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There are many important factors to consider when it comes to investing in commercial real estate. While some investors will focus solely on things like location and property type, the impact of the lease should not be overlooked.

The type of lease a property uses will dictate both your costs and the amount of involvement you’ll have in maintaining your investment. This means before buying any piece of real estate you need to make sure the lease suits your business model.

In this article, we’ll look at triple net properties and delve into why this type of lease is often very beneficial for investors.

What are Triple Net Leases?

A triple net lease is an agreement where the tenant is responsible for all property taxes, building insurance, and maintenance, which are known as the three “nets.” These costs are in addition to rent and utility fees.

Triple Net vs Gross Lease

With a gross lease, you’ll calculate all the average monthly cost of all expenses (rent, taxes, insurance, and maintenance) and combine them into one flat fee for the tenant.

Other Types of Net Leases

There are also different versions of a net lease. A single net lease requires tenants to pay property taxes in addition to the rent and utilities. The landlord will then be responsible for insurance and maintenance. A double net lease means tenants have to pay for both taxes and insurance, with any maintenance costs falling on the landlord.

2. How do Triple Net Leases Work?

A triple net lease places the onus on the tenant to pay for expenses and maintain the property. They are essentially responsible for all bills and upkeep, making this a very simple arrangement for you as the landlord.

Some triple net leases only require the lessee to cover a portion of these costs. This is something that can be negotiated when the lease is signed.

Because the tenant is responsible for additional costs, the rent charged under this type of agreement is generally lower than it would be for other types of leases.

3. What are the Benefits of Triple Net Leases?

Triple net properties provide landlords with a number of benefits:

Less Commitment

Because the tenant is responsible for all costs and maintenance there really isn’t any need for you to get involved in the day-to-day management of the property. Pretty much everything is taken care of for you, which saves you a lot of time and stress.

Triple net leases make real estate investment a lot more hands-off. So, if you don’t have a lot of experience managing a building, or you simply don’t have the time for it, triple net investing will likely suit you well.

Spend More Time on Your Business

Because you’re spending less time dealing with issues surrounding your property you’re able to focus more on other areas of your business. This may include searching for additional investment properties or managing other business interests you might have.

Instead of being bogged down with the minutiae of building management, you can concentrate on growing your business and discovering new opportunities.

Stable Income

Triple net leases often last a long time, anywhere from 10 – 25 years. Because there are more costs and responsibilities involved, tenants with these kinds of leases are also usually thoroughly vetted and very creditworthy. The result is a dependable tenant signed to a long-term lease.

This provides many benefits, including:

• Less chance of the lessee defaulting on their payments.

• Guaranteed income for an extended period of time.

• Easy to predict future income.

• Downside protection if the market falters.

Because of all this, triple net commercial real estate is often a safer investment.

You Can Sell The Property with the Lease

As the landlord, you have the option to sell the property even if your tenants still have time left on their lease. The lease simply transfers to the new owner.

The fact that you already have long-term responsible lessees in place will likely be seen as a positive, as the buyer won’t have to worry about vacancies or finding new tenants. Depending on the quality of your lessees this could increase the value of your property.

4. What are the Drawbacks of Triple Net Leases?

While this sort of arrangement provides a number of advantages for landlords it does have some drawbacks:

Less Control Over the Property

While it’s nice to not have to worry about managing the property, you might not have much say in how it’s maintained, depending on how the lease agreement is written. This means repairs and maintenance may not be done up to your standards.

If the property hasn’t been properly maintained you may be left with some large expenses after the lease is finished and the tenant moves out.

You’re Still Liable

Even though the lessee is responsible for paying all the property taxes and building insurance, as the landlord you’re still liable for these costs. So, if for some reason they’re unable to make the payments the responsibility falls to you.

This could put you in a vulnerable position if you’re not prepared to cover these expenses.

Your Upside is Limited

As previously mentioned, triple net leases are generally long-term agreements. This provides you with a great amount of stability, but it also limits your upside.

Let’s say you agree to a 1% rent increase every year. If the market goes up and rents increase by 3% you’re unable to capitalize on that. You’re stuck with that 1% increase no matter what the market does, which will cap your income.

5. Evaluating a Triple Net Tenant

When investing in a triple net property you don’t just need to inspect the buildings. You’ll also need to evaluate the tenants to ensure they can be depended on to live up to their responsibilities.

Here’s what to look for:

• Strong Credit: It goes without saying that any triple net tenant should have a strong credit rating. Ideally, they’ll have an investment-grade credit rating of “BBB-” or higher, although this might be a lot to ask of smaller businesses. If you’re unable to obtain their credit score look at their payment history over the course of the lease to ensure they’ve always paid their rent and other expenses on time.

• Sound Business Plan: Analyze their business with respect to current market trends. Do they appear to have a positive outlook, or do you foresee them running into issues down the road? Ideally, they’ll have a strong business model that will allow them to continue to make their lease payments without issue.

• Healthy Balance Sheet: Depending on the tenant and the lease you may be able to look at their financials. Review these when you can to ensure the lessee has a healthy operating income.

6. What are the Costs for Landlords?

Your costs will depend on the type of triple net lease you have. Each agreement is different, so make sure you understand the terms of your lease before committing to purchase a property.

With a true triple net lease, you won’t have to pay anything. All costs will be the responsibility of the tenant.

However, with some triple net leases the costs are shared between both parties. You may be responsible for a portion of some or all of the three nets.

And remember, as the owner of the property you are responsible for any expenses the tenant fails to pay.

7. Are Triple Net Properties a Good Investment?

Overall, there are more advantages than disadvantages for landlords when it comes to triple net investing. However, that doesn’t mean every triple net property is a good investment.

There are a number of factors you need to consider, including:

• The terms of the lease

• The quality of the tenants

• Location

• Condition of the property

• Net operating income

• Capitalization rate

• Vacancy

On the whole, triple net properties are a good investment, but you’ll need to thoroughly research any piece of real estate to make sure it’s a good fit for your portfolio.

Consult with Experts Before Making a Decision

An experienced commercial real estate broker is a valuable asset when investing in triple net properties. They’ll be able to properly evaluate the lot based on a number of different factors and help you come up with an accurate valuation. They’ll also assist you with negotiations and inspections.

If you’re thinking about purchasing a triple net property, find a broker you trust to guide you through the process and ensure you make the right decision.

For commercial real estate investors, it’s important to have a way to determine whether a potential investment will be profitable, or if a portfolio has made money. In most cases, calculating your return on investment (ROI) is the easiest way to do this.

But what is commercial real estate ROI and how do you calculate it? Keep reading to learn everything you need to know about this important metric, along with some helpful tips for choosing your next investment.

1. What is Commercial Real Estate ROI?

ROI measures how much money you’ve made on an investment in relation to your costs, represented as a percentage.

A simple formula for calculating ROI is:

((Current Value – Initial Value) / Initial Value) x 100 = ROI

For example, let’s say you buy a property for $200,000 and it eventually increases in value to $300,000. Your ROI would be:

((300,000 – 200,000) / 200,000) x 100 = 50%

The higher the ROI, the better an investment is seen to be.

ROI vs ROE

People often get confused between ROI and ROE. ROE stands for return on equity and refers to the return received on a real estate investment in relation to the equity in the property. It’s calculated by dividing your equity by your annual positive cash flow.

2. How Do You Calculate ROI for Commercial Real Estate?

To start, any piece of real estate has multiple costs associated with it, including:

• Purchase price

• Principal and interest

• Capital improvements

• Common area maintenance (CAM).

• Property taxes

• Property management

• Utilities

• Insurance

And when it comes to your costs, you’ll need to decide whether you want to count any money you borrow as an expense, or if you only want to include your out of pocket expenses in your calculations.

Finally, there are two ways to measure a property’s gains: appreciation in value and rental income.

As you can see, calculating ROI for commercial real estate is a little more complicated compared to other investments.

With that all being said, here are the most common methods for calculating commercial real estate ROI:

The Cost Method

This is the simplest way to determine your ROI. It’s calculated by dividing your equity in a property by your total costs. Equity refers to the difference between the amount you’ve invested in the property and its market value.

Using this method, ROI is calculated with the following formula:

(Equity / Costs) x 100 = ROI

Example:You buy a property for $200,000 and spend $25,000 renovating it, bringing your total costs to $225,000. Following the renovations, the property is now worth $300,000. This means your equity is $75,000. So, your ROI would be:

(75,000 / 225,000) x 100 = 33.3%

The Out of Pocket Method

With this method, only your out of pocket expenses are considered. Any money you borrowed from a lender to purchase the property isn’t taken into consideration.

Using this method, ROI is calculated with the following formula:

(Equity / Property Value) x 100 = ROI

Note that in this case, equity is calculated using only your out of pocket expenses.

Example:You buy a property for $200,000 and you finance the purchase with debt. Your down payment is $40,000. You also spend $50,000 on renovations, bringing your total out of pocket expenses to $90,000. Following the renovations, the property is now worth $300,000. This means your equity is $210,000. So, your ROI would be:

(210,000 / 300,000) x 100 = 70%

Cap Rate

The capitalization rate (cap rate) will help you determine the rate of return you can expect from a property’s rental income in relation to the total cost of the property. It’s one of the primary ways commercial real estate buyers value potential investments. In order to calculate the cap rate, you’ll first need to figure out the net operating income (NOI). This is done by subtracting the operating expenses and vacancy from the scheduled gross income.

