Because the property’s value is strictly a function of its income stream, you have the opportunity to create value by enhancing that income stream. In other words, you don’t need to rely on general market “appreciation” to increase the value of your property, but can take steps to do so yourself.

Commercial Cons:

1. Trying to purchase a commercial property on a shoestring may not be a realistic plan. Lenders are generally tougher underwriting commercial loans, especially if you have no experience operating commercial property. Down-payment requirements tend to be higher, as do interest rates. Loans are for shorter terms and often have a “balloon” requirement (i.e., must be refinanced before the nominal end of the term). The property will have to pass muster in terms of its projected cash flows and debt coverage ratio.

2. Leasing a commercial space can take much longer than leasing a residential unit. After a tenant is identified and basic terms agreed upon, it is usually necessary for attorneys for both sides to negotiate the language of the lease. The complexity and cost of this process can vary greatly, depending on whether you are dealing with a local or a national tenant.

3. Filling a vacancy can take much longer than with a residential unit. Commercial leases will typically require that a tenant exercise an option to renew well before the lease expires — perhaps six to as much as twelve months prior — so that the landlord can have ample time to look for a new tenant.

4. Financing commercial property can be more complex than with residential. You’ll need to demonstrate to the lender that the property will perform at a level that can can cover the debt service with room to spare.

5. If you don’t have experience being a commercial tenant, then becoming a commercial landlord may require that you get familiar with some concepts and skills that are particular to the commercial world. You’ll want to learn about “tenant mix” if you own retail space, about commercial insurance and about the billing and reconciliation of pass-through expenses.

While there is certainly no right answer to the question, “Residential or commercial?” there is probably a best answer for you. Do you want the hand-on involvement of residential? Do you have the resources for commercial? Do you want the potential for higher cash flow, and with it the possibility of greater risk? Do you prefer a more modest but more predictable return? Consider your objectives and preferences carefully, and evaluate your resources — time, money, skills — realistically. With a bit of luck, the answer should jump off the page.