There are many reasons to invest in commercial real estate, especially in metro Atlanta and north Georgia. I’ve seen many savvy investors taking the steps to purchase a commercial property such as a retail store, shopping center or more. These types of opportunities won’t last long, so it’s time to get off the fence!
Here are some of my reasons that you should look at the commercial market today:
The best reason to invest in commercial over residential rentals is the earning potential. Commercial properties generally have an annual return off the purchase price between 6% and 12%, depending on the area, which is a much higher range than typically exists for single family home properties (1% to 4% at best).
Small business owners generally take pride in their businesses and want to protect their livelihood. Owners of commercial properties are usually not individuals, but LLCs, and operate the property as a business. As such, the landlord and tenant have more of a business-to-business customer relationship, which helps keep interactions professional and courteous.
Retail tenants have a vested interest in maintaining their store and storefront, because if they don’t, it will affect their business. As a result, commercial tenants and property owner interests are aligned, which helps the owner maintain and improve the quality of the property, and ultimately, the value of their investment.
Limited Hours of Operation
Businesses usually go home at night. In other words, you work when they work. Barring emergency calls at night for break-ins or fire alarms, you should be able to rest at night without having to worry about receiving a midnight call because a tenant wants repairs or has lost a key. For commercial properties it is also more likely you will have an alarm monitoring service so that if anything does happen at night, your alarm company will notify the proper authorities.
More Objective Price Evaluations
It’s often easier to evaluate the property prices of commercial property because you can request the current owner’s income statement and determine what the price should be based on that. If the seller is using a knowledgeable broker, the asking price should be set at a price where an investor can earn the area’s prevailing cap rate for the commercial property type they are looking at (retail, office, industrial, etc.). Residential properties are often subject to more emotional pricing.
There are variations to net leases, but the general concept is that you as the property owner do not have to pay any expenses on the property (as would be the case with residential real estate). The lessee handles all property expenses directly, including real estate taxes. The only expense you’ll have to pay is your mortgage. Companies like Walgreens, CVS, and Starbucks typically sign these types of leases, as they want to maintain a look and feel in keeping with their brand, so they manage those costs, and you as an investor get to have one of the lowest maintenance income producers for your money. Fewer consumer protection laws govern commercial leases, unlike the dozens of state laws, such as security deposit limits and termination rules that cover residential real estate.
These are some of the best reasons that make investing in commercial real estate appealing. Do you have any additional items you’d like to add? Sound off below!
How to Spot a Bad Business Broker
When selecting a business broker to help sell your business, make sure to watch for the red flags in their business plan. These few tips can help you save time and money during the selling process.
The broker wants a significant or total fee paid up front:
Many brokers have begun taking upfront fees, but generally the total fee is a combination of an upfront fee and commission paid upon sale of the business. An unreliable broker meets with you, runs some quick numbers, tells you that you can get your price or even more for your business, and then asks for a check to get started. In
many cases, business owners are so relieved that they’ve found a broker and elated that they’ll write a check on the spot, without checking any references. “They get to ‘take away’ your check when they leave and you may not see them again, if they can help it. Continue reading →
Determining Premiums for Home and Auto Policies
The age old saying “things just aren’t the way they used to be” still holds true when it comes to how insurance companies price insurance these days. The way it “used to be” was that a company would look at more risk based information when it came to pricing.
For instance, on home insurance policies, the age, location, and features of the home, along with whether or not the prospective insured had suffered any claims over the past 3-5 years, were the sole determining factors when it came to pricing. After determining the rebuild cost of the home to set the amount of insurance, the price for the coverage would be consistent from person to person using this method of pricing. However, this is not so in today’s insurance marketplace.
About 15 years ago, insurance companies began looking at the client more personally, focusing on their credit score, along with other personal information to assign them an Insurance Bureau Score. This score is now used as a determining factor for the price and is more heavily weighted in the pricing system than the risk characteristics mentioned above. The result is the higher a person’s credit score the lower the premium stands to be. Statistics have shown that people with higher credit scores typically are more reliable and responsible when it comes to day to day life. Insurance statistics also show these people are less likely to suffer a loss or file a claim when it comes to non-weather related incidents. Of course no one can predict the weather. However, most all other claims are preventable. Continue reading →
Working with a Relocation Management Company
At some point in your career, you’ll probably be requested by a corporate transferee to assist them either in a home purchase or home sale transaction. You might be wondering what that means to you. Corporate transferees are customers who have been directed by their employers to make a job transfer. For the most part, they wait until their human resources director tells them what steps they need to make and when, but sometimes the transferees jump the gun and makes decisions on their own that can affect how their employer helps them financially. What does this mean to you and to the customer?
You as the associate and service provider always want to protect the transferee’s benefits, so here are some rules and strategies to make sure you don’t make mistakes that jeopardize their benefits and your commission. Continue reading →
FHA Mortgage News for the New Year
Great news! FHA loan limits for the major counties in Georgia increased from $320,850 to $342,700 for all new FHA sales contracts written on or after Jan. 1, 2015. This gives homebuyers the opportunity to buy a home with a 3.5% down payment (all from a gift) and FHA has relaxed qualifying guidelines on homes $21,850 more expensive than last year.
The bad news is that the FHA Anti-Flipping Waiver expired on Dec. 31, 2014. Some folks might say, “What Anti-Flipping Waiver?” Many thought a seller had to have owned the home for 90+ days before selling it to a new buyer using FHA financing.
Well, you’re not totally right or wrong. Even though HUD introduced the Anti Flipping Waiver in February 2010 and extended it to December 2014, many FHA lenders and banks ignored the waiver guidelines and continued to require that the seller hold title to the home a minimum of 90 days before re-selling it to a buyer using FHA financing. Since HUD (FHA) only insures loans and FHA approved Lenders actually lend the money, FHA Lenders often have different guidelines than HUD’s guidelines for FHA Insurance purposes. Continue reading →