Why Real Estate Investors Love Commercial Real Estate

There are many different investment options that a person can make, and choosing the right one can be a matter of extreme wealth vs. living in the poorhouse. Some people make wise decisions with their finances, while the majority of people make foolish decisions. In this article I will explain the reasons that I love real estate and know that it is a great investment to make. It will keep your money ahead of the game and make huge profits. The time is now to take advantage of this amazing investment opportunity. Don’t miss out!

Lately I’ve been giving a lot of serious thought to the best investments to make with the extra cash I have lying around, and I’ve really come to love real estate but not the stock market. There is so much cheap commercial real estate to be gobbled up in today’s market that it is truly a no brainer between real estate or stocks. Real estate and stock markets have been competing for a long time, but the commercial real estate return on investment is so high right now that you just can’t miss this opportunity. The playing field is ripe for smart investors who love real estate as much as I do. Are you one of those people, who can think outside of the box and is a smart investor wanting to take advantage of the best investments out there at a time when everyone else is convinced that the same old boring thing is the way to go? Well then, keep reading and I will explain how to make money with this wonderful investment opportunity.

One of the reasons that cheap commercial real estate wins over stocks every time is because the stock market is so highly overvalued. When choosing between real estate or stocks, many people are blindly dumping their savings into the stock market when they really should love real estate as a safer option. Most people just don’t pay much attention to the commercial real estate return on investment, which is much higher than the stock market’s return on investment. The stock market still has a long way to fall. Just because it is looking good right now does not mean that we should turn our noses up at cheap commercial real estate.

Many companies purchased real estate at the wrong time because they did not understand how to make the biggest commercial real estate return on investment. These companies are now trying to stay afloat by selling the cheap commercial real estate that they purchased at the height of the market. Here is an example of how one company’s poor decision was the gain of another company looking to make a high commercial real estate return on investment:

This company was poorly run and did not understand even the basic fundamentals of investing, especially not in real estate or stocks. The leadership of this company decided that instead of purchasing the cheap commerical real estate in the downtown area of their city that they would instead build a brand new, LEED certified building with all the bells and whistles. It was top of the line and the envy of many who love real estate. However, this company should have looked for cheap commerical real estate instead of building a brand new building. Let me explain why. You see, after a couple of years in this building, work slowed down. The company hadn’t invested in cheap commerical real estate and instead had a hefty payment to make each month. Because work had slowed down, they couldn’t afford the high mortgage on their building. They began to lay off employees and cut spending in as many areas as possible, but because they had failed to purchase cheap commerical real estate and were instead committed to a high mortgage payment, they were unable to cut spending in that area. Now the company has closed its doors and liquidated everything, including the beautiful LEED certified building. Now someone who truly loves real estate and was trying to choose between investing in real estate or stocks has capitalized on the opportunity to own cheap commerical real estate. This person who truly values and loves real estate will now make a huge commerical real estate return on investment, all because they understood how to find a great deal on cheap commerical real estate.

Some investors may be trying to decide between real estate or stocks. While stocks may look lovely right now, they can’t keep going up forever. There must eventually be a correction in the market, which is why, when choosing between real estate or stocks, a person should definitely choose real estate, because who doesn’t love real estate? The real estate and stock market dilemma has been going on for awhile, and now it is time to put an end to the difficult decision between the real estate and stock market. When one looks at real estate and the stock market, one needs to look no further than the 1987 stock market crash. That’s one of the reasons why I love real estate! The commercial real estate return on investment has been extremely consistent, while the stock market has crashed time and time again.

We have looked at investing in real estate or the stock market, and the commercial real estate return on investment is much higher than the stock market or any other investments that one may find. What is not to love about real estate? When choosing between real estate or stocks, please, choose the option that will protect your assets and move you forward in the coming years. The real estate and stock market are both options for any investor, but why would someone choose the one that will not bring in the highest possible profit. The commercial real estate return on investment is so high that you just can’t sit back and allow other investors who better understand the advantages of real estate to the stock market to gobble up all the good properties out there. The commercial real estate return on investment is so high, a person would be missing huge gains for not getting into this market.

