The Right Mindset for Real Estate Investing Success

Having the right mindset is essential for any successful venture, and real estate investing is no exception. For real estate investors to be successful, they need to have a resilient and open mindset that enables them to navigate the often-complex world of real estate investments effectively. This blog post will discuss the critical elements of the right mindset for success in real estate investing. We will also provide some tips and advice on developing and maintaining this mindset.

1. Be professional and take your REI business seriously.

Real estate investing is a business, and successful REI investors treat it that way. At the ground level, this means conducting yourself professionally in all situations and having integrity and honesty be the foundation of your business. Real estate investing is a relational business so you must build a strong network between yourself, clients, and colleagues. Considering yourself a professional, even if you are a rookie with zero experience, is the first step along the way to becoming one.

2. Have a long-term vision for success.

Successful real estate investors understand that having a clear goal and working hard to achieve it is essential for building a successful business. Taking a long-term approach, rather than focusing on the day-to-day tasks, helps keep you motivated and inspired. Having a vision for what you want to achieve in real estate investing—from rehabbing properties and becoming a landlord to building wealth, achieving financial freedom, and living the new American dream—is key to success. It takes determination, grit, and flexibility for investors to succeed. Ultimately, having a long-term vision for success will help you stay focused and motivated as you work towards your real estate investing goals.

3. Embrace failure and mistakes.

Real estate investing is a business; mistakes and failures are guaranteed like any other. The path to success is not without its challenges and setbacks. Respect failure and mistakes as part of the journey, not something to be ashamed of. Accept that you cannot know everything or predict every outcome; there will be mistakes and sometimes they will be costly. To hedge against mistakes, commit to being a lifelong learner who invests time and resources into real estate investing education. Your community hosts many REI organizations whose sole mission is to educate real estate investors and help them build their networks and businesses. Run into an issue you cannot solve or a problem that requires skills you don’t have? Don’t feel pressured to be an expert in everything. Rely on your network when issues arise that are beyond your knowledge. With each misstep, you can learn and grow, enabling you to make better decisions for the future. Rather than allowing them to defeat you, use them as a stepping stone to propel your real estate investing career forward.

4. Be proud of your investment business.

Real estate investors reshape communities and see opportunities where others only see negativity. Be proud of the work you do, the teams you lead, the projects you run, and the business you’ve created. Your positivity and confidence will attract great employees, partners, investors, and others who will want to be a part of the organization you are creating.

Investor Loan Source, a private money lending company, provides high-quality investment property loans to private real estate investors at the lowest costs possible. Our process for providing real estate investors with private lending is unique. We place emphasis on the hard asset and value of the collateral (property) and less on the borrower. Our asset-based real estate investment loan model means we can provide more money lending to more investors than is available from standard bank loan models. At Investor Loan Source, providing real estate investors hard money loans is our business; it’s all we do. We offer several business real estate loan products designed to serve a variety of investors and property profiles, including private money lending for properties to sell on owner finance.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.

Is Office Space a Good Investment? Everything You Need to Know

Are you considering investing in office space? If so, you’ve come to the right place. Commercial real estate investing in office space can be a profitable venture, but it’s important to understand the risks and rewards before you make any decisions. In this blog post, we’ll cover everything you need to know about investing in office space, including the advantages and disadvantages. By the end of this post, you’ll be equipped with the knowledge you need to make an informed decision about whether office space is a good investment for you.

The Pros of Investing in Office Space

Investing in office space can be a great way for entrepreneurs and investors to diversify their portfolios and generate passive income. It’s also a safer alternative to more volatile forms of investing, such as stocks, which can be vulnerable to market fluctuations. Office space offers a steady stream of cash flow that can help you build wealth over time without having to worry about the daily ups and downs of the stock market.

Office space is also an attractive buy-and-hold investment opportunity. Unlike other investments, office space provides a long-term return on your capital. Investors can take advantage of stable cash flows because of the long lease structure of commercial office space. With leases averaging 5-10 years, investors in office space enjoy the benefits of long-term returns without the cost of frequent tenant turnover.

Investing in office space is also a great way to take advantage of the tax benefits associated with real estate investments. Tax breaks, deductions, and credits are all possible when investing in office space, making it an attractive option for savvy investors looking for ways to build wealth.

Overall, investing in office space is a great way to create a diversified portfolio that can generate consistent cash flow and provide tax benefits. Investing in office space can be a great way to grow your wealth over time.

