Ever wonder about commercial properties and how to invest with them to make money or achieve monthly cash flow? REIClub has tons of information for real estate investors to get started investing in Commercial Investment Property on our blog.
Here is some basic Commercial real estate investing tips that are helpful for real estate investors interested in this type of investment property.
What kind of properties are considered Commercial?
- Trailer/Mobile Home Parks
- Bulk Houses
- Strip Centers
Important Terms For Commercial Real Estate Investing
- CAP Rate = higher the better, at least 8%. Calculated by taking the income and deducting all expenses other than the mortgage, then dividing that into the purchase price
- Gross Income = rents + extras
- Effective Gross Income = Gross income less average vacancy
- Operating Expenses – taxes, insurance, utilities, repairs, management costs etc. but NOT including Debt Service
- Debt Service = Mortgage payment
- Positive Cash Flow. Cash flow = