Commercial Investing

[Jay G]

Hello everyone,

I’m seeking advice on commercial real-estate investing. This week I spoke with my current (commercial) landlord about investing. While conversing about the current status of the economy and how volatile the stock market is, I proceed to ask how are you surviving through these hard times? His answer, diversification.

This weekend I meet with a lender to determine how much of loan I could take out for purchasing a commercial facility. I felt comfortable with a $200,000.00 investment in case a tenant moved out and it took several weeks to find another one.

I’m not looking to get rich off my first property; I’m interested in creating some residual income and equity, so in 5-6 years I can repeat the process. If any veterans would like to share some insight for a complete novice, I would greatly appreciate.

Thanks,
Jay.

[Will Barnard]

I choose a location based on several factors. It must be an area I expect to appreciate (time or forced) and must be in an area that is showing growth in both population, jobs, & economy.

The actual numbers are most important in that it must show the cash flow I am looking for, it must have at least one large upside potential (rent increases, vacancy reduction, add income sources, divide & conquer, etc), and it must be good enough to pass the lender's criteria (dscr, cash flow, etc.)

ROI is important and I look for at least 25% or more. Cash flow depends on the type of commercial unit, some the minimum is greater than on others (my opinion). Banks generally look for a DSCR of 1.25-1.3 these days, however, I lpersonally ook for a minimum of 1.75. Cap rate is also a determining factor as I want a good return on my money. This rate can vary by city, state, property size, and investment type so it will be necessary for you to do your due diligence and determine what rate you persoanlly want in an investment.

Finally, the exit strategy (or multiple exits as it may be) must be considered and evaluated before deciding to buy the investment.