The Cons of Investing in Office Space

When considering office space as an alternative investment opportunity, it’s important to be aware of some potential drawbacks. Office lease rates and the demand for office space can change depending on the strength of the local and national economy. During a recession, there may be fewer tenants seeking office space, and those that do may be able to afford a lower rent than what you originally planned for. Additionally, if a large number of your office building’s leases are expiring soon, you may be at risk of unexpected vacancies if tenants choose not to renew their leases. Lastly, older office buildings may have floor plans that are outdated and, as a result, difficult to lease. Outdated office buildings do offer the opportunity to value add either in rehabilitating the property or redeveloping it for another purpose (such as multifamily).

The Bottom Line

Investing in office space can be a great way to build wealth, but it is important to assess the conditions of your local market and evaluate the risks involved. Before investing in office space, do your research and become well acquainted with the changing market conditions that are taking place in the areas you will invest. With careful consideration and planning, investing in office space can be an excellent way to build wealth.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.

3 Classes of Office Space

Office space is a way for businesses to provide their employees with the tools and resources needed to do their jobs. Every business has different needs, so there are many types of office space that cater to those needs. As an investor, different classes of office space offer advantages and challenges that may or may not fit the type of investment you are looking to make. Classifications of office space can sometimes be difficult to make, and what qualifies as an A-class building in a smaller suburban setting may only be a B-class building when compared to a larger market. In this blog post, we will explore the different classes of office space and what investment opportunities each presents.

Class A

Class A offices are the most prestigious and premier space. They’re typically leased by large companies, and they have to be in the best locations. A Class A building will have high-end finishes and construction, making it ideal for those who want their business to make an impression on clients and colleagues alike.

Class A buildings don’t just have great features; they also command higher rents than other types of office space because of their prestige factor–making them a great investment opportunity. They’re often newer construction or renovated older buildings with a lot of character, so they tend to stand out from other options in any given market area. This can make them expensive options for businesses that need more than just office space (like law firms) but also want something special enough that people will notice when visiting or receiving mail there.

Class B

Class B office space is in between Class A and Class C. This class of office space serves a wide range of businesses, from small startups to Fortune 500 companies. Class B buildings tend to be higher quality construction than Class C buildings, but they are located outside of the main business district or with fewer amenities. Class B properties typically house strong tenants and have fewer expenses for investors considering this class.

For example:

Companies that want good, high-quality space but don’t need to be right in the center of everything (and can afford it) will often choose this route because they don’t need all of the bells and whistles that come with being in an A building.
Smaller startups may also gravitate toward this option because they don’t have enough money yet to sign a long-term lease at an expensive location; instead, they would prefer something more affordable while still giving them access to all sorts of amenities such as cafeterias or even gyms for employees who want them!

Class C

Class C office space is often much older and requires renovations, but it’s also one of the most affordable. These tend to be occupied by smaller, family-owned businesses or companies that cannot afford higher-quality spaces. Small businesses in blue-collar industries may also use C-class space while rendering off-site services. These office spaces tend to be located further away from desirable areas and may not offer any amenities or have important features such as parking, elevators, or HVAC. For these reasons, this class of property offers lower than market area rents. For investors, this class offers deep discounts and the opportunity to rehabilitate the property for higher rents and an increase in value.

Conclusion

As you can see, there are many different types of office space. Each kind has its own advantages and disadvantages, so it’s important to know what type suits your needs before choosing where to invest.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.

3 Reasons to Invest in Self Storage

Self-storage is a real estate investment that can be used by people and businesses to store their goods. It’s one of the fastest-growing segments of commercial real estate, with an estimated $22 billion in revenue in 2016.

Self-storage services a large cross-section of the population, including individuals and businesses, and is needed in good and bad economic times. In this blog post, we will explore the three reasons why you should invest in self-storage.

Self-Storage services are needed in all markets

Self-storage businesses offer services to both individual families and businesses for a multitude of reasons and remain a strong commercial real estate investment. Families spend money at self-storage units for many reasons, including storing furniture and vehicles during a move, remodeling, or downsizing. Businesses also utilize self-storage units to organize additional office furniture, house seasonal items, and protect specialized equipment.

With so many potential customers, self-storage units tend to thrive in any market, and the sector continues to grow. Commercial real estate investors appreciate the stability and reduced risk self-storage offers compared to other commercial real estate investments.