There are always naysayers out there who will say that real estate but not the stock market is a horrible investment. They say that the commercial real estate return on investment is lousy. Don’t listen to them! They just haven’t done their research and don’t truly understand the value of investing in real assets such as real estate and not the stock market. These people may be doing well for awhile as they watch their stocks go up. But eventually, “POP!” The bubble will burst and the commercial real estate market will be left standing while stocks will fizzle. So if you choose to invest in real estate or stocks, just remember that the commercial real estate return on investment is a great place to put your money and shield it from the coming storm of the stock market.

So in conclusion, which should one choose? Real estate or stocks? The answer is obvious! Between real estate or stocks, real estate wins ten times out of ten! And that, my friends, is why I love real estate!

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The Common Types of Commercial Real Estate

The term commercial real estate is used to refer to all the buildings or pieces of land that are developed for income generation. When many people hear about commercial property, they think about shopping centers and office buildings. However, the commercial real estate industry is broader than that. Knowledge of commercial real estate basics is crucial to succeeding in the industry.
There are different commercial real estate property types. Each type has other subdivisions that investors who are willing to invest in real estate can venture into. Real estate is a very lucrative industry, and aspiring investors need to identify the different subcategories so that they can make a well-informed decision in the trade. Without this knowledge, it would be challenging to choose the commercial property entity that suits a particular location.

The following are the major commercial real estate property types:

1. Office Buildings

Offices are broadly classified into three classes. These are class A, class B, and class C. These classes are relative depending on where the building is located. Class A offices are usually the best types based on their location and the facilities that they possess. They are situated in the most productive places like in big cities. They are constructed using the most modern technologies and have the best facilities. Class B offices are also attractive, and they contain almost all facilities that are found in Class A. They are however located in places that are not so business friendly. Class C types are ranked as the lowest kind of offices. They are situated in remote areas and also lack significant facilities that are present in class B offices.
Offices in the commercial business district (CBD) of any town fetch the highest revenue. This is because these buildings are situated where office space is costly. Therefore, an investor who has interest in constructing an office building should consider building it in the CBD. However, one has to have an enormous capital outlay since the value of land in the CBD is very high. CBD offices are found in major metropolitans such as New York, Washington D.C., and Chicago.

2. Industrial Buildings
These commercial real estate property types are mostly located on the outskirts of the city. They are also prevalent near roads to allow easy transport of raw materials and products. Industrial buildings are subdivided into four major categories. These are:

  • Heavy Manufacturing. This type is used by companies that engage in the production of industrial goods. They are constructed using different designs depending on the requirements of the tenant. Most of them are fitted with machinery and equipment that are relevant to the industry in question. They require tremendous innovation when a new tenant intends to replace another one especially if the two produce different goods.
  •  Light Assembly. These buildings are not as complex as heavy manufacturing ones regarding construction design and the equipment. They are used for assembling of goods that are in the last phase of production.
  •  Flex Warehouse. This building is multipurpose. It can be used for light assembly purposes as well as office work. It can also be easily partitioned to serve both purposes simultaneously.
  •  Bulk Warehouse. Most of the bulk warehouses occupy a vast space. Most they are used primarily for storage of goods. Most of these kinds of buildings are near roads to enable easy distribution of the goods to where they are required.

3. Retail Buildings
Retail buildings are used to host businesses that involve buying and selling of material goods and services. Types of retail buildings include:

  • Strip Centers. A strip center is a retail building where many small businesses of different types located. These include dry cleaners, nail salons, and Chinese restaurants. A strip center can also have an anchor tenant. An anchor tenant is a big retail shop with a high reputation that uses its popularity to draw other tenants. Examples of anchor tenants include Publix, Home Spot, and Wal-Mart.
  • Community Retail Center. Most community retail centers occupy a space of 150,000 to 350,000 square feet. Most of these buildings have multiple anchor tenants.
  • Regional Malls. Malls are the largest retail building. They occupy a space of between 400,000 to 2,000,000 square feet. There are many anchor businesses in malls than in any other kind of buildings.
  • Out Parcel. These are pieces of undeveloped land usually near retail stores. They are meant to be used for the construction of banks and or fast food joints.