Using this method, ROI is calculated with the following formula:

(NOI / Property Cost) x 100 = ROI

Example:You buy a property for $200,000 and rent it out to a tenant. After the first year, the property generates an NOI of $20,000 through rental income. So, your ROI would be:

(20,000 / 200,000) x 100 = 10%

Cash-On-Cash Return

This method is similar to the cap rate, except that it only takes into account your out of pocket expenses.

Using this method, ROI is calculated with the following formula:

(NOI / Out of Pocket Expenses) x 100 = ROI

Example:You buy a property for $200,000 and you finance the purchase with a loan. Your down payment is $40,000. You also spend $50,000 on renovations, bringing your total out of pocket expenses to $90,000. After the first year, the property generates an NOI of $20,000 through rental income. So, your ROI would be:

(20,000 / 90,000) x 100 = 22.2%

3. What’s a Good ROI for Commercial Real Estate?

This will depend on the investor, as everyone will have their own opinions on what’s a good ROI and what isn’t.

The more risk you’re willing to take on the higher returns you can expect (along with the potential for larger downturns). Whereas if you practice a more conservative strategy you’ll need to temper your expectations.

That being said, most real estate investors expect their assets to appreciate at about the same rate as the S&P 500, which has historically produced average returns of 10% a year. In regards to rental income, a good cap rate is generally seen as anywhere between 4% – 10%.

4. What Else Should You Look at When Investing in a Property?

While ROI is important, it shouldn’t be the only determining factor you use when investing in commercial real estate. Here are a few other things to look at before buying a property:

Location

The location will have a big impact on both the value of your property and the amount of rent you’ll be able to charge.

Real estate markets differ between communities, meaning a property in one area may appreciate faster than property somewhere else. Cap rates also fluctuate, so a good return in one area may be seen as a poor return in another.

Finally, where your property is located will affect the type of tenants you’ll be able to attract. So, make sure your location aligns with the needs of your ideal tenant.

This is why it’s so important to research a market before investing in it.

Condition of the Property

Buildings that are in disrepair will likely need upgrades in order to deliver the type of returns you’re hoping for.

In some cases, a property in less than ideal condition can be an opportunity. You may be able to purchase it at a lower price and invest in renovations to increase the value.

If you’re someone who practices passive commercial real estate investing, the worst-case scenario is you discover something wrong with the property after you buy it and are forced to pay for costly repairs. These types of unexpected expenses will also eat into your ROI.

So, make sure to thoroughly inspect every piece of real estate before making an offer.

Operating Expense Ratio (OER)

Generating a good ROI isn’t just about maximizing your gains. It’s also about minimizing your expenses. This is why you should always have a solid understanding of a property’s operating expenses before investing in it. OER is a great tool for this.

Add up all the operating expenses, including maintenance, insurance, and property taxes (exclude mortgage payments and renovations, as these aren’t considered operating expenses). Then divide the total by your expected rental income.

The lower the OER, the more profitable a property will be.

Internal Rate of Return (IRR)

This is a metric used by investors to measure a property’s profitability. It’s a little more involved than ROI and takes into account your costs, cash flow, and the length of the investment. The formula itself is extremely complicated, so it’s recommended you use a program or spreadsheet to calculate it for you.

The biggest advantage IRR has over ROI is it factors in the length of the investment and the amount of money you’re expected to invest in the property over that time. While ROI tells you the return you can expect right now, IRR tells you what kind of return you can expect five or ten years down the road.

Gross Rent Multiplier (GRM)

This metric is one of the best ways to determine whether a piece of commercial real estate is worth investing in. The GRM shows you how long it will take for the property to pay for itself through its gross rents. Keep in mind, this calculation doesn’t take into account expenses such as insurance, property taxes, and utilities.

To determine the GRM, simply divide the price of the property by its gross annual rents (the total amount paid by tenants before subtracting expenses). Generally speaking, a property with a lower GRM is seen as a better opportunity.

5. Is Commercial Real Estate Profitable?

As with all investment types, profitability will fluctuate from one investment to another and is never guaranteed.

With that in mind, on the whole commercial real estate is seen as a good investment and will usually generate higher returns than residential properties. By using various ROI calculations, and other metrics, a savvy investor should be able to identify the opportunities with the highest profit potential.

6. Get Advice from the Experts

Commercial properties are complicated investments, and properly evaluating them requires someone with experience. If you’re new to real estate investing, or just want some expert advice, consider hiring a commercial real estate broker. They’ll be able to help you every step of the way, from property valuations and calculating ROI to inspections and negotiations.

If you’re thinking about investing in commercial real estate then this is definitely an exciting time for you. Purchasing the right property can provide you with extra annual income and a very nice return if you choose to sell it sometime down the road.

But what kind of property should you choose? There are plenty of options and one idea that often gets overlooked is buying land for investment. While it may not seem as exciting as other property types, we’re here to show you why this might just be the best choice for your portfolio.

Below you’ll find everything you need to know about purchasing land, along with 11 reasons why buying land is a good investment.

Terms to Know

To start, let’s go over a few of the terms you’ll need to know if you’re thinking about purchasing land:

Air Rights: The space above the land. Having the air rights gives you the ability to use, rent, or develop that space.

Building Height Restrictions: Every piece of land has restrictions defining how tall a structure on the land can be.

Floor Area Ratio (FAR): A building’s total floor area in relation to the plot of land it sits on. Every property will have a FAR that it must adhere to.

Ingress and Egress: The right by a property’s owner to enter (ingress) and exit (egress) the property. This is important if you purchase a piece of land that doesn’t have direct road access.

Mineral Rights: The ability to extract minerals (oil, gas, coal, metal ores, stones, sands, or salts) from the land.

Parcel of Land: A lot of land that’s been defined by the county, city, or municipality.

Permitted Uses: Other uses for the land that city or county officials may allow despite the property’s zoning regulations.

Raw Land: A plot of land that doesn’t have any established structure on it, that can be used for commercial or residential development, farming, or the harvesting of natural resources.

Subdividing: The process of dividing a lot with the goal of developing different areas separately.

Topography: The shape and features of the land. For example, is the land bare and flat, or are there plenty of hills and vegetation?

Water Rights: The right of a property owner to use any body of water on their land as they see fit, as long as it doesn’t affect those upstream or downstream.

Zoning: Rules and regulations that govern what a piece of land can be used for, as defined by the county or municipality.

Zoning variance: A request made by the property owner to use the land for purposes other than what’s permitted by the current zoning regulations.

11 Reasons to Buy Land for an Investment

Considering investing in raw land? Here are a few reasons why this is a great idea:

It’s Inexpensive

Perhaps the best reason to buy vacant land is that it’s cheap, since the lack of any physical structures brings the price way down.

Of course, if you plan on developing the property there will be significant costs involved. However, there’s nothing stopping you from leaving the land as-is and treating it as an investment.

For new investors with a smaller budget, this can be a great way to enter the market.

There’s Less to Worry About

Most commercial properties you’ll buy will come with a variety of buildings and structures. While some will be in good shape others may be in need of repairs. Because of this, you’ll need to inspect any buildings on the property carefully to identify potential issues.

You’ll also likely inherit a few tenants. For the most part this will be good, but it’s possible you might end up with some troublemakers. And if the property has a high amount of vacancy you’ll have to figure out how to fill the empty spaces.

With raw land, you won’t have to deal with these problems. This makes the buying process a lot simpler.

You Don’t Need to Maintain It

If you have buildings on your property they’re going to need to be maintained. It doesn’t matter how new the buildings are or what shape they’re in when you buy them, they’ll require regular maintenance to keep them in proper working order.

With any sort of structure also comes the threat of theft and vandalism, meaning you’re going to have to think about security.

Raw land doesn’t need any maintenance and there’s nothing that can be stolen. This makes it a hands-off investment that won’t require a lot of work.

Fewer Ongoing Expenses

Because there’s no maintenance or management required there are also minimal expenses. There are no utility bills, and property insurance and taxes will be marginal if you don’t plan on developing it.

You also don’t need to worry about the depreciation of buildings and other assets on the land which reduces your risk.

More Possibilities

If you invest in a property with buildings already on it it’s difficult and costly to make changes. For example, say you buy a property with retail spaces on it. If you want to convert it to an office building it’s going to take a lot of time and money to do that.

However, with vacant land you’re only limited by the zoning regulations. And even then, it’s possible you can be granted an exception due to permitted uses or a zoning variance. This gives you a lot more options for development.

Raw Land is Scarce

Whenever a vacant lot gets developed into a condo building, retail center, or industrial property, that’s one less piece of raw land on the market. These types of properties are in decline and it’s getting harder and harder to find undeveloped land to purchase.

As an investor, having a rare commodity is always a good thing. If people are looking for raw land their options will likely be limited. This could mean a higher price for your property when you plan to sell it.

Less Competition

In general, vacant lots have less competition than developed ones. Most investors are looking for land that already has established businesses on it and some don’t see all the great possibilities that raw land provides.

This means there may be an opportunity to get a good deal on a piece of land if you’re willing to do your research. Paying less than market value for an investment to start means an even greater return in the future if you decide to sell.