Self-storage rentals have fewer headaches, with more favorable lease terms for investors and fewer issues with renters

Because self-storage is not residential property, owners have more freedom to regain their units upon nonpayment than traditional landlords. In some states, the unit can be returned to the property owner within a week of nonpayment, making it much easier to manage tenants who fail to pay rent on time. Any remaining items in the unit can be sold, giving the property owner some ability to recoup lost income in the event of nonpayment. Additionally, because there’s less worry about tenants damaging their units or leaving them uncleaned after vacating them, owners don’t have to worry about cleaning costs or repairs when they turn over the unit–they simply clean out the unit and put it back into inventory!

Self-storage businesses generally have lower operating costs than other commercial real estate properties

Self-storage businesses generally have lower operating costs than other commercial real estate investments, as they require much less attention and upkeep. The units themselves are low maintenance, which means they require fewer repairs and can be left unoccupied for longer periods of time without suffering damage. Additionally, self-storage facilities employ a small staff of workers onsite who oversee the facility’s operations and maintenance needs. Having lower operating costs allows owners to reinvest in new updates in the property and still earn a profit.

Conclusion

With so many benefits, it’s easy to see why self-storage is a great investment. Businesses that invest in this industry have seen positive returns during economic downturns, and the sector continues to grow. Is it time for you to invest as well?

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.

Hard Costs vs. Soft Costs in Real Estate Development: What’s the Difference?

Real estate development and investing are complex processes, with a wide range of activities for investors to track and manage for a successful project. Budgeting and tracking costs are one of these tasks, and it is incredibly important to the overall success of any project — especially in a market with uncertainty and price fluctuations.

An important distinction that investors and developers should be aware of is the difference between hard costs and soft costs in real estate development. Hard costs refer to the tangible costs associated with a development project, while soft costs are more intangible expenses. In this blog post, we’ll discuss the differences between hard costs and soft costs in real estate development and how to manage them best.

What are Hard Costs?

Hard costs are costs directly related to the construction of the physical asset. Think “brick-and-mortar costs” of the project, as well as labor costs for construction of the real estate development.

Some examples include:

Materials and supplies such as drywall, timber, and tile
Labor costs like carpentry and plumbing
Clearing, grading, excavation
Equipment
Landscaping
Utilities

In general, estimating hard costs is straightforward, as gathering information about the costs of materials and services for development is readily available. However, as projects are underway, unforeseen changes or challenges can add to these hard costs, such as a rise in the price of materials or additional development requirements. Additionally, different markets will have fluctuations in hard costs. Having a solid estimate of the hard costs of any development project is essential to staying on budget and capturing as much profit from the investment as possible.

What are Soft Costs?

Soft costs are all expenses indirectly related to the development of a property. Because these costs are not visible, they can be less obvious, but nonetheless are essential to the development of the asset. These costs provide for the strategic and admin work involved in any development project and can be more difficult to accurately account for when planning.

Some examples include:

Architecture /Engineering
Inspections
Permits
Taxes, legal fees

Whereas hard costs end at the completion of construction, soft costs can continue and include building maintenance, insurance costs, and other fees.

The Importance of Considering Both Types of Costs

As an investor, understanding and estimating the hard and soft costs of a project is essential to its success. Hard costs may face challenges based on the geographic location of the project, fluctuations in supply and labor pricing, and the overall skill and experience of the budget developer. Soft costs require experience in the market to accurately project the invisible costs that build up as the project moves forward.

As projects are completed, investors need to reflect on how accurately their hard and soft costs were estimated and examine what trends appear. Is there a line item that is being consistently missed that is added later into the project? What recurring issues pop up throughout the process that must be addressed? By gathering and evaluating data from each project, investors can understand where their budgeting issues lie and be better prepared for the future.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.

Top 3 Reasons to Invest in Multi-Family Properties

Are you wanting to grow your investment business but don’t know where to start? Multi-family properties can be a great option for investors looking for growth and the possibility to step back from the daily management of the asset. Multi-family properties offer many advantages over other types of investments, and there are several compelling reasons to invest in them. In this blog post, we’ll discuss the top three reasons why investing in multi-family properties is a smart move for your portfolio. By understanding the potential benefits, you can make an informed decision about whether multi-family investments are right for you.