4. Multifamily
A multifamily building is one that is built to serve an extensive family. Multifamily commercial real estate buildings include apartments, condominiums, and townhomes. Multifamily buildings are classified into three classes. These are class A, class B and class C like just like offices. Commercial apartments are subdivided into four main classes. They include:

  • High-rise apartments. These contain at least nine floors. Most of the high-rise apartments have at least a single elevator.
  • Mid-rise apartments. They have 5 to 9 stories, and most have an elevator. A midrise apartment can have 30 to 110 housing units.
  • Garden Apartments. This type of buildings became prevalent in the 1970s. At this time, most people were migrating from the urban areas to suburbs. Garden apartments are also found in rural areas. They have three stories at most. Garden apartments in most cases don’t have an elevator.
  • Walk-up apartments. They have four to six stories, and most don’t have an elevator.

5. Hotels
Hotels are buildings that are constructed to provide food, accommodation, and other services primarily to tourists or people who are traveling. Some hotels operate as independent entities while others are flagged. Flagged hotels operate as a part of a major hotel chain such as Sheraton. They are subdivided into six major categories.

  • Limited service. As the name suggests, these hotels do not provide all the services. Most limited service hotels lack room service and an onsite restaurant.
  • Full service. These have all the services and facilities that lack in a limited service hotel. Most posses an onsite restaurant and also provide room service.
  • Boutique. Are mostly found in urban areas. Boutiques are full-service hotels that are not part of a major hotel chain. Independent individuals own them.
  • Casino. Casinos have all the major gambling games on offer.
  • Extended stay. These hotels contain almost all the facilities that can be found in a rural home. This means that guests who intend to stay at a place for an extended period can live as if they are operating from their homes in extended stay hotels.
  • Resorts. A resort covers an extensive piece of land. A resort offers full services and also contains facilities such as a golf course or an amusement park. Different kinds of commercial real estate resorts will have a variation of facilities. Some are more equipped and luxurious than others.

6. Land
As said earlier, the commercial real estate industry is not just limited to buildings. A piece land is also a type of commercial property. A piece of land is one of the essential commercial real estate basics since all property is built on solid ground. Different kinds of real estate property under this category include:

  • Greenfield land. This kind of land is found in a rural setting or a town suburb that is not highly populated. It is mainly an undeveloped parcel that has grazing pastures or a farm.
  • Infill land. These are land parcels in the midst of big towns that are developed but vacant.
  • Brownfield land. This is a piece of land where an industry was previously built but has been vacated. They are usually ugly in appearance since most industries release contaminants into the surrounding.

In a nutshell, different kinds of property are considered as commercial properties. Therefore, an aspiring real estate investor should first understand the commercial real estate basics to enable him/her to choose the right form of investment. The different kinds of real estate have different locations where they would fetch the highest rent. Also, different kinds of property require different amounts of capital investment. Investors should, therefore, consider engaging a knowledgeable property adviser who is well versed on the different kinds of property. The adviser will help the investor to choose the most appropriate property from the vast pool of different kinds of real estate.

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The Benefits of Investing In Commercial Real Estate Online

The Rise of Online Real Estate Investing

The internet has brought changes to nearly every industry on earth, and tenfold to commercial real estate. The fast-paced growth of technology is transforming how accredited and non-accredited investors connect with real estate sponsors and entrepreneurs of many other industries.

Prior to 2013, there was a ban in place by the Securities and Exchange Commission that prevent solicitation of securities. This prohibition essentially meant that commercial real estate investors and sponsors were forced to only deal with people they knew or met in-person. Having to deal with all your potential investors face-to-face meant that raising funds was a drawn out, labor-intensive affair of phone call and preparing multiple packages of offering memorandums and due-diligence reports, further hindering the time it took to raise capital. This stifled the network of who the Sponsors could reach out to for investments.

All that changed rapidly in 2012 with the passing of the Jumpstart Our Business Startups Act, which lifted the ban on solicitation of securities. Now companies like RealtyeVest are free to use advertising to attract specific, accredited investors. A wave of new marketplaces arose to allow people to invest in commercial real estate online more freely.

Invest in commercial real estate online

4 Benefits of Investing Online

The rise of online investment platforms streamlines the entire investment process for investors and Sponsors. These platforms act as a one-stop hub, built to facilitate commercial real estate transactions, offer educational information for investors and provide inherently lower fees. As a result, accessibility of deals, transparency and credibility, have risen among users of these marketplaces, which is helping to lower fees and increase liquidity in the online real estate investing market.

1. Accessibility of Deals

The issues of finding and identifying quality commercial real estate investments are in the past.  Accredited and non-accredited investors are now able to choose from a broad range of investments in commercial real estate from the comfort of their home. These offerings are readily available on platforms like RealtyeVest to browse, review and analyze the due-diligence before deciding on a course of action. With online real estate investing, investors and sponsors have a huge advantage over the word-of-mouth networking that necessary prior to the JOBS Act which opened the floodgates for real estate investing and many other industries seeking to raise capital for projects.

2. Transparency & Credibility

Another area where online real estate investing excels in with transparency. Online marketplace allows for ratings, reviews, and transparent discussions among professionals. Not only can they help impart education and training, but they are also the primary sources for creating relationships between sellers and investors.

3. Inherently Lower Fees

Due to the efficient nature of online commercial real estate investing, online real estate investors are

online commercial real estate investing

Start investing in commercial real estate online today!

able to pay lower fees than if they were using traditional methods. Like most online business models, the commercial real estate investing industry offers more economical costs. Naturally finding the best possibles fees is always a benefit for an investor, translating directly to higher ROIs. That is why more people continue to flock to the online marketplaces to find deals. As they do, the higher volume of real estate transactions will encourage even more competition to lower fees amongst the major players.

Right now, investors can find zero fees at marketplaces like RealtyeVest. That’s a tempting deal for anyone who is looking to gain healthy returns on their cash. Shopping for the best market makes sense because so many of them are now competing for investors. It pays to shop for the best fee structure and the most reasonable minimum investment amount. For example, CrowdStreet has zero fees but requires a $10,000 minimum deposit to start your account. RealtyMogul, on the other hand, charges fees of .3 to .5 per year but only needs $1,000 to start. Which direction to take will depend entirely on the objectives of each investor.

4. Diversification

With commercial real estate investing, it is easy to diversify investments and to get returns due to the low minimums required to participate in deals. Couple that with the transparency of the offerings in the marketplaces and your money is more secure in ways than it was with the old face-to-face dealing of securities. Accessibility to deals is also through the roof now that investors have access to nationwide opportunities instead of being pigeonholed in areas right around their’s and their friend’s neighborhoods. This more extensive pool of potential investments is hugely beneficial, especially for those who are looking for the highest possible return on quality deals.
Real estate investing is more exciting than ever thanks to the new model. In the past retail investors could buy REITs or ETFs that managed tons of properties. The dividends may or may not remain stable, and the potential for return is never as high as it with individual deals. With smaller investments directly in commercial real estate, the chance exists to gain an outsized return when a building performs at a peak level.

Claim Your Stake

It is safe to say the people are accustomed to online convenience. That ease is now translating to millions of new investors entering the commercial real estate investing space. They’re learning how to find the best deals, and they do not have to do much “leg work” as they would have in the old days. The RealtyeVest Marketplace removes barriers for all parties and makes transactions more predictable in the long run. Being able to tap sources of revenue to finance a wide range of projects is good for everyone. There has never been a more exciting or lucrative time to invest in apartment buildings and commercial properties of all types. It’s time to claim your stake in this burgeoning market.

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Commercial Real Estate Definitions and Terms

As a real estate investor, it is crucial that your understand all of the important commercial real estate definitions and terms.  We have listed some of the most common and fundamental commercial real estate definitions as a quick reference below:

Absorption

The absorption rate represents the rate in which units are leased in a specific real estate market or area.  Absorption is calculated by dividing the average number of units per month by the total number of units available.   For example, we figure out that 1000 units has been leased in a 12 month period.  We take the 1000 units divide 12 months then lastly divide the rate into the number of active units to get the absorption rate of your market area. If a apartment building had 10,000 square feet of new leases in 2017 and 2,000 square feet of tenants leaving, its positive net absorption is simply 8,000 square feet.  The absorption can be calculated for a singular building or by an entire market.

Accrued Interest

The interest on a loan that accumulates during the loan period and paid at the end of the loan term.

Capitalization Rate (Cap Rate)

The capitalization rate is the percentage of your funds that paid for the project that comes back to your annually.  For example, if you purchase a commercial real estate property for $500,000 that return $50,000 annually, your cap rate is simply 10%.  The standard calculation for Cap rate is NOI / Price.

