Commercial Property Investment Mistakes and How to Avoid Them

Posted on March 3, 2023 by dayat

You’ve probably heard about the commercial real estate bubble, here’s the ugly truth that lenders and other insiders don’t want you to know. Despite all the hype, not every commercial property is in trouble. The key for you as an investor is to avoid certain pitfalls and learn from other investor’s mistakes.

Before the economic and credit boom that has led into the recent downturn, conventional lenders capped loan amounts at 65 percent of the value of the property. This means that your $10 million commercial property would qualify for a maximum loan of $6.5 million. The current problems with commercial property investments started when hedge funds and private equity lenders began offering much higher loan to value ratios, meaning they would lend against your investment property with as much as 80 percent of the value of the real estate.

Mistakes Made by Commercial Investors

Some investors decided to refinance their $10 million commercial property for $8 million and get $1.5 million out tax-free! What seemed like a great deal at the time has come back to ruin the typical commercial property investment. The problem was that these loans needed to be refinanced after five years. Owners who pulled money out of their investments like this began down a path that has led to the troubles we are seeing now.

Fast forward from then to now and you’ll see that the entire economic climate has changed. Most sources of financing for commercial real estate have dried up. Owners with a property that needs to be refinanced are finding that unless the LTV ratio is 65% or less and the property is performing perfectly, it’s almost impossible to get refinancing for their commercial property investment.

You can’t tap into those hedge funds and private equity firms because many of them have gone out of business. So you are left with two options:

1) Create a workout with the existing lender where they refrain from foreclosing against your property in exchange for a slight increase in the interest rate, or other benefit that you can give the lender. In some cases the benefit to the lender is that they don’t need to take your property back. The truth is that the lender really doesn’t want to take back your property if they can avoid it.

2) Bring other investors into your deal by offering them a decent rate of return on their investment along with giving them a chunk of your equity. Make sure to contact a commercial property investment attorney who can help make sure that you meet all of the SEC guidelines if this is the path that you choose to go down.

What Makes a Safe Commercial Property Investment

The problem with many owners of commercial properties today is that they got into a deal with a bigger loan than they should have. Now, these commercial property owners can’t ride out the recession because the loans are coming due and they’re short, or worse, upside-down.

Investment rule #1

-Leave the equity in your property.

· Successful property owners don’t pull out their equity at the top of an up cycle; they leave the equity in their commercial property investment so they can ride out the downturns. The “commercial meltdown” doesn’t apply to property owners who left their equity untouched. While it’s true that the commercial property values have come down from a high peak. The typical commercial real estate investment is far more valuable today than it was 10 or 15 years ago.

Investment rule #2

-Stick with conventional lenders.

· By taking a short term hard money loan commercial owners placed themselves at the mercy of the fickle market. A conventional lender would not have financed more than 65 percent of the property value, allowing the owner with a cushion against fluctuating property values.

When structured correctly, your real estate investment may not provide you with an overabundance of excitement, but during times like these, a stable, performing real estate investment is just fine.

Are you wanting an experience with the most amazing delta 8 vape, then look no further than a cake disposable ! With all of the benefits of vaping the best hemp products in the industry.
Posted in Uncategorized | Tagged | Comments Off on Commercial Property Investment Mistakes and How to Avoid Them

Residential Vs Commercial Property Investments

Posted on February 3, 2023 by dayat

Before purchasing a new investment property, you should always consider the differences between residential and commercial real estate investments. Depending on your financial means, expectations and investment plan, you will have to decide which one can be more profitable for you. Most people will invest in residential properties, as this seems to be a safer endeavour requiring less money, however, if you have the means, commercial properties can be highly profitable. You should also consider that while traditional residential property investments might not have very high returns on your investment, repossessed or foreclosed properties, can bring you a net yield of up to 12-15%.

Property Types for Residential and Commercial Investments

Houses of four units or less, to rent to private tenants are usually considered residential properties. You can invest in buy-to-let residential properties, which means that you’ll get the rental yields every month, or purchase the property solely for future resale. Residential property investments vary from more traditional buy-to-let investments somewhere near your own home to investments in overseas real estate, below market value properties or foreclosed houses. Commercial properties are for businesses, and include a variety of properties, from apartment blocks and office buildings to hotels, restaurants, warehouses and industrial buildings, just to name a few. Managing a relatively small residential property is obviously simpler than managing commercial properties, where you will often need a professional real estate management company to assist you.

Researching the Real Estate Market

While you will always need some knowledge of the property market and current conditions to make a successful investment, residential properties are simpler to research and value. It is relatively easy to compare different residential properties, their prices and investment potential in a given area. Commercial properties, however, are often unique and require specialised knowledge to value accurately and to establish an investment plan.

Risks & Yields

Residential properties are generally regarded as low-risk investments. They also tend to cost much less than commercial properties and will thus be more affordable, especially if you’ve just started building up your investment portfolio. The relatively low risks and the low purchase price, however will also mean that your profits are lower, and your return on investment will come mainly from increases in capital value.

Commercial properties, on the other hand have higher risks, but also higher potential returns. The significantly higher prices will also mean, that for personal investors, only collective investment schemes are affordable for larger commercial property investments. The relative unpredictability of the commercial property market will also bring more risks. While residential property prices generally double every 10 years, this is not true for commercial properties. You can expect a net yield of up to 7-10% on commercial properties, which is higher than the net yield from traditional residential property investments, and a large part of your return on investment will be in the form of rental income.

Rental Properties

A successful investment plan for both commercial and residential properties is to rent them out. Residential leases tend to be much shorter, usually around one year, and private tenants are often considered less reliable than businesses. Landlords will be liable to pay for repairs, which might incur unexpected additional costs. Commercial properties, on the other hand, are leased out for a longer time, 5-10 years is not uncommon, and the yearly increase in rental yields will be more significant. Businesses are also often considered to be more reliable tenants and commercial tenants are generally required to pay for repairs. You should also consider that while commercial properties can bring you a secure and high rental income, it is also much more difficult to find commercial tenants.

Exit Strategy for Residential and Commercial Properties

One investment plan is to rent out your property as detailed above. However, property flipping, or future resale can also be a profitable strategy with both kinds of investments. Residential property can be sold quite simply to another investor or somebody who intends to occupy the house, and as long as the property is in a good condition and in a well-chosen location, you should generally be able to sell it at a significantly higher price than its original purchase value. Commercial properties can bring huge profits, but the process of resale is more complicated. The property must be sold to another investor or investor group, and it should have a successful and profitable record, to be attractive to the buyer for investment purposes.

Posted in Uncategorized | Tagged | Comments Off on Residential Vs Commercial Property Investments