1. More Cash Flow

Compared to the monthly income of single-family properties, multi-family investments have the potential to bring in exponentially more income per month through various strategies. The larger the property, the greater potential there is for rental income. For example, when a multifamily unit is vacant for a short period of time, it is less painful than when a single-family home is vacant, leaving no income at all for the investor (meanwhile, costs do not stop for an unleased house). Investors still earn a significant portion of the rental income from other units without drastically changing the bottom line. Multifamily units are also more responsive to changes in renal prices, with multiple leases requiring renewal at different times throughout the year. This means multifamily investors can capture rises in rent prices proactively, increasing the property’s overall income throughout the year. Lastly, investors can also add non-rental revenue, such as on-site amenities, additional parking, and premium units that bring in additional money. With all that extra cash flow, multifamily investing can be a great tool for building wealth in one transaction.

2. Fast & Simple Portfolio Growth

Which is faster, buying a 10-plex or buying 10 single-family homes? In one multi-family transaction, investors can own and manage a much larger asset, increasing their overall net worth and growing their real estate portfolios much faster than with single-family real estate. Just imagine — building a small portfolio of 10 single-family homes means funding 10 purchases, managing 10 individual assets, and a much larger amount of time to find and close on all these deals, not to mention how spread out geographically these 10 properties might be. By buying multi-family properties, investors can achieve the benefits of real estate investing more quickly, including building wealth and increasing cash flow, with the investment in one easy location, with one transaction and one asset to manage. Hoping to double or triple the number of units? Adding an additional multifamily property to your portfolio compounds the rate of growth without the inefficiency and effort of building it all off of single-family properties.

3. Semi-Passive Investment Potential

While some real estate investors may enjoy being involved in the day-to-day management of their properties, many would rather focus on building their investment business. But with many smaller properties sprinkled throughout a market, management of single-family homes can be a headache that doesn’t cash flow enough to afford a management company.

Multi-family investments, however, offer the potential for an investor to be “semi-passive,” meaning they will be required to ensure the positive management of the investment, but they will not need to take every call and handle every lease. Because multi-family properties produce a higher income, they are better positioned to afford an excellent property management company that will allow the investor to get out of the daily management of the property and back into building their business.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.Categories

The Capital Stack: How It Works in Commercial Real Estate Investing

When it comes to real estate investing, a thorough understanding of the capital stack is essential for success. The capital stack is the collective term for the various sources of capital used to finance a commercial real estate project. Understanding the different parts of the capital stack and how they work together can help you make informed decisions when investing in commercial real estate. In this blog post, we’ll discuss the components of the capital stack and how they come together to fund a development or redevelopment project.

What is a Capital Stack?

The “capital stack” refers to the different types of financing used to fund a given CRE (Commercial Real Estate) investment. It is the combined set of all financing instruments that investors use to acquire and develop CRE investments with mention to their risk and return profile. The capital stack for any real estate transaction typically involves numerous parties and a variety of structures, offering investors creativity and freedom in how they structure the deal. The instruments used in the capital stack are commonly referred to as common equity, preferred equity, mezzanine debt, and senior debt. Understanding the potential and risks for each layer can help investors understand how to build wealth by adequately funding their commercial real estate deals.

Senior Debt

Senior debt is a critical component of the capital stack in commercial real estate investing, with secured debt providing lenders a sense of security and investors an opportunity to build wealth. Senior debt is secured by a mortgage or deed of trust on the property itself, making it the base of the capital stack. If the borrower fails to pay, the senior debt holder can take over the property and recoup their investment by selling the property or selling the non-performing loan. However, this lower level of risk comes with a lower yield than all other positions on the capital stack.

Mezzanine Debt

Mezzanine debt comprises the next layer of the capital stack and follows the senior debt in payment priority. After the developer has paid operating expenses and senior debt, the borrower must pay the mezzanine debt. Because mezzanine debt sits above the old debt in priority of payment, this higher risk to lenders leads to higher returns, as borrowers typically pay higher interest rates for mezzanine loans.

For mezzanine loans, if a borrower fails to pay and defaults, the lender can also take possession of the property, typically agreeing with the senior debt holder on how each entity’s rights will be protected.

Preferred Equity

Because of the creative potential of preferred equity investments in the capital stack, it is impossible to define one shape it may take. Preferred equity is very flexible, allowing investors to take different positions. For example, a “hard” preferred equity position functions similarly to a mezzanine loan with a fixed maturity date and payment schedule. A “soft” position will likely include returns based on the project’s performance. Understandably, hard preferred returns range similarly to mezzanine loans and share similar rights in case of default. In contrast, soft preferred equity holders have fewer rights but the potential for higher returns –especially for projects that perform better than anticipated because this equity is “preferred.” It is paid before any common equity distributions can be made.

Common Equity

At the top of the stack and the riskiest position, common equity is the most profitable position on the stack. Typically, the lender or other equity investors require the borrower to invest some portion of their own capital in the project, thereby having skin in the game and a vested interest in seeing the project succeed. In addition, common equity positions also require that every other capital investment be repaid before common equity sees returns. However, if the property performs well, common equity investors often have no limit to potential returns. Common equity returns can also be creatively divided between investors, but often the developer or sponsor of the project sees considerable common equity returns.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.Categories

Funding Commercial Real Estate Deals: What You Need to Know

Securing funding for commercial real estate deals is an essential part of the process. Knowing the ins and outs of the various financing options available can make the difference between a successful deal and a failed one. In this blog post, we’ll discuss the fundamentals of financing commercial real estate deals and what you need to know to make an informed decision.

Commercial Financing vs Residential Financing

Regarding real estate investing, there is a significant difference between commercial and residential financing. Residential loans are typically assigned to individual borrowers, while commercial loans are typically granted to business entities. As for loan-to-value ratios, residential loans allow high loan-to-value ratios of up to 100%, while commercial loan-to-value ratios range between 65% – 80%. When it comes to the length of the loan, commercial loans range from 5 to 20 years, while the most popular residential loan is a 30-year fixed mortgage. Understanding the differences between commercial and residential real estate financing is important for any investor looking to get involved in real estate investing.

Types of Commercial Financing

Understanding commercial real estate financing basics requires knowledge of the different types of financing available to investors. There are many financing options for commercial property and construction projects, each with its unique requirements, benefits, and drawbacks. Here we will detail only a few options.

Bridge loans are a type of short-term real estate financing that can be used to cover cash flow gaps when financing is needed but not yet available. These loans are typically used when a company must repay one loan but hasn’t received the new, permanent loan yet. Bridge loans are typically for a short period, up to one year or less, and are not meant to be a long-term funding solution. Bridge loans can be used to cover the costs of purchasing a property, as you wait for another property to sell or for another type of capital influx to kick in, or to smooth over the refinancing process, as you wait for funds from your new loan to deposit.

Conventional Bank Loans are another option for real estate financing. These loans usually offer competitive interest rates and can be used for the purchase of a commercial building or the financing of any improvements or renovations. It often requires a larger down payment and has stricter credit requirements, as well as qualification requirements that vary based on the lender. Securing financing from a bank can be more difficult than other avenues.

Hard Money Loans are another type of commercial real estate financing that offers fast access to capital with minimal paperwork. These loans are backed by the property itself rather than by the borrower’s creditworthiness, making them a viable option for investors in need of a short-term solution.

Finally, Joint Venture Loans are another type of commercial real estate financing that can be used to fund larger projects. Joint venture loans involve two or more parties working together to finance a real estate project, often with one party taking a majority stake in the project. This type of financing can be an effective way to secure funding for larger projects without using personal assets or taking on debt.

Important Loan Ratios

When it comes to investing in commercial real estate, understanding the key loan ratios is essential. Two of the most important ratios are the Loan-To-Value-Ratio (LTV) and Debt-To-Service-Ratio (DSCR).

The Loan-To-Value-Ratio (LTV) is calculated by dividing the amount of the loan by its purchase price. Those with lower LTVs will generally qualify for better financing rates. The LTV ratio is also used to determine how much capital will be required from the investor. For example, the LTV for a $70,000 loan on a $100,000 property would be 70% since $70,000 ÷ $100,000 = 0.7.

The Debt-To-Service-Ratio (DSCR) is calculated by dividing the property’s annual net operating income (NOI) by its annual mortgage debt service. A DSCR of more than 1 indicates that the property has positive cash flow, while a DSCR below 1 means that the property has negative cash flow. When it comes to real estate financing, lenders usually seek a higher DSCR to ensure cash flow. For example, a property that has $100,000 in NOI and $70,000 in annual mortgage debt service would have a DSCR of 1.42 since $100,000 ÷ $70,000 = 1.42.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.

How to Start Investing in Commercial Real Estate

Commercial real estate may deliver the appreciation and stable returns most investors are looking for, even during economic uncertainty. The volume of capital invested in commercial real estate further demonstrates its proven worth as an asset. It also may offer investors a more diversified, balanced, and scalable approach to real estate investing. Whether you’re considering investing in an apartment complex, office space, light industrial, or a self-storage facility, here are a few tips to get you started in commercial real estate investing.

