If you’re me, you always want to be learning more, doing more and mastering new things…
And if you’ve been successful in residential property—and by successful, I mean you’ve done the splitters and the multi-family build outs, and you are well past the million-dollar net worth mark and then some—you may want to go bigger.
You want and need to work on bigger projects and use new strategies…and you have the experience, capital and credit capacity to make it happen. That’s what my Platinum and Ultimate groups at iLoveRealEstate.tv are all about! Making it happen!
They don’t stop learning and they don’t stop making bigger deals because they know that commercial properties are where the “Big Boys” make their MEGA-MILLIONS.
Are you ready to transition from Millionaire…to MEGA-MILLIONAIRE?
Are you are ready to play with the BIG BOYS and “Go Commercial.”
Commercial is definitely where the BIG MONEY is really made!
Not only will you make a higher yield percentage on rents—anywhere from 8 per cent to 15 percent or even higher in some cases—but with much larger amounts of money in play, your profit potential is much higher than your average PPR turnaround deal.
When you’re talking about five, 10, 20 or 50 million dollars–or even more–in any given commercial deal, the MILLION DOLLAR PAYDAY is not only possible, but also quite probable.
By going commercial, you will definitely get more for your investment dollar. But on the other hand, you have to know the rules of the game, which are just a bit different than they are with residential properties.
But there are also differences in commercial deals that you need to be aware of…
For instance, loan-to-value ratios are lower in commercial real estate than they are for residential properties. Some of the LVRs can be as low as 50 per cent, but normally, figure anywhere from about 65-70 per cent.
This means that you’ll need to have a larger chunk of capital to put down, but if you didn’t have it, you wouldn’t be doing it, would you? There is another factor to consider, and that is the overall state of the economy and the trend going forward.
In the last downturn, for example, commercial property got hit hard. In a slowing economy, businesses cut back. When they do, they stop leasing office space, or less of it anyway and retail centers lose stores.
The same goes with industrial commercial properties. In a recession, factories manufacture less and so industrial properties take a hit just like office buildings and retail centers do.
The very good news is that we since we’re only a year or two out of the last one, we shouldn’t be seeing another economic downturn for quite awhile. But even so, I strongly recommend that you have very low debt in your portfolio before moving into commercial.
You should also KEEP A BALANCE BETWEEN YOUR RESIDENTIAL AND COMMERCIAL PORTFOLIOS. This, and your low debt ratios will protect you in the event of a downturn in the commercial market.
Whether it makes more sense to get into industrial or office properties will depend on several factors. It really depends upon the local economy where you are investing, doesn’t it?
Should you buy an industrial property? A professional office building? Or how about a retail centre?
Whichever you buy will depend upon the local market and economy. This means you need to do your homework…But that shouldn’t stop you!
Typically, though, every town has its own epicenter of business, usually found on the main street down town. A little further out is where you will find the retail shopping centres. And then around those areas are where the professional office buildings are likely to be or will be built.
If the town centre and retail centers are built out and are busy, but there are few office buildings around the shopping centers, it may be a ground floor opportunity to build or buy one there.
But before you jump in with both feet, make sure that you know the market for commercial properties and the economic factors impacting the rents and the demand for your commercial property. Be certain that the rents are right for the area and the building type. Know the development plans of the local council and the demographic, business and industrial trends for the area.
My more advanced students have been very successful in commercial real estate investing by applying the due diligence and market analysis techniques they’ve learned at the higher levels of iLoveRealEstate.tv seminars. As you progress in your real estate investing journey, you will be successful, too!
When you get to the nub of it, the lease agreement you put in place with your tenants is what will make all the difference in your cash flow. Typically, the tenants will pay all the outgoings such as insurance, maintenance, utilities and all the rest. All of these things need to be in the lease.
The same goes with any improvements to be made. If the tenant wants to knock out a wall, add workstations, change the lighting, add more electrical outlets or whatever else, all the costs are to be borne by the tenant. This is also spelled out in the lease—if your lease is a good one.
And how should you go about getting the best lease? You spend the money to hire a solicitor who specializes in commercial property leases. Your solicitor should also be familiar with the area and the type of commercial property you’re getting involved with.
The right lease will maximize the rents and thereby maximize the value of your commercial property. Remember, the higher the rent your property brings in, the higher the value of the property. That is, there is a direct correlation between rent and property value.
In commercial properties, the rental income is measured by the CAP RATE. If a commercial property is priced at say, $5 million, and the Cap Rate is 10 per cent, then the rental income is 10 per cent of the price, or $500,000. This means that by increasing rents, you increase the value of the property!
Now how do you feel about hiring that solicitor who’s an expert in commercial leases in your area? It’ll be worth every penny and more!
One last point about getting into the commercial property game is that there tends to be much less competition than there is in residential property. This is a definite advantage when it comes to negotiating purchase price.
Are you ready to make the move into commercial property?
Are you ready to graduate FROM MILLIONAIRE TO MEGA-MILLIONAIRE?
Many of my Platinums and Ultimates certainly are and have done so.
What about you?