Commercial Properties as an Investment Strategy
Income-producing property that is zoned for business or industrial purposes is considered commercial property rather than residential. Examples are office buildings, restaurants, shopping centers, hotels, industrial parks, self-storage business, warehouses, factories, and apartment complexes containing 5 units or more. Investors receive rental income monthly, plus capital appreciation when the property is sold at a profit. For investors who want to diversify their real estate portfolio to include commercial along with residential properties, is now the time to buy commercial? It seems that prices may have reached bottom and are now beginning the long road to recovery. Yes, deals are getting done. Sellers have re-calibrated prices and buyers are becoming more confident. Also know this...
During the next three years, over $1.4 trillion in commercial real estate loans will mature. Typically, commercial real estate loans have three- to five-year terms. As loans come to term, banks have the option to renew the loan or “call” the debt, requiring borrowers to pay the balance of the loan in full.
The bulk of commercial real estate lending occurred during the boom years of 2005 to 2007, which puts their maturity dates at 2008 through 2012. Because these loans were made at vastly inflated prices, many are “under water,” meaning more is owed on the property than it is worth. According to Real Capital Analytics, there are currently $255 billion of underwater loans. Unlike the residential real estate crisis, which very few saw coming until it was too late, many banks and Real Estate Investment Trusts, or REITs, are taking a proactive approach to restructuring commercial debt.
The “vicious cycle of inaction,” as buyers wait on the sidelines for the bottom of the market, seems to have broken. Cash-laden REITs and commercial real estate investors are beginning to raise capital and make purchases.
During the next three years, over $1.4 trillion in commercial real estate loans will mature. Typically, commercial real estate loans have three- to five-year terms. As loans come to term, banks have the option to renew the loan or “call” the debt, requiring borrowers to pay the balance of the loan in full.
The bulk of commercial real estate lending occurred during the boom years of 2005 to 2007, which puts their maturity dates at 2008 through 2012. Because these loans were made at vastly inflated prices, many are “under water,” meaning more is owed on the property than it is worth. According to Real Capital Analytics, there are currently $255 billion of underwater loans. Unlike the residential real estate crisis, which very few saw coming until it was too late, many banks and Real Estate Investment Trusts, or REITs, are taking a proactive approach to restructuring commercial debt.
The “vicious cycle of inaction,” as buyers wait on the sidelines for the bottom of the market, seems to have broken. Cash-laden REITs and commercial real estate investors are beginning to raise capital and make purchases.
Join the Commercial Properties Investors Association
There is no other place to find such real world information on making money in commercial investment real estate than by joining Darin Garman's Commercial Property Investors Association. Depending on how serious you want to be with your apartment property investments, this membership will tell you what you need to do every single day of the year. The apartment investment business is as largely mental as it is about analysis, deal making, etc. so you need real world tools, forms, and business plan. If you're sincerely interested and serious about building your wealth and serious about implementing a very successful apartment property investment system, then register right away and become a member of the Commercial Property Investors Association.
Helpful Links
Cityfeet is the #1 commercial real estate site with thousands of commercial real estate properties, broker profiles & commercial service listings.
Loopnet lists 650,000 commercial properties For Sale and For Lease. Search Offices, Retail, Mobile Homes, Apartments, Hotels, Land for sale and other properties.
Loopnet lists 650,000 commercial properties For Sale and For Lease. Search Offices, Retail, Mobile Homes, Apartments, Hotels, Land for sale and other properties.
Earn Finder's Fees on Commercial Buildings!
Commercial Properties
If you're not quite ready to buy commercial properties yet yourself, you can still learn the business and earn huge finder fees by locating commercial buildings for investors all across the USA! Here's an opportunity to gain access to hundreds of investors who have millions of dollas to buy apartment complexes, mobile home parks, office buildings, shopping centers, hotels, motels, and net leased business buildings. The minimum deal is $2,000,000 and there are no maximums, so with a finder's fee of 2 1/2 % you would earn $50,000 on just one deal! Not too shabby. No attending high priced seminars or buying expensive courses to learn how. All you need to know is in ONE manual and then you'll know what kinds of properties investors want, how to contact the property owners, how to present the deals, and you'll get all the necessary forms and contracts, too. Don't wait... learn more about how to earn finder's fees on commercial real estate!