You’re Often Dealing With Motivated Sellers

Many owners of raw land are what’s known as absentee owners. This means they don’t live in the area. In some cases, they may have never even visited the land.

It’s possible they just purchased it as an investment and are looking to get their money out so they can invest in something else. In this case, there isn’t much of an attachment to the land. They just want to sell it and move on.

If you’re lucky enough to find yourself dealing with someone like this you could end up with a very good price for the land.

You Can Subdivide It

Vacant land gives you the maximum amount of freedom. This includes subdividing it and creating several different lots out of one piece of land.

By subdividing a property you can develop various areas of the land differently, creating different structures and businesses as you see fit.

You can also sell off portions of the land to other investors. This allows you to both develop the land to eventually generate revenue and sell other portions you don’t need to make an additional profit.

Fewer Regulations

As a result of the economic downturn, the US government introduced the Dodd-Frank legislation and the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) in order to regulate the mortgage industry.

However, neither of these apply to the purchase of raw land meaning there are fewer hoops to jump through in order to secure a mortgage and finalize the purchase.

It Provides a Great Return

Like any piece of real estate, the right plot of land can fetch you an excellent return if you do your homework and manage it correctly.

If you develop the land and establish a profitable business on it then it will become considerably more valuable. You will need to invest a lot of time and money in it to make this happen, but the potential rewards are more than worth it.

But you don’t even need to develop it if you don’t want to. If you buy a piece of land in an up-and-coming location there may be significant demand for it in a few years’ time. By investing in the right property you could flip it later for a substantial profit.

3. Investment Strategies

Let’s say you just bought a parcel of land. What can you do with it? It turns out you have a number of different options:

• Flip It: This is by far the most popular investment strategy. If you can buy a vacant lot for a low price you may be able to flip it to another investor for a big profit in as little as a few years.

• Develop It: This strategy involves a lot more capital. It also requires more research, as you need to make sure whatever you develop is in demand. But if you do it right you can end up with a piece of property that’s far more valuable than the one you started with.

• Lease It: If you want your land to generate revenue but you aren’t interested in developing it yourself you can lease it to another party and allow them to use the land for their own needs.

• Hold on to It: In the end, you may just decide to hold on to it for an extended period of time. If you’re patient enough the land could appreciate in value tremendously and it could end up being a nice nest egg for you.

4. What Can You Use Raw Land For?

What you use your land for will largely depend on what it’s zoned for. That being said, here are your options:

• Residential: Detached single-family homes.

• Multifamily: Apartment buildings, condo buildings, and townhouses.

• Commercial: Retail stores, restaurants, shopping centers, hotels/motels, office buildings, etc.

• Industrial: Light and heavy manufacturing, transportation and utility services, entertainment, and salvage and recycling.

• Farming:Agriculture and husbandry.

5. How Much Does Land Appreciate?

How much a piece of land will appreciate in value depends on a number of factors, including:

• Location

• The economy

• The local real estate market

• Zoning

• Whether or not you develop the land

That being said, on average real estate investments such as raw land appreciate in value by 10.5% per year.

6. Tips for Finding the Best Land to Invest In

While vacant land is a simpler investment than other types of commercial real estate you’ll still need to do your homework in order to find the best property to invest in.

Here are a few tips to help you buy the right land:

• 1. Perform Inspections:Even though there aren’t any buildings to inspect you should still perform an environmental inspection to ensure there aren’t any issues (contaminated soils, polluted water sources, etc.) that might cause you problems and reduce the value of the land.

• 2. Consider Topography:Land that’s already relatively flat with little to no vegetation is easier to develop, if you choose to go that route.

• 3. Ask About Utilities:Some vacant lots already have access to electricity, water, and sewer systems. This is another advantage if you plan on developing the land.

• 4. Research the Zoning:This doesn’t just impact what you can do with the land, but it could also affect the value moving forward.

• 5. Know the Regulations:Height restrictions and FAR will also limit what you and future buyers can do with the land.

• 6. Know the Rights:Does purchasing the property also entitle you to the mineral and air rights?

• 7. Hire an Architect:These experts will be able to tell you what type of structures can be built on the land.

• 8. Hire a Commercial Real Estate Broker:No one knows real estate like a broker. They can help you to put a value on the land and assist with negotiations. They’ll also be able to arrange for any inspections you may require.

Conclusion

So, is buying land a good investment? Yes, absolutely.

As you can see, this type of property offers a number of benefits that other lots don’t. Just make sure to do the necessary research before making a purchase. And if you’re at all unsure about the process don’t be afraid to hire an expert to assist you with your investment.

The very best commercial real estate investors and brokers don’t do it all by themselves. They use a wide range of tools to identify opportunities and manage their assets.

But with so many products, platforms, and apps available it can be tough to choose the right tools for your business. That’s why we created a list of our favorites to make it easier for you.

Here are our choices for the top 17 commercial real estate tools that will help you grow your business and operate more efficiently.

The News Funnel

The first tool on our list is a free one, making it perfect for any business no matter what your budget is. The News Funnel collects real estate news and insights from across the county and organizes them in a convenient feed.

Choose whether you want to receive news from all states, or select only the states you’re interested in. You can also filter news based on three categories: research documents, industry insights, and market news.

In order to succeed in real estate you need a reliable source of information, so be sure to check this tool out.

Apto

CRMs have become a must-have for almost every industry, and commercial real estate is no exception. Dealing with multiple leads and deals all at once can become overwhelming which is why it’s critical to have a system to keep it all organized.

Apto is a CRM designed specifically for commercial real estate. Using this tool, you’ll be able to effectively manage your contacts, property data, and reports, all from one dashboard.

By staying organized you can run your business more effectively and close more deals.

Juniper Square

As a real investor, you have a lot to keep track of. That’s why Juniper Square has stepped in to provide an automated investment management solution.

The platform offers a number of different features, including a CRM, fundraising automation, an investor portal that allows access to secure documents, reporting options, and more.

This tool is more geared towards larger operations, but even if you’re not there yet it’s something to look into and think about as you grow and plan for the future.

SharpLaunch

Marketing is a necessary part of any real estate business. But for most busy building owners and brokers, it can often be neglected.

SharpLaunch aims to streamline and simplify your marketing efforts to make it easier for you to promote your business. They offer everything you need to build a strong online presence, such as property websites, search engines, interactive maps, and email marketing.

If you want to do a better job of marketing your commercial real estate business SharpLaunch is definitely a tool worth exploring.

Dealpath

Real estate deals are some of the most complicated transactions you’ll ever be involved in. If you overlook one small detail it could cost you, so you need to have systems in place to analyze any deal you’re considering.

Dealpath provides a number of features to help you do just that. Get smart pipeline tracking, powerful deal analytics, and collaboration tools so you can make more informed investment decisions.

For anyone who wants to minimize their investment risk, Dealpath is an invaluable tool.

Aquicore

Commercial real estate investment doesn’t end once you purchase a property. In fact, your work is just beginning. Managing buildings is a full-time job, which is why using a good property management tool is so important.

Aquicore allows you to manage your expenses, projects, and tenants all from one location. The platform also supplies you with a wide range of analytics and reporting to help you make better decisions and hit your targets.

With tools like this, you can spend less time running your current properties and more time looking for new investments.

VTS

Landlords and agency brokers have a number of things they need to look after on a daily basis. This includes leasing, asset management, marketing, and data collection.

VTS is an all-encompassing commercial real estate platform that’s designed to simplify business management for both landlords and brokers. It helps you automate your leasing, take your marketing online, and gain access to the latest industry data.

No matter what type of commercial real estate business you run VTS likely has a solution that will make your life easier.

Property Metrics

When you’re working in a large team it’s not enough to simply analyze a commercial real estate deal. You also need an effective way to share your findings with your colleagues.

PropertyMetrics offers software that makes it easy to create both proformas and presentation-ready real estate documents. Best of all, it’s 100% web-based so anything you create can be shared amongst your entire team.

This is an excellent tool for anyone looking for a cost-effective way to perform real estate analysis.

Leverton

It’s safe to say that no one enjoys reviewing contracts. Unfortunately, this is simply part of working in the commercial real estate business. However, there’s a tool that will make this process much easier.

Leverton is an AI-powered data extraction platform for analyzing corporate and legal documents. Use this software to quickly find errors, data discrepancies, and key figures important to your deal.

Not only will this tool save you time, but it also reduces labor costs and greatly improves your contract review process.

DealCheck

Commercial real estate deals are complicated, so anything you can do to make them easier will provide massive benefits to your business. This is why solutions like DealCheck are so popular with investors.

Their software provides you with tools to analyze a wide variety of properties, estimate profits, and find the most profitable deals. Search for properties, set your parameters, view detailed financial projections, look up comps, and much more.

With DealCheck, you’ll find better deals faster and make more informed investment decisions.

Building Engines

Commercial real estate is a great investment, but it can also be a lot of work. Tenants, maintenance, repairs, and insurance are just a few of the issues you’ll have to deal with on a regular basis.

Building Engines aims to make things a little easier by offering a platform to help you oversee all of these tasks and more. Their building operations software gives you tools to manage work orders, communicate with tenants, assess your risk, and run your business more efficiently.

They have solutions geared towards a number of different property types, making this solution ideal for virtually any building owner.

