Opportunity to Grow Income
Your payout in commercial real estate investing can be raised when you opt to buy property that isn’t in perfect shape. Necessary upgrades will increase the valuation and your income.
Returns on NOI
You may have heard that the valuation of commercial real estate investing is based on market comps and replacement value. The real value is derived from the Net Operating Income or NOI. Your NOI is derived by subtracting your operating expenses from your gross income. For example – Say a property produces $150,000 in NOI. The investor paid 1.5 million for it. Most investors in the U.S. would consider a 10% return, as their yearly income stream a great deal. This is also referred to as a cap rate.
Small, but Plenty
When considering commercial properties, it’s all about scale. It is far easier to manage multiple apartments, condos or mobile parks than several residential homes. How so? If you have a 100 apartment units or more, you can justify hiring an apartment manager and/or maintenance technician to help you. By offering them a free apartment and a lower salary, you can reduce the amount of your expenses.
Should you choose to pursue real estate investing via an apartment-unit purchase, you can do so with little or no money down working with private money partners. Commercial loans often tend to be more lenient than residential loans.
You can also take part in a lease-back where the seller of a property leases back a part of the same real estate from you. This allows the seller to lease back some vacant space in the current building, paying for it in advance at closing. As the buyer, this, in turn, allows you to get better financing from the bank when you raise the value of the property through the increased NOI.
Ready to learn more? Our team at the Menlo Group can work with you to help make commercial real estate investing a viable next step. If you have any questions, do not hesitate to contact us. We are here to help you make the best commercial property choices for your portfolio.