Cashflow (process)

Cashflow is the net amount of cash and cash-equivalents moving through the commercial investment property.

Cash-on-Cash Return

A cash-on-cash return is the percentage of monies invested in a building that is returned to an investor annually of financing payments have been made. The cash on cash return is usually higher than the capitalization rate, with favorable terms.

Contract Rent

Contract rent is the dollar amount of the rental obligation that was specified in the lease, also referred to as face rent.  Contact rent is determined by the square footage in a commercial real estate property.

Debt service coverage ratio (DSCR)

The DSCR is a measurement of cash flow available to pay current debt obligations.  The ration is the net operating income in a multiple of debt obligation due within one year; includes interest, principal, sinking-fund and lease payments.

Interest Rate

The rate used to determine how much the money will cost to borrow over time.

Interest only Period

An interest only period is when the borrower is only making interest payments to the investors or loan for a set period of time.   At the end of one of these periods, the borrower is usually required to satisfy the loan principle with a balloon payment, re-amortize the loan, or the property has been sold.

Market Rent

Market rent is the accepted price to lease a space for residential or commercial purposed.  For example if a 1,500 square foot apartment is listed for rent for $3,000, it is because similar spaces in the local market are also leasing at this price.  Investors use market rent to discover opportunities in local markets to increase rents and profits.

Mixed Uses Development

Mixed uses development is the use of a building or several building for more than a singular purpose.  An example of this type of commercial real estate development would be a condo building with a Starbucks and a bagel shop at the base of the condo building.

Multifamily Real Estate

Multi-family residential real estate is a classification of housing where multiple, separate housing units for residential inhabitants are all contained within a single or several building within one complex.  Commonly referred to as an apartment building.

Net Operating Income (NOI)

The net operating income or NOI is the measurement used to analyze real estate investment that generate income.   NOI equals all revenue from an investment property minus operating expenses.  NOI normally appears on the investment property’s income and cash flow statements.  When the NOI is negative, it is usually referred to as the net operating loss (NOL).  NOI helps real estate investors compare different investment properties they may want to buy or sell.

Offering Memorandum (OM)

An offering memorandum is a legal document that states that objectives, risks, and the terms of the real estate investment to the investors.  The OM serves as a guide to provide the buyers or investors with information on the real estate offering and to protect the seller from the liability of selling unregistered securities.

Occupancy

The occupancy rate refers to the percentage of occupied units in a commercial real estate property.  The occupancy can be determined in building or in the market.

Preferred equity

A preferred equity stock is a type of ownership that has higher claim on its assets and earning than common stock.  Preferred equity generally have a dividend that must be paid out to investors be for any common shareholders including the owner of the asset.

Preferred return

The preferred return or “pref” is a confusing term in regards to real estate investing.   It is commonly described as the claim on the profits given to an investor on an investment opportunity.  Usually when the profit percentage is reached, the excess profit is split among all of the investors as agreed.  This is the most common type of return used in real estate investments.

Private Placement Memorandum (PPM)

A private placement memorandum or PPM is a ledge document provided to investors to sell stock in relationship to a real estate business.  The PPM describes the company selling the security, terms of offering, and the risk of the investment.

Pro Forma

A pro forma is a method that is used to calculate financial results.  The pro forma places significant emphasis on present or projected figures.

Rent Roll

The rent roll is a document that provides a snapshot of the current income representing the owner’s asset.  The rental income derives from an income producing real estate asset.

Trailing 12(t-12) or Profits and Lost

A real estate investment’s trailing 12 represents its financial performance for a 12 month period, but not the fiscal year.  The t12 is calculated by adding together all four quarters.  The T12 helps determine the overall value of a multifamily asset and the income it brings.

Vacancy

The vacancy rate refers to the percentage of unoccupied units in a commercial real estate property.  Similarly to occupancy, vacancy can also be determined by the building or the entire market.

So there you have a short list of the most important commercial real estate definitions and terms.  I hope these terms will help you in evaluating any commercial real estate investment, especially within the multifamily residential real estate.  If you have additional terms you would like us to add, feel free to reach out to us at info@realtyevest.com. or you can check out investopedia for more real estate investment terms and examples.

Get started investing in real estate today. View some of our commercial real estate deals.

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