Property Matrix

Accounting is tricky for any business, but this is especially true when it comes to commercial real estate. With multiple revenue sources and many different expenses, it’s often difficult to keep everything straight.

Property Matrix is a property management solution that includes advanced accounting features designed specifically for the real estate industry. They offer solutions for CAM charges, leases, recurring payments, and much more.

Best of all, everything is fully customizable. You can generate custom fields and reports for all your properties to create documents unique to your business.

Visual Lease

Managing leases is a big part of any building owner’s business, and mistakes could cost you dearly. Luckily, tools like Visual Lease are available to make this process much easier.

Their lease accounting and administration software has been developed by industry experts with decades of experience. Not only will these solutions ensure you’re always compliant with regulations, but they’ll also help you identify numerous cost-saving opportunities.

If you currently own or manage properties that require multiple leases you should definitely consider using Visual Lease.

Cherre

More often than not the best commercial real estate investments are backed up by sound data and analytics. This is why it’s so important to have a reliable data source for your business. Cherre offers two tools to help you achieve this.

Their CoreProspect offering gives you access to the latest property intelligence, while CoreConnect makes your data easily available throughout your entire organization.

If you’re looking for a sophisticated data solution for your business it’s really hard to beat Cherre.

HqO

Providing a good tenant experience is important for any real estate business. Happy tenants mean less vacancy and fewer issues, so investing in a tool that helps with this could be one of the best decisions you make.

HqO is an end-to-end operating system for commercial office buildings. Their solutions will allow you to offer the types of content and communities necessary to both attract and retain top tenants. They also provide you with real-time data to give you further insights into your properties.

We highly recommend this tool for anyone currently managing one or multiple office buildings.

redIQ

When purchasing a multi-family property, proper due-diligence is key. There are so many factors to consider and if you overlook anything it could result in a costly mistake.

This is why redIQ created their deal analysis and underwriting platform specifically for multifamily owners, brokers, and lenders. Extract data automatically from rent rolls and generate comps from underwriting data to ensure you’re always making the right investment decisions.

If you’re a multi-family property investor this tool will likely save you both time and money.

Real Capital Analytics

Successful commercial real estate investors always stay informed about what’s happening in the market. If you want to keep up with the latest industry news you need a dependable information source.

Real Capital Analytics provides you with all the deals and trends that are currently driving the real estate industry. Access profiles on over 200,000 investors, follow the most active brokerage firms, and track property transactions in 172 countries.

It’s really hard to beat the sheer amount of data offered by RCA, making this one of the best tools out there for anyone in commercial real estate.

Conclusion

Many of the tools included here are available on a free trial, so do your research, test them out, and see if they’re right for your business. The real estate industry is constantly evolving, so the more tools you have at your disposal the better you’ll be to adapt and take advantage of new opportunities.

Prologue

Start-ups and newer companies are looking for flexible office solutions that can grow along with their business. Because of this, flex spaces are increasingly in demand, making them excellent investments for commercial real estate investors.

However, as a newer form of real estate, there are still many investors and buyers who have questions about these kinds of spaces. What is flex space? What can it be used for? What are the advantages compared to traditional office spaces?

Keep reading to learn everything you need to know about flex spaces.

1. What is Flex Space?

Flex spaces are generally light industrial spaces that have been converted into office spaces. They often have warehouses, loading docks, and other industrial spaces attached, making them ideal for businesses that have multiple facets to their operation.

These spaces became known as flex spaces because of how adaptable they are. They are generally a blank slate and can be customized however a business sees fit. Features can be added or removed as a company grows and their needs change.

2. What Can Flex Spaces Be Used For?

Flex spaces have become popular choices for dotcoms and other startups since they’re generally cheaper than traditional office space and can be more easily adapted to fit a company’s requirements.

The access to industrial space means they’re frequently used by mechanics, plumbers, electricians, and other trades. R&D companies involved in engineering, medical devices, and biopharmaceuticals have also been known to use these spaces.

Flex spaces can be used for retail as well, with a showroom in the front and a warehouse in the back to store inventory. The combination of office space, storage space, and loading docks also makes them a perfect option for wholesalers.

3. Types of Flex Spaces

Flex spaces come in a number of shapes, sizes, and variations. Here are a few different types of flex spaces you’ll encounter:

• BioTech/Lab/Life Science?

• Research & Development

• Cold Storage

• Distribution

• Industrial/Office

• Industrial/Retail

• Manufacturing

• Warehouse/Yard

Whatever type of flex space you’re dealing with, they can usually be altered to suit a number of different types of tenants. Investors can easily adapt the space for their needs and to make them more suitable for the kinds of tenants they’d like to attract.

4. Advantages of Flex Spaces

While more established businesses may still prefer a traditional office space, flex spaces do provide a number of advantages:

• Warehouse Space: Many flex spaces include warehouses and office space. For companies that have both office staff and industrial portions of their business, these spaces let them combine the two areas of their business under one roof.

• Improved Communication: Having office and warehouse staff together leads to improved communication between different areas of a business. It also results in a more efficient workflow.

• Parking: Flex spaces are usually located outside of cities, meaning they usually include large parking lots. This provides plenty of parking for both staff and customers.

• Customizable: As we’ve discussed, you can do almost anything with a flex space. While traditional office spaces are often difficult and expensive to modify, flex spaces can be easily customized depending on the type of client that’s using them.

• Higher Ceilings: Because flex spaces are adapted from industrial spaces they often have higher ceilings, giving offices a more open feel. It also provides more room for storage.

• Convenient Locations: Flex spaces are usually found in office parks that are conveniently located for both employees and customers.

5. Disadvantages of Flex Spaces

Despite all of the advantages that flex spaces offer there are some disadvantages that you should be aware of:

• Ground Floor Location: Almost all flex spaces are single-floor buildings, which can present security issues. For building owners, this may mean investing in security measures to keep the property and tenants’ belongings safe.

• Poor Views: Ground floor locations also mean a lack of any sort of meaningful view. This may not be important for some tenants, but it is one thing that traditional office buildings can offer that flex spaces can’t.

• No Underground Parking: This is another luxury that isn’t offered by flex spaces. If the space is located in an area that experiences a lot of bad weather this may be seen as a drawback.

• Lack of Amenities: Flex spaces are usually pretty barebones with few amenities and perks for tenants. Things like on-site dining, childcare services, and lounge areas won’t be available.

6. Is a Flex Space Right for You?

Are you considering a flex space? Here’s why this type of space might be right for you:

For Businesses

If you have a small growing business with a number of different needs a flex space could be just what you’re looking for. Flex spaces are generally cheaper than downtown locations and you’ll be able to create your ideal space that can grow along with your business.

You should consider a flex space as well if you have a need for both office space and industrial areas, since traditional office buildings won’t be able to offer this.

Any business that’s more concerned about having functional and affordable space, rather than a fancy office with a city view, should definitely look at a flex space.

For Commercial Real Estate Investors

Because they can be used by almost any kind of business commercial flex spaces are popular among real estate investors. The wide array of potential tenants makes it easier to keep the space filled, resulting in more consistent revenue.

These spaces also generate good returns for investors. A recent study found that 40% of flex spaces traded at a higher value than traditional office buildings.

Like any investment, you’ll need to do your research and thoroughly evaluate the property. But assuming everything checks out a flex space can be an excellent investment.

As a commercial real estate investor you have plenty of options. There are office buildings, industrial spaces, residential real estate, and a number of other property types to consider. However, in this article we’ll be focusing on retail real estate.

As with any investment, there are a number of pros and cons to consider. We’ll cover them all and help you determine if investing in retail property is the right choice for you.

Keep reading for our ultimate guide on retail real estate investments.

What is Retail Property?

Retail real estate refers to any property that consists of shopping and entertainment establishments. This could include clothing stores, grocery stores, restaurants, and any other business that sells products and services to consumers.

Types of Retail Real Estate

There are many different types of retail properties to invest in. Some of the most common types are:

• Shopping Malls: One large building or complex with multiple enclosed stores inside. They usually include department stores, entertainment, and food options.

• Lifestyle Centers and Power Centers: These are similar to malls, except that the stores aren’t enclosed so consumers have to walk outside to get from store to store.

• Strip Malls: These properties are the same idea as a lifestyle center but smaller. They often include a grocery store surrounded by several smaller retailers.

• Convenience Centers: A smaller retailer property with retailers that offer consumers quick purchases, such as convenience stores, drug stores, laundromats, etc.

The Pros of Investing in Retail Real Estate

Investing in retail properties offers a number of benefits compared to other types of real estate, such as:

Triple-Net Leases

Most retail stores like to have control over the look and feel of their business. They want to be able to customize the design and make improvements whenever they see fit. Because of this, the triple-net lease is very popular in retail real estate.

With this type of lease, the tenant is responsible for taxes, building insurance, and maintenance, making it a very hands-off investment for the landlord. In this scenario, you’ll mostly just collect the rent check. Your only responsibility will be any large repairs that need to be done to the building.

Not every retail property will use triple-net leases, so do your research before investing. However, you’ll find this arrangement is much more common with these types of properties.

Longer Leases

As we just discussed, retail store owners are likely going to want to make a number of improvements to their space. This usually involves a significant investment on their part, making them less likely to change locations.