1. Establish Your Goals

When it comes to investing in commercial real estate, it’s important to establish your goals beforehand. Consider why you are investing in commercial real estate – are you looking to build long-term wealth or seeking a shorter-term return on your investment? Additionally, think about what kind of returns you are expecting and the level of risk you are willing to accept. These are all important questions to ask yourself before making a commitment to a commercial real estate investment. Taking the time to answer these questions will help you make an informed decision that is tailored to your financial goals.

2. Make a Plan

A successful long-term investment strategy requires careful planning. By mapping out your plan, you can ensure that you stick to your goals and don’t make decisions impulsively. This includes deciding what your buy box looks like – what types of assets you want to focus on and invest in. Knowing this ahead of time can help you stay focused on the right investments while also making sure you are not overextending yourself financially. Planning your strategy out in advance is key to creating a successful and sustainable investment portfolio.

3. Find Deals

When it comes to finding commercial real estate deals, relationships, and networking are key. Developing trust and credibility is essential to any successful real estate investment, so build strong relationships with brokers. You can start by following through on what you say you’re going to do and running your business professionally. Building a reputation with brokers as someone who does what they say and keeps their word will ensure you’re always at the top of the list when it comes to new deals. Take the time to nurture these relationships, and you’ll be sure to find the best deals for your commercial real estate investment.

4. Perform Due Diligence (or Find Someone Who Can Help)

Performing due diligence on a property requires a great deal of education, training, and professional opinions. It is important to remember that the investment may be portrayed in a positive light, but it is up to you to assess it with clear eyes and decide if the value is truly there. This can include research into local markets, investigating the area’s future development potential, understanding the building’s history, inspecting the property for structural integrity, and consulting with local experts for their opinion. Taking the time to perform due diligence is essential to ensuring that you are making a smart and informed investment decision. But what do you do if you find a deal where the due diligence is beyond your abilities? This is where networking is key. Partner with someone who is knowledgeable or brings in an expert to show you how it’s done.

What is next?

Finding the right financing for a commercial real estate deal is critical to making your project a success. In our next blog post, we will discuss different types of funding available to real estate investors and entrepreneurs, as well as provide insight on how to secure financing. With the right financial support, you can tie all the pieces of your deal together and take your project to the next level. Stay connected with us to learn more about the different types of commercial real estate funding available and how you can secure it for your own projects.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.Categories

Why You Should Invest in Commercial Real Estate

What comes to mind when you think of real estate investing? For many, it’s rehabbing single-family homes or managing rental properties. And while these are great investments, many investors may be missing out on opportunities in commercial real estate.

Why diversify into commercial? Here are three reasons why you may consider this asset class.

Income Generation

Commercial real estate (CRE) has the potential to offer consistent income, often higher than traditional rental properties. The earnings potential is one of the most alluring reasons investors transition from traditional real estate investments into commercial properties. Where single-family homes see annual returns between 1% to 4% (at best), commercial properties often see annual returns off the purchase price between 6% to 12%, far outperforming smaller asset classes.

Hands-Off Maintenance

When you rent a single-family property (or even a multifamily apartment complex), repairs and maintenance of the property’s condition are always the investor’s responsibility. With a large enough rental portfolio, maintenance management can be costly and time-consuming, continually pulling investors into the daily management of their assets. While there are variations, CRE often operates under Triple net leases. With a triple net lease, the business renting the property is held responsible for remodeling, repairs, and general maintenance, while the investor is only left making the mortgage payments. Even common areas of the property can be improved through CAM charges (common area maintenance fees), making the expenses and the process of maintaining a property simpler for CRE investors.

Hedge Against Inflation

Defined as a decline in purchasing power over time, inflation has driven many investors across asset classes to consider how they can best protect (and grow) their hard-earned cash. CRE has been known to generate consistent cash flow, making it a reliable hedge against inflation. Why does commercial real estate continue to perform, even during economic instability? Commercial properties are closely tied to consumer markets, where rising consumer prices quickly correlate to rises in rents and values in CRE (lease agreements can even include annual base-rent adjustments tied to CPI). Commercial real estate is built to be quickly adaptable to consumer markets, making it historically a cushion against inflation that investors can count on.

These are only a few of the benefits CRE can offer. Despite the increases in economic uncertainty, commercial real estate provides exciting opportunities to earn more cash, spend less time and money on repairs, and hedge against inflation. These key differences may help investors take their business to the next level.

To learn more about Investor Loan Source, visit our website or follow us on LinkedIn, Facebook, and Twitter. To apply for a loan, click HERE.