Bridge Loan Network

What To Consider Before Investing In Commercial Real Estate

As of recently, the number of people investing in commercial real estate has been on the rise. According to Bigger Pockets Blog, there are a number of pros and cons to investing in this kind of real estate. So, before you jump head first into the industry, it is very important to research exactly what you are getting into to avoid any surprises in the end.

Don’t be fooled; although commercial real estate is a complicated business to involve yourself in, it can also be extremely lucrative, so here are some of the benefits from professionals who have been through it before:

1. Flexible Financing- Rather than spending money out of pocket, banks are often willing to provide substantial loans to help commercial real estate investors succeed. There is also an option to utilize auxiliary financing, which means there is up to 100% coverage with first or second mortgages; whereas residential financing often opposes the 100% financing option. This essentially means that if you are looking to purchase an apartment complex with 40 units, you will only be paying one mortgage on the property as opposed to 40 mortgages on 40 properties.

2. Economies of Scale- When owning multiple units on one plot of land (i.e. an apartment complex) contractors are usually willing to negotiate lower costs for maintenance and repairs on the property. However, the more units in the complex the better, because then you can afford to hire your own team which will cost even less than bringing in outside contractors.

3. Passive Environment- If the commercial property you own is an office building, you will receive little to no maintenance requests after hours, or on weekends and holidays; As opposed to owning residential properties where the tenant occupies the space 24/7. Also, with a triple net lease (common for most commercial leases) the tenant is the one responsible to pay any taxes, insurance costs, and maintenance costs, including rent, and utilities.

While these benefits sound enticing, there are unfortunately a list of cons pertaining to owning a commercial real estate property as well:

1. More Competition- In the commercial industry most buyers are looking to improve the space. Usually they want to increase the value of the property so they can refinance with cheaper options. However, as the investor this may be challenging because properties in a reasonable price range with room for improvement are in high demand.

2. Risk of Poor Management- After finding your dream commercial property, it’s just as important to have a strong property management team which is often hard to come by. Tenants will be paying higher rent in order to afford the team, so it’s important to hire a solid crew. When looking for property managers you must ask them their efficiency rate, how much experience they have, and if they’re compliant in order to avoid problems in the future.

In conclusion, investing in commercial real estate can be extremely lucrative, but there are many factors to consider before purchasing the property, as you can see above. When you are confident that you can handle taking on the responsibility of owning a commercial property, the most important thing to remember is to stay up to date with the trends, and most of all have fun with it!

Author: Tara Doherty

Learning To Navigate Your Way Around The Real Estate Industry

When learning to navigate your way around the real estate industry, you may realize there is particular jargon that you simply don’t understand. Similar to any other business, real estate professionals are constantly generating new terms that are tailored to industry-specific projects, events, and deals. Without the proper understanding of this language, it may be easy to make mistakes, or even be taken advantage of. In order to avoid confusion, below is a list of important real estate listing statuses that you can add to your industry vocabulary

Active: This term describes a property that is currently available for sale. There may be offers on the table, but none have been accepted yet which means it is still an active listing.
Closed: This term means that a property is sold, and no longer available to buyers.
Active with contract: This phrase means that although the home has accepted an offer, the seller is still accepting backup offers incase the sale falls through. These circumstances must be listed in the contract to keep all buyers aware of the process, and it is most commonly used with short sales.
Under contract: This phrase means that the seller has written up a contract with a potential buyer. This does not mean the sale is confirmed.
Contingent: This term describes a situation where the seller has accepted an offer, and the home is under contract. However, the sale is pending based on certain criteria that must be met before closing the deal. Examples of this include home inspections, title search, financing, appraisal, etc.
Deal pending: This phrase means the seller has accepted an offer with an executed contract, and all contingencies have been met. The home is currently pending sale, and both buyer, and seller are working toward a closing. During this period the sale is still not definite, however, and a seller is able to accept backup offers.
Pending, showing for backup: This phrase means the property’s owners are actively accepting backup offers in case the original offer falls through.
Pending, subject to lender approval: This means the seller has accepted an offer, but is waiting to see if the buyer’s bank has approved the offer. If not, the property will end up back on the market.
Back on market: This means that a property has come back on the market after a pending sale, potentially due to contract issues.
Expired: This means that the property listing via the agent has expired, and is no longer active, usually because the property didn’t sell. However, the seller is often open to accepting an offer if a buyer is interested.
Temporarily off the market: This means the owner has removed the listing for a short period of time, often because work is being done on the property, or because it cannot be shown to potential buyers at this time.
Withdrawn: This term means a property was withdrawn from the reality market, often because the seller changed their mind and decided not to sell the property, or because they did not receive any offers that matched their standards.

Author: Tara Doherty