Most store owners aren’t going to sink a bunch of money into a store and then leave a year later. This means longer lease terms are extremely common, giving you more stability and greatly reducing your vacancy levels.

Anchor Stores Can Drive Up Rents

In most other types of real estate, the quality of your tenants isn’t going to be a huge factor in how much you can charge for rent. But when it comes to retail properties, landing one big tenant can be hugely beneficial for the rest of your spaces.

Say you own a lifestyle center and all of a sudden a popular big box store decides to move in. Store owners know that a business like that is going to attract tons of new customers to the property and they’ll be willing to pay more. In some cases, tenants may end up in a bidding war for your spaces.

So, if you can land one really good tenant the rest of your property should be very easy to fill, and you’ll likely be able to increase your rates.

Diversify Your Portfolio

It’s always dangerous to be heavily invested in only a few different sectors. Luckily, most retail properties contain a wide variety of stores from many different industries, such as fashion, food, and entertainment.

This means with just one investment you can instantly diversify your portfolio. If one industry is hit particularly hard you may lose one or two tenants, but overall your property will still be strong and profitable.

The Cons of Investing in Retail Property

No real estate investment is without its drawbacks. Here are a few things to consider if you’re thinking about purchasing a retail property:

It’s Impacted by Economic Downturns

Retail businesses can be very up and down and are often hit the hardest by an economic downturn. If your tenants fall on hard times and have to close their businesses it could lead to an unexpected amount of vacancy.

Having a diverse group of tenants can give you some protection from this, but you should still expect to lose a few tenants when a recession occurs.

It Can Be Difficult to Find New Tenants

There aren’t always plenty of people looking to start new businesses and rent commercial space. If you find yourself with a vacancy it can take a lot of time to find the right tenant to fill it.

Luckily, the longer lease terms mean that once you find a good tenant they’ll be with you for a long time. This mitigates the problem somewhat, but it’s still something to think about.

Changes to the Area Can Affect Property Value

The value of every piece of real estate is impacted by its location, and retail properties are no exception. Stores rely heavily upon foot traffic and anything that reduces that could harm the value of your property.

If a popular business moves out of the neighborhood it could mean fewer customers coming to the area. Even something as simple as a traffic pattern change can negatively affect how desirable your location is, which could mean fewer tenants and lower rents.

How to Find the Right Retail Property

We’ve established all the reasons why purchasing retail real estate might be a good idea for you, but once you make the decision to invest how do you find the right property? Here are a few tips:

Choose a Good Location

The first thing any potential tenants will be looking for is a good location. Having a quality location will make it easier to attract new businesses and allow you to charge higher rents.

Some things you should look for are:

• Popular big-box stores nearby that will attract customers to the area.

• A property that’s easily accessible.

• Lots of parking, either on the property or nearby.

• An area that’s up and coming. Look for a location that lots of new businesses are moving to and avoid areas that a number of businesses seem to be moving out of.

Assess the Condition of the Property

Maintenance and repairs are often a property owner’s primary expenses. Plus, businesses want to move into an attractive space that will be appealing to customers. If your property is constantly in disrepair it will make it harder to find new tenants and keep your existing ones.

So, finding a property that’s in good condition will be critical to your success. Hire an inspector to have a look and report back to you with anything you should be concerned about. If you’re still interested in a lot that needs repairs you should negotiate a tenant improvement allowance (TI) so you can fix up the space before you take occupancy.

Have a Look at the Financials

Before investing in retail real estate you need to be sure that it will be profitable for you. In order to determine this there are two metrics you should look at:

Net Operating Income: This will give you a good idea of what your annual income will be. To determine this number, subtract the property’s operating expenses and vacancy from its scheduled gross income.

Capitalization Rate: In addition to your annual income you’ll also want to know what the rate of return on your investment will be. You can estimate this with the capitalization rate, which you get by dividing the net operating income by the property’s value.

Review the Existing Leases

It’s important to know what type of lease structure is currently in place, as this will affect how much work you’ll have to do.

Absolute net leases are the most hands-off, with all expenses and responsibilities falling on the tenant. As discussed earlier, triple net leases only require you to deal with larger repairs.

Double-net leases mean tenants will cover the taxes and building insurance, while you’ll be in charge of maintenance and repairs. There’s also a full-service lease where you’ll be responsible for everything.

As you can see, the conditions can vary greatly depending on the lease, so make sure you know what you’re getting into.

Hire a Commercial Real Estate Broker

This is especially good advice for new investors. A commercial real estate broker will help you find properties that meet your criteria. They can also arrange for a wide array of inspections and guide you through the negotiation process.

Buying retail real estate is a major purchase, so it’s always a good idea to bring in experts who can advise you and help you make the right decision.

Conclusion

Investing in retail property can be a great decision for the right buyer. If you’re thinking about purchasing this type of real estate be sure to do your research first and evaluate all of your options. Assuming you follow the right steps this type of investment should be very profitable for you.

In order to succeed in commercial real estate, you need to be knowledgeable and have up to date information. Luckily, the internet is filled with plenty of excellent free resources for those looking to educate themselves.

If you’re not interested in searching the web for the best websites don’t worry, we’ve already done that for you.

Here’s our list of the top 20 commercial real estate blogs that will provide loads of value for any broker or investor.

Reonomy

Reonomy is a technology platform that gives brokers, investors, and lenders easy access to commercial real estate information and listings. It allows you to find properties, perform research, and connect with sellers to make it easier for you to close deals.

In addition to their sophisticated platform, they also publish an insightful blog on commercial real estate. Here you’ll find up-to-date articles on real estate news, technology, trends, strategies, and more.

Whether you’re searching for the best CRE research tools, or simply looking for the latest industry updates, Reonomy is definitely worth checking out.

CBRE Blueprint

When it comes to commercial real estate it doesn’t get much bigger than CBRE. As the world’s largest commercial real estate and investment firm they’re industry leaders and are trusted by millions of people around the world.

CBRE’s website includes posts on multiple types of commercial real estate, such as office space, retail, and hotels. They also publish regular articles on global trends to help you plan for the future.

If you prefer to listen rather than read be sure to check out their podcast where they provide weekly updates on the latest CRE news.

NAIOP

The NAIOP was founded all the way back in 1967 and has grown into one of the largest commercial real estate organizations in North America. Today they focus on education and connecting their members to provide a wide range of business opportunities.

Their blog, Market Share, is one of the best CRE resources currently available. With multiple articles published every week, they offer information, commentary, editorials, and analysis on a wide range of real estate issues.

One of the best things about Market Share is its wide range of contributors. You’ll find posts from many different experts and commentators, giving you access to insights from all across the industry.

The Tenant Advisor

The Tenant Advisor is published by Coy Davidson, a Senior Vice President at Colliers International. With over 30 years in commercial real estate, it’s hard to match the knowledge and experience Coy has acquired over his career.

His blog contains local real estate news on the Houston area. However, he also publishes a number of educational posts that would be useful for any broker or investor. You’ll find information on negotiations, property valuation, leases, and much more.

If you’re looking to learn from one of the industry’s leading professional’s then this blog is definitely for you.

The Broker List

For those looking for a great free resource, it’s hard to beat the Broker List. They offer a free online platform for finding brokers, deals, services, and vendors, making it an excellent site for anyone in the commercial real estate industry.

If that’s not enough, they also post regular blogs on a number of different topics. Learn valuable industry tips, get advice from industry experts, and receive updates on all the latest CRE news.

Real estate can be a complicated subject, so it’s always nice to find websites like this that are so passionate about providing excellent tools and sharing their knowledge.

This is the most widely used approach and involves placing a value on the property based on the potential income you can expect to generate from it.

A Student of the Real Estate Game

Written by Joe Stampone, Vice President of Investments at Atlas Real Estate Partners, this blog is an excellent source of commercial real estate news and information.

Dating all the way back to 2009, it focuses primarily on real estate entrepreneurship, the housing market, technology, innovation, and passive investing.

While the site isn’t as flashy as some of the other entries on this list, the knowledge found here is some of the best around. Joe loves his work, and his passion for real estate is clear in his writing.

SharpLaunch

SharpLaunch provides a wide range of marketing tools and technology for real estate brokers. Their offerings include property websites, search engines, interactive maps, lead management, email marketing, and more.

As an industry leader in CRE marketing, they also publish regular blog posts on technology, strategies, and useful resources.

If you’re looking for better marketing solutions, or just want to learn more about real estate, you’re sure to find an abundance of useful information here.

Rethink:Rural

Not everyone is looking to buy in the city. For many people, their dream property is in the country. If this describes you then you’ll love Rethink:Rural.

This blog posts regular content on buying remote land and living a rural lifestyle. There are plenty of tips to help new buyers find and value this type of land. They also provide information on the benefits of rural living and information to help you manage your property once you purchase it.

This is definitely more of a niche blog, but if you’re considering purchasing property outside of the city this will be an invaluable resource for you.

CommercialCafe

CommercialCafe caters to both CRE professionals and business owners, covering a wide range of topics and posting real estate news from across the country.

This a great place to go to find industry reports, as well as information on real estate development, upcoming construction completions, the U.S. job market, architecture, urbanism, and more.

But don’t just take our word for it that this is a quality publication. Their work has been featured by the New York Times, GlobeSt., Forbes, Inc, Patch, BusinessInsider, Curbed, AmericanInno, and Fast Company.