The Difference Between Risk and Danger
Danger is something to be avoided at all costs. A sign that says "Danger-Unexploded Ordinance" means keep away. Rational individuals do not trespass. Risk needs to be embraced by investors because without risk there is little, if any, return. All forms of investment are risky. Risk and danger are not the same. Avoiding risk is not the issue. Getting compensated adequately for bearing risk is the issue. All commercial real estate opportunities have risk, just like all other investments have risk.
For investors, the risk you are exposed to is not simply the sum of the riskiness of all your individual investments. Rather, it is the risk inherent in your entire portfolio. The risk of individual investments is not the same thing as the risk in the portfolio. This is because the risks of the different investments in your portfolio are more or less correlated with the risks of other investments in your portfolio.
The idea of diversification among different types of investments is generally to reduce the risk of the overall portfolio without necessarily reducing return. This happens because the individual risk on one element in the portfolio may be largely independent of the risk of another element in your portfolio, so the risk of the portfolio itself declines.
There are a lot of highly technical and mathematical ways to measure risk. All of them suffer from a variety of imperfections. So, really, the best approach to evaluating risk to an individual investor is to use common sense. An important implication of this concept is that investors should not evaluate the risk and return on an individual business property investment. Instead, the risk should be judged by the impact of that investment on the riskiness of the overall portfolio. It is possible to add a relatively risky investment to a portfolio and have the total riskiness factor of the portfolio decrease.
For investors, the risk you are exposed to is not simply the sum of the riskiness of all your individual investments. Rather, it is the risk inherent in your entire portfolio. The risk of individual investments is not the same thing as the risk in the portfolio. This is because the risks of the different investments in your portfolio are more or less correlated with the risks of other investments in your portfolio.
The idea of diversification among different types of investments is generally to reduce the risk of the overall portfolio without necessarily reducing return. This happens because the individual risk on one element in the portfolio may be largely independent of the risk of another element in your portfolio, so the risk of the portfolio itself declines.
There are a lot of highly technical and mathematical ways to measure risk. All of them suffer from a variety of imperfections. So, really, the best approach to evaluating risk to an individual investor is to use common sense. An important implication of this concept is that investors should not evaluate the risk and return on an individual business property investment. Instead, the risk should be judged by the impact of that investment on the riskiness of the overall portfolio. It is possible to add a relatively risky investment to a portfolio and have the total riskiness factor of the portfolio decrease.
Where to Get
Private Money to Buy
a Business Property
Buy Business Property
More and more investors are looking into the possibility of investing in commercial properties, but actually being able to complete the transaction hasn’t gotten any easier due to the large sum of money needed to secure the deals (as compared to a standard mortgage loan). But there really ARE ways to get the money you need and Alan Cowgill's Commercial Real Estate Manual is overflowing with tips, tricks, techniques and secrets that will ensure you know how to get a hold of the cold hard cash needed for investing in commercial real estate… without using any of your own money! You’ll learn everything you need to know to earn maximum profits on any commercial real estate deal while also satisfying your commercial or private lenders and ensuring they will want to loan you money again in the future. Learn more about where to get money for your business property deals here.
Buy Your First
Apartment Building
Commercial Properties - Apartments
Buy Your First Apartment Building is the only course or book you will ever need to invest in apartment buildings. Start off on the right foot and learn from other's mistakes. There's no spiel here. Just the facts and great strategies in this educational tool. If you follow simple instructions, you can be locating, buying and managing highly profitable apartment buildings within months! If You Want To Get Started In Commercial Real Estate and Apartment Building Investments, The Business That Has Created More Billionaires Than any Other, Then You Have Made It To The Right Place. Take A Few Minutes Now To Listen And Learn.
Understanding Mortgages for Commercial Properties—
Multi-Family and Apartment Building Loans
Need Funds to Buy Commercial Buildings
It certainly would be ideal for business property investors to know in advance if their deal can qualify for an institutionally funded (bank) commercial mortgage loan. But unlike residential lenders, commercial mortgage lenders do not issue "pre-approvals." However, there are some basic guidelines that virtually all conventional lenders are considering today:
Loan-to-Value (LTV): LTV has been dramatically reduced during this "credit squeeze." Just 24 months ago we were seeing LTV ratios above 80% and lenders were allowing large 2nd mortgages. Standards have tightened. In today's credit environment, investors should not expect to see any loan offers above 75% and many are coming in significantly lower. 70% is a normal LTV ratio on new purchases with some lenders willing to go to 75% on refinance loans. Seller carried second mortgages are discouraged and often disallowed altogether. Borrowers without large amounts of cash to buy commercial buildings may be turned away.