RealMassive

Getting access to the right data is critical for any real estate broker and that’s exactly what RealMassive provides. Through their platform, their goal is to offer comprehensive and up-to-date technology solutions that inform the entire industry.

One way they do this is by publishing regular and informative blog posts. Here you’ll find information on finding and collecting real estate data, as well as industry news and trends.

If you’re interested in learning how you can grow your business through accurate data this blog is definitely worth a read.

Urban Land

Urban Land is a magazine written by the Urban Land Institute. In addition to publishing four print editions per year, they also post regular online articles on the commercial real estate industry.

Their site is a great source for a wide array of real estate news, stories, and information from industry leaders and experts. Plus, they also release their printed articles online after subscribers receive their copies.

Whether you’re interested in CRE updates, or want to read editorials from those in the know, you’ll find what you’re looking for at Urban Land.

BiggerPockets

BiggerPockets is a site dedicated to helping people achieve financial freedom through real estate. It’s an excellent resource for both new and experienced investors who want to expand their knowledge and get up-to-date information on the industry.

Their blog focuses on real estate investing and personal finance. You’ll learn how to find profitable properties, manage your investments, and use advanced strategies to grow your portfolio.

If you’re just beginning your investing journey this is one of the best places to go to get started and receive some free education.

Jon Shultz

There are few people in the real estate industry who are bigger than Jon Schultz. As the Co-Founder and Managing Principal of Onyx Equities, he’s become an authority on commercial real estate investment, management, development, and property service.

His blog isn’t just limited to real estate. He also covers a wide range of topics including the job market, technology, and personal development to help you succeed in both business and life.

While not always directly related to the real estate industry, this blog is a treasure trove of valuable information from one of the world’s leading investors.

PropertyMetrics

PropertyMetrics is a provider of web-based real estate analysis software. They offer software solutions that help you build and share CRE proformas, as well as create a wide range of real estate documents.

Their commitment to helping both brokers and investors is evident in their blog, where you’ll find regular posts on everything from leases and financing to the latest industry news.

Through both their software and their blog, Property Metrics continues to add value to the industry in a number of different ways.

Metro Manhattan

New York in one of the biggest real estate markets in the world, and if you want to stay up to date with what’s happening there Metro Manhattan has you covered.

This New York City commercial real estate blog posts regularly about local news, market updates, and upcoming development projects. They also share valuable advice from some of the most knowledgeable experts in the area.

For anyone thinking of investing in New York real estate, Metro Manhattan is a must-read blog.

PICOR

PICOR offers commercial real estate sales, leasing, and property management in Tuscon and the surrounding area. They deal with all types of properties, including retail, industrial, office, medical, and vacant land.

Naturally, their blog deals largely with the Tuscon area. So, for those wanting more information on this market this is the place to go. But they also offer a wide range of tips and advice that are relevant for any investor or broker.

CREtech

Technology is taking over every industry, and commercial real estate is no exception. CREtech is an international community of professionals devoted to helping the real estate industry embrace and adopt new advances in tech.

They use their blog to post regular updates on technology-related news, as well as information pieces that allow you to plan ahead and future-proof your business.

In order to succeed you need to be able to adapt, which is why anyone working in the real estate industry should definitely add this blog to their reading list.

ClientLook

ClientLook provides an all-in-one commercial real estate CRM for data entry, task scheduling, client updates, and more. Unlike other CRM offerings, their’s was built specifically for the CRE industry, making it the perfect tool for any broker.

They also publish regular blog articles on real estate marketing, lead generation, and technology.

If you’d like to learn more about CRMs, self-promotion, or just real estate in general this is an excellent place to look.

The Massimo Group

The Massimo Group is a commercial real estate consulting and coaching business, founded by long-time industry expert Rod Santomassimo. After working with over 2700 brokers and property owners it’s safe to say Rod knows a thing or two about real estate.

When he’s not providing advice to local businesses, he spends his time writing insightful blog posts about the CRE industry, building wealth, and entrepreneurship.

Rod is an excellent person to learn from and if you aren’t able to sign up for his coaching program his blog is the next best thing.

Commercial Real Estate Training

Are you looking for commercial real estate training? Well, you’ve come to the right place. Although that’s probably pretty obvious since it’s right in the name of this blog.

Started by John Highman, an internationally recognized commercial real estate coach and speaker, Commercial Real Estate Training walks you through every element of the buying process and explains exactly how it works.

There are plenty of paid real estate courses out there, but if you want to begin with some free training you really can beat this site.

Conclusion

As you can see, there are plenty of amazing commercial real estate resources out there for both beginners and experts. Best of all, every one of these is free. So, start taking advantage of all the information that’s out there to grow your business or find your next great investment.

Prologue

Real estate is a great investment for a number of different reasons. It’s usually safe, it adds diversity to your portfolio, and it’s known to produce great returns.

If you’re thinking about purchasing a property there’s always the question of commercial vs residential real estate. While there are some similarities between the two they’re also very different in a number of ways. Both have their benefits and drawbacks, so it’s important to look at each and decide which one better suits your investment strategy.

Pros of Investing in Residential Real Estate

Residential real estate generally applies to single-family homes and two to four-unit residences. This includes detached homes, townhouses, cottages, condos, duplexes, and quadruplexes.  While commercial real estate can be very lucrative, the benefits of residential real estate can’t be ignored. Depending on your needs this may be the better fit for your portfolio.

You Need Less Money to Start

We often get asked, “Is commercial property cheaper than residential?” It depends on the property, but in most cases the answer is no.

If you’re starting with a smaller budget then residential real estate will likely be your best option. Residential properties are usually smaller and less complex, making them easier to afford and more accessible for the average investor.

When it comes to commercial loans vs residential loans, you may also have an easier time getting financing for a residential property. This is because commercial loans are often considered to be riskier.

This is why many investors start by investing in residential first. They start with one property, and gradually add more. Then, once they get comfortable with the process of investing in real estate and have enough cash flow they move on to commercial real estate.

Are you interested in purchasing commercial properties but aren’t sure you’re ready? Investing in residential properties could be a great way for you to learn how real estate works and will allow you to save up the funds you need for your first commercial investment.

There are More Buyers and Renters

When it comes to commercial vs residential real estate, one distinct advantage that the residential market has is that there’s a larger pool of buyers and renters to draw from.

Because the barriers to entry are much lower for residential properties there are always more people looking to buy than you’ll find in the commercial market. This is very beneficial if you find yourself in a situation where you need to sell a property fast.

There are also more people looking to rent residential units, meaning you’re less likely to have issues with vacancy. It’s not uncommon for landlords to spend six months or more trying to fill a commercial space, whereas residential spaces are usually rented within 30 days.

The fact is, while not everyone owns a business everyone needs a place to live. So, selling and renting a residential property will always be easier.

It’s More Likely to Hold its Value During an Economic Downturn

Economic downturns are hard on everyone, but they’re particularly hard on small businesses and retailers. And this can spell trouble for commercial landlords.

The longer leases usually seen in commercial real estate provide some protection, but these contracts won’t help much if a tenant goes out of business and is no longer able to pay their rent. When the economy is hit hard it can also be difficult to find new tenants, as there aren’t many people looking to start new businesses.

This isn’t to say the residential market isn’t impacted by an economic crisis. As a landlord, you may have trouble collecting rent during these times. However, people will still need a place to stay meaning it’s far less likely that tenants will just up and leave.

Because of this, residential real estate usually fairs much better when the economy is down.

Cons of Investing in Residential Real Estate

Less Reliable Tenants

One thing that’s often difficult about being a residential landlord is finding good tenants.

When you’re renting out commercial real estate you’re usually dealing with companies and business owners, many of whom are backed by larger companies. This isn’t the case with residential properties. Many residential tenants will be living paycheck to paycheck, so it’s more likely they’ll miss a payment.

Commercial tenants are also more inclined to maintain their units, since it’s good for business. Unfortunately, residential renters don’t have the same motivation when it comes to maintenance and cleanliness.

The fact is, references are easy to fake so it’s impossible to know how someone will treat your property until they’re actually living there. Background checks can help weed out unsuitable tenants, but if you’re renting out residential properties you’ll inevitably run into some renters who will cause you some problems.

Lower Returns

In most cases, residential properties have fewer tenants and lower rates. So, while they’re cheaper to purchase they also don’t deliver the kinds of returns that commercial properties do.

Many residential investors purchase several properties to increase their revenue. Of course, this results in more work and you may even have to hire additional staff to stay on top of all of your properties.

This is why many investors look into commercial real estate once they’ve gotten to the point of owning multiple residential properties. One commercial property can usually generate the same income as several residential ones, and because all your tenants are located in the same building it can be easier to manage.

Pros of Investing in Commercial Real Estate

Commercial real estate can refer to a number of different types of properties, including office buildings, retail spaces, industrial buildings, and vacant lots that are zoned for commercial use. The benefits of commercial real estate investing are great, but there are definitely a few things you need to be aware of before you jump in.

Potential for Higher Returns

When it comes to residential vs commercial real estate investing, the biggest difference might be the returns. Commercial properties will almost always deliver a higher return on investment.

The main reason for this is that in most cases a commercial property has more tenants. For example, if you own an office building you may have a dozen different businesses renting space from you. The more tenants you have, the more rent you can collect and the more money you can make.