Debt Service Coverage Ratio (DSCR): Banks, insurance companies and Wall Street brokers simply will not write loans against underperforming or vacant commercial buildings anymore. Today, only stabilized assets need apply for institutional funding. A business property must be able to demonstrate a history of profitability and low vacancy. To be approved for a bank loan for the purchase or refinance an apartment building, the commercial buildings must have a net-operating-income (NOI) equal to 125% of the proposed mortgage payment (a DSCR of 1.25). Deals that do not meet this requirement will have to wait until the credit markets improve or seek private funding.
Credit: Borrowers or sponsors with weak credit scores are being summarily rejected by banks. To qualify for a low interest loan with good terms, from an institutional lender, all the principle borrowers need to have a tri-merged credit score of 640 or better.
Experience: Banks are not willing to take a chance on first-time apartment investors. All borrowers are now required to demonstrate real experience in rental housing and a track record of success with commercial properties.
Net-Worth & Liquidity: Many banks have instituted a policy of requiring that their borrowers have a net worth at least equal to the balance of the loan they are seeking. In other words, if you want to borrow $1 million from the bank to buy an apartment complex, you need a net-worth of at least $1 million. Further, they will want to see that you have some money in the bank above and beyond the funds you're using for a down payment. Often they will require borrowers to have a savings account balance equal to 6-9 monthly mortgage payments.
Quality Property in Good Location: To secure financing from a traditional lender the commercial buildings must be in a city or town that is not particularly depressed economically. Hard hit areas of MI, FL, CA or NV, for instance will be shunned. Also, the structure must be in good repair, lenders will shy away from buildings that have alot of deferred maintenance.
Deals that meet these basic requirements will find that there is no lack of liquidity even in this tight credit market; there is plenty of money for apartment loans for the borrowers and commercial buildings that can qualify. Unfortunately, for deals that cannot meet these higher lending standards, investors are going to raise money from private investors, which are often called hard money loans.
Loan-to-Value (LTV): LTV has been dramatically reduced during this "credit squeeze." Just 24 months ago we were seeing LTV ratios above 80% and lenders were allowing large 2nd mortgages. Standards have tightened. In today's credit environment, investors should not expect to see any loan offers above 75% and many are coming in significantly lower. 70% is a normal LTV ratio on new purchases with some lenders willing to go to 75% on refinance loans. Seller carried second mortgages are discouraged and often disallowed altogether. Borrowers without large amounts of cash to buy commercial buildings may be turned away.
Debt Service Coverage Ratio (DSCR): Banks, insurance companies and Wall Street brokers simply will not write loans against underperforming or vacant commercial buildings anymore. Today, only stabilized assets need apply for institutional funding. A business property must be able to demonstrate a history of profitability and low vacancy. To be approved for a bank loan for the purchase or refinance an apartment building, the commercial buildings must have a net-operating-income (NOI) equal to 125% of the proposed mortgage payment (a DSCR of 1.25). Deals that do not meet this requirement will have to wait until the credit markets improve or seek private funding.
Credit: Borrowers or sponsors with weak credit scores are being summarily rejected by banks. To qualify for a low interest loan with good terms, from an institutional lender, all the principle borrowers need to have a tri-merged credit score of 640 or better.
Experience: Banks are not willing to take a chance on first-time apartment investors. All borrowers are now required to demonstrate real experience in rental housing and a track record of success with commercial properties.
Net-Worth & Liquidity: Many banks have instituted a policy of requiring that their borrowers have a net worth at least equal to the balance of the loan they are seeking. In other words, if you want to borrow $1 million from the bank to buy an apartment complex, you need a net-worth of at least $1 million. Further, they will want to see that you have some money in the bank above and beyond the funds you're using for a down payment. Often they will require borrowers to have a savings account balance equal to 6-9 monthly mortgage payments.
Quality Property in Good Location: To secure financing from a traditional lender the commercial buildings must be in a city or town that is not particularly depressed economically. Hard hit areas of MI, FL, CA or NV, for instance will be shunned. Also, the structure must be in good repair, lenders will shy away from buildings that have alot of deferred maintenance.
Deals that meet these basic requirements will find that there is no lack of liquidity even in this tight credit market; there is plenty of money for apartment loans for the borrowers and commercial buildings that can qualify. Unfortunately, for deals that cannot meet these higher lending standards, investors are going to raise money from private investors, which are often called hard money loans.