As a commercial landlord, you’ll also likely be able to charge higher rates. This is especially true if your property is located in a very desirable area. The fact is, businesses generally have deeper pockets than ordinary people and are willing to pay more for a location that could help their business make more money.

Longer Leases

The average commercial lease is three years, and leases that last as long as 12 years aren’t uncommon. This is much longer than the typical residential lease that lasts just one year.

So, why would you want a longer lease?

• More Reliable Cash Flow: Having a long lease means guaranteed money coming in for those years (assuming there aren’t any issues with the tenant). This makes it much easier to run your business and plan for the future.

• Less Vacancy: One of the biggest factors that can negatively impact your income is vacancy. When you have units that aren’t being rented you’re essentially losing money. Long leases help keep vacancy down, making it easier to keep all of your units rented.

• Less Tenant Turnover: Every time a tenant leaves it creates more work for you. You have to market the property to potential tenants, hold showings, and help new tenants get settled in. Less turnover means you’ll spend less time on these tasks and more time running your business.

Of course, a longer lease may be an issue if you end up with a tenant you’re not happy with. But assuming your lease clearly defines both parties’ rights and responsibilities you shouldn’t have any trouble getting out of it if you need to.

It’s Easier to Increase the Value of Your Investment

While rental income is nice, the greatest returns from a real estate investment come from the increase in value over time. So, investors should always be looking to improve their properties in ways that will help increase the value on the market.

While you can make improvements to residential real estate, your options are somewhat limited. Residential property values are determined largely by the price that similar properties in the area sell for. While renovating a bathroom or adding new flooring can help the value, on the whole the impact is rather small.

On the other hand, commercial real estate values are determined primarily by the amount of revenue they can generate. This means that any upgrade that improves cash flow can have a big effect on the value of the property.

Some simple improvements that can be made include:

• Increasing rents.

• Decrease expenses.

• Adding amenities that make the property more desirable to tenants.

• Adding additional revenue streams, such as charging late fees, charging tenants for parking, or renting storage lockers.

Cons of Investing in Commercial Real Estate

Higher Costs

Of course, with more revenue inevitably comes more expenses. Commercial properties are generally larger operations with more sophisticated infrastructure. This means there are more costs involved in maintaining the property.

Many commercial properties employ a number of staff, including a property manager, maintenance people, and cleaning crews. Then there are the costs associated with repairs and the general upkeep of the building.

Some of these expenses and labor can be mitigated by a triple-net lease. With this kind of lease, the tenant takes care of the property and assumes the cost of repairs and maintenance, property taxes, and insurance.

While a triple-net lease generally means you won’t be able to charge as much for rent, it will reduce your responsibilities and expenses, so it’s definitely worth considering.

It’s More Complicated to Evaluate a Commercial Property

When it comes to commercial vs residential real estate this may be one of the most important things to consider.

As we mentioned earlier, valuing residential real estate is relatively simple. If you can find a similar property in your area that has sold recently then the sales price should more or less apply to the property you’re looking at, plus or minus a few factors.

However, valuing commercial real estate involves a number of different variables. This includes:

• Net operating income

• Cap rate

• Gross rents

• Vacancy

• Zoning

• Location

Of course, this is what commercial real estate brokers are for. If you partner with the right one they can walk you through all of this and help you come up with a valuation. Just be prepared for a more complicated process.

Commercial vs Residential Real Estate: Which One is Right for You?

Are you not quite sure which investment is the right choice? Here are a few tips to help you choose the best property for your portfolio:

Residential Real Estate is Right for You If:

• You’re a first-time investor

• You have a smaller budget

• You need to find tenants quickly

• You’re looking for a safer investment

Commercial Real Estate is Right for You If:

• You’re an experienced investor

• You have a larger budget

• You can afford to wait a little longer for the right tenants

• You want to earn the highest return possible

Conclusion

Investing in real estate is a smart move whether it’s residential or commercial. When deciding which market to enter, consider your finances and choose the option that best aligns with your goals. If you’re still unsure, seek advice from industry experts. They’ll be able to guide you towards the decision that’s the best fit for your needs.

Prologue

Correctly valuing a piece of commercial real estate can be the difference between making a great deal and getting stuck with a bad investment. It’s arguably the most important part of the buying process, so you need to take the time to get it right.

Unfortunately, there isn’t one tried and true method for doing this. There are a number of ways to value commercial real estate and the method you choose will depend largely on the property you’re looking at.

Concepts to Know

Before we delve into the various methods used to calculate commercial real estate value, it’s important to cover some concepts that you’ll need to understand. Once you’re familiar with the terminology and what each of these terms mean you’ll be much more prepared to start the valuation process.

Cap Rate

The capitalization rate, or cap rate, is used to determine what the ROI in year one will be, assuming you purchase the property cash. It’s calculated by dividing the net operating income by the property’s value. 

Keep in mind that the cap rate does not take into account leverage or the impact of potential property improvements. Because of this, other tools should be used in order to accurately value a property.

Gross Rent

This is the total amount of income received including base rent, as well as other types of income such as parking income, storage income, laundry income, etc. Essentially, this is the amount you would make if all of your units were rented for the entire year and every tenant paid you on time and in full.

Gross Rent Multiplier

The gross rent multiplier (GRM) is a tool investors can use to determine how long it will take for a property to pay for itself. It’s calculated by dividing the sales price of a property by the gross rent.

While this is a valuable tool for investors, it’s important to remember that this calculation doesn’t factor in any of the costs associated with the property.

Net Operating Income

The net operating income (NOI) lets you know how much income the property has generated after expenses. You can calculate this by subtracting the property’s operating expenses and vacancy from its gross rent.

Vacancy and Collection Loss

This refers to the rental income lost as a result of vacant units and uncollected rents.

Sales Comparison Approach

Now that you have a firm understanding of all the concepts used to calculate commercial real estate value, it’s time to review the various approaches you can take. The first one we’re going to look at is the sales comparison approach.

This is likely the simplest way to value a property and probably the method you’re most familiar with. With this approach, you look at the sales price of similar properties to determine the market value of a piece of real estate.

For example, if you’re looking at purchasing a 12 story office building in Seattle you may look to see if any other similar office buildings have sold in the city in the last year. You can then base your valuation on the price the other property sold for.

While in theory this is a great approach, it does have a number of drawbacks:

• It’s Difficult to Find Comparable Properties: Unlike residential real estate, commercial properties often have a number of unique features that make it difficult to compare them to others

• It Doesn’t Account for NOI: Just because a property is similar doesn’t mean it generates the same amount of income.

• It Doesn’t Account for Vacancy and Collection Loss: Unless you have inside information you can’t tell if a comparable property had the same amount of vacancy as the piece of real estate you’re looking at.

If you can find a comparable property that recently sold in your area you should definitely factor that into your evaluation. However, because of the many weaknesses of this model, it’s a good idea to combine this method with other approaches to determine a more accurate evaluation.

Land Approach

In simplified terms, the cost approach values a property based on the cost to rebuild its structures, plus the value of the land itself.

When using the cost approach, it’s also a good idea to factor in accumulated depreciation as well, since in most cases the structure you’re looking at won’t be brand new. Considering this, you can determine a property’s value by using the following formula:

Value = Land Value + (Cost to Rebuild Structures – Accumulated Depreciation)

For example, say you’re looking at a piece of commercial property. You estimate that the land without any structures would be worth $100,000. You then estimate that the cost to rebuild the structures on the property would be $500,000. So, at this point you have a valuation of $600,000.

However, after calculating the accumulated depreciation you determine that the property’s assets have decreased in value by $50,000. This means your valuation is $550,000 (100,000 + (500,000 – 50,000))

There are a number of methods you can use to estimate the cost of rebuilding the property’s structures:

• Comparative Unit Method: Estimates the average cost of the property per square foot, taking into account all building materials used. The cost is then multiplied by the total square footage of the property to reach a valuation.

• Segregated Cost Method: Estimates the total cost of all the necessary construction assemblies and systems. For example, when using this method you would calculate the cost of the plumbing system, flooring, roof, etc., then add them all up to determine a valuation

• Unit-in-Place Method: Estimates the cost of each individual building component. So, for example, instead of looking at the plumbing system as a whole, you would look at the cost of each individual component (pipes, fittings, etc.).

• Quantity Survey Method: Takes the unit-in-place method to the next level by estimating exactly what building materials will be needed, and the total quantity of each material necessary to replicate the structure. 

The cost approach is best used when you are unable to locate any comparable properties in the area that have sold recently, or if the property has unique features that make it difficult to compare it to other pieces of real estate.

Income Capitalization Approach

This is the most widely used approach and involves placing a value on the property based on the potential income you can expect to generate from it.

In order to do this, you’ll need to calculate the NOI (gross rent minus expenses and vacancy). You should also look at the market income (also known as the proforma income) to determine what similar properties are earning. This should give you a clear picture of what type of revenue the property is currently generating, as well as what it could potentially generate.

While this approach can be a powerful valuation method, it’s largely dependent on your ability to accurately estimate the potential income of a property. If you overlook a key detail you could over-value a piece of real estate and end up paying more than you should.

When calculating income, make sure to consider the following:

• The Income of Similar Properties: See if you can gain access to the income of similar properties in your area. If you find their income is higher or lower than the property you’re looking at, find out why.

• Vacancy and Collection Loss: How much money did the property lose due to vacancy and unpaid rent? Do you have a plan to fix this?

• Repair and Maintenance Costs: Are there any upcoming repair and maintenance costs that will impact your bottom line?

• Rent Increases: Complete a market survey to determine what the market rent is for similar properties in the area. If it’s higher than what the property is currently charging then you may be able to increase rents to boost your income.

When it comes to how to value commercial real estate, this is one of the best approaches. Just make sure you have access to accurate financial information and are confident in your ability to estimate the income of the property. It may be a good idea to hire an expert to calculate the NOI  and the market income to ensure your figures are correct.

Consider Consulting With Experts to Assist Your Valuation

There are a lot of factors that go into making a good real estate investment. Because of this, it’s a smart idea to surround yourself with experienced industry experts who can advise you.

A good commercial real estate broker is the best place to start. Not only will they be able to show you properties that meet your criteria, but they’ll also have a good idea of how much each property is worth based on current market data and trends.

In addition to these valuable insights, they’ll have a number of industry contacts including property inspectors and appraisers who can give you the information you need to come up with an accurate property valuation. 

Prologue

When you’re looking through online real estate listings you may assume that you’re seeing everything that’s available. But the truth is there are plenty of off-market properties that aren’t advertised through conventional channels.

In fact, over 25% of commercial real estate transactions happen off-market. And it just so happens that these properties often provide investors with the best deals.

What are Off-Market Properties?

Typically when someone decides to sell a property they do so through a real estate broker. The broker then lists the property through conventional marketing channels where it is publicly advertised for everyone to see.

However, sometimes properties that are for sale aren’t listed through public real estate listings. This can occur for a number of reasons. The buyer may not want to publicly advertise that they’re selling, or the property may be for sale by the owner. In any case, while these properties are available they can be a little harder to track down.

What are the Benefits of Buying Off-Market Investment Properties?

You might be wondering if it’s worth the hassle of locating off-market commercial properties. While there is more work required to find these listings there are also a number of benefits if you’re willing to put in the effort:

• Less Competition: The obvious advantage is that there’s less competition. Most people just stick to conventional listings when they’re looking for real estate. This means you’ll be up against fewer buyers, and you may even be the only interested party.

• Better Prices: Because there’s often a lack of competition there’s less chance you’ll end up in a bidding war that will drive the price up. This leads to better prices for buyers.

• More Time to Make a Deal: With fewer buyers putting pressure on the seller there’s often more time to negotiate. This can take the pressure off and allow you to consider all of your options before agreeing to anything.

• Privacy: Are you someone who wants your real estate purchases to stay out of the public eye? Buying off-marketing properties allows your deals to remain private.

Whether you want to avoid competition, are seeking a little more discretion, or simply looking to find some hidden real estate gems, searching for off-market listings is an excellent investment strategy.

How to Find Off-Market Properties: 12 Tips

We’ve established all the reasons why you should be looking for listings that aren’t widely advertised. But how exactly do you find these properties?

Here are 12 strategies to try:

1. Partner with a Real Estate Broker

When it comes to how to access off-market properties, the best place to start is a good real estate broker. There’s a common misconception that brokers only have access to real estate listings, when in fact they can help you find virtually any property you’re looking for.

These professionals have numerous industry connections and are often the first to know when a property becomes available, even if it’s off-market. The best brokers can give you inside information and know exactly where to find off-market properties.

Speak with a number of brokers and find one you trust who’s also well connected. If you partner with the right one they’ll be able to inform you as soon as they hear about any properties you might be interested in.

2. Connect with a Real Estate Wholesaler

Another person who can help you is a real estate wholesaler. These people aren’t registered real estate agents. Rather, they are savvy investors who find properties, negotiate a selling price, and then assign the contract to another investor for a fee.

More often than not, the deals wholesalers are involved in are off-market. So, if you’re wondering where to find off-market properties wholesalers may be the answer. Check with your network to see if you can locate any wholesalers in your area. They’ll likely be a valuable contact for you during your search.

3. Paid Advertising

You may be surprised to learn that when it comes to real estate it isn’t just sellers who are advertising. Many savvy investors also pay for advertising to let potential sellers know that they’re looking to buy.

Today’s online ads give you plenty of options that allow you to reach a number of sellers in your area. Google Ads and Facebook advertising are the two most prominent and can be used together to target your ideal property owner.

Do your research and determine which demographics are most likely to be selling the type of property you’re looking for. Once you’re ready, launch your campaign and see if anyone contacts you with a potential deal.

4. Direct Mail Marketing

This is an extension of our last tip, but it’s a little more old school. Believe it or not, direct mail marketing is still extremely effective and a number of investors regularly use it to find off-market properties for sale.

Like advertising, the key here is to research your ideal seller to ensure you’re targeting the right people with your campaign. Then, send postcards or letters to possible sellers that outline your interest and your proposal.

Oftentimes, people aren’t even thinking about selling until someone puts the idea in their head. Because of this, a good direct mail campaign can help you gain access to properties before anyone else.

5. Look Online

Just because a property isn’t listed on conventional listings doesn’t mean you can’t find it online. There are a number of sites where sellers can post their property if they’re selling it themselves, so it’s worth performing a search.

Some of the best places to look are:

• Craigslist

• Kijiji

• Facebook

• For Sale by Owner

It’s a good idea to check these listings regularly. While they’re not viewed as often as more conventional real estate listings there are still a number of investors who are reviewing these sites for deals. The sooner you spot an off-market property for sale the better chance you have to get to the seller before someone else does.

6. Check Your Local Newspaper

It’s not as common anymore with so many online listings available, but you might occasionally find a potential investment property listed in the newspaper. These are likely off-market properties being sold directly by the owner, meaning they aren’t as widely advertised as those on conventional real estate listings.

Like online listings, it’s a good idea to check newspapers regularly and often to help you beat out other investors who have the same idea.

7. Ask Friends, Family, and Business Connections

If you really think about it you likely have a large network of people you know in your local area. Just because they aren’t brokers or investors doesn’t mean they can’t help you in your search. It’s possible they’ve heard of an off-market commercial property for sale that meets your criteria.

Get in the habit of mentioning to people that you’re looking to buy. Have business cards ready so you can hand them out if someone is interested. Even if they don’t know of anything it’s possible they might hear about something in the future. And when they do they’ll be able to connect you to the seller.

8. Talk to Builders and Contractors

Builders and contractors are also good contacts to have if you’re looking for off-market listings. They’re usually in the know about real estate projects that were abandoned because the owner ran out of financing.

These sorts of situations offer the perfect opportunity for investors. The owner is usually grateful to unload the property and recoup their losses, and you can often get a great investment before it hits the open market.

Build relationships with local builders and contractors and let them know that you’re interested in buying if anything becomes available. If you prove yourself to be trustworthy they’ll be happy to share valuable information as soon as they have it.

9. Attend Real Estate Events

If you want to expand your network and possibly get some inside information you should definitely consider attending some local real estate events.

Join your local real estate investment association and look into any forums or online groups that you can be a part of. Check in regularly to see when these groups are meeting.

As always, let people know you’re looking to invest and give them an idea what you’re looking for. You never know when you’ll run into someone who has a great lead for you.

10. Check Public Records

If you want to be the first to discover off-market properties then it’s a good idea to do frequent public records searches. This is because foreclosures and short sale properties are often listed here, giving you a heads up about potential opportunities.

You can find these announcements on state and municipal websites, as well as newspapers. Websites like HUD Home Store will also occasionally provide this sort of information, and you can even set up alerts for real estate announcements to ensure you never miss anything.

11. Look for Real Estate Auctions

Similar to our last tip, real estate auctions provide you with the opportunity to bid on properties that have been repossessed or foreclosed on.

With a foreclosure, a lender is trying to make back the balance of a loan after the borrower is no longer willing to pay. These types of sales are often for below market value as the property is sold “as is” and the lender is more concerned about recouping their loan than making a profit.

Auctions can also feature real estate owned (REO) properties. These are properties that are owned by lenders after they were unsuccessful in selling them through foreclosure. These are some of the best off-market opportunities as lenders are usually eager to sell.

12. Take A Drive

As you can see, there are a number of contacts and channels you can pursue if you want to find off-market listings. But sometimes the best strategy you can use is to simply get in your car, take a drive, and look for potential investment opportunities.

Keep your eye out for vacant lots or properties that are in disrepair, as these are the usual signs of an off-market real estate opportunity. Even if the property isn’t for sale the owner will likely consider an offer if they aren’t currently doing anything with it.

Make note of the addresses of any properties you find and use that information to track down the owner through county records. If you get some contact information reach out to them and ask them about the property and whether they’re willing to sell.

Conclusion

Sometimes in order to find the best deals, you need to work harder than your competitors. That means staying on top of industry trends, doing additional research on potential investments, and looking for opportunities that aren’t readily advertised to the public.

Off-market properties represent one of the best ways for you to uncover excellent properties for below market prices. If you’re willing to put in the extra time this could be an extremely profitable strategy for you.

Are you interested in finding off-market properties for sale? Teletare’s team of experienced real estate brokers is here to assist you with your search. Reach out to us if you’re interested in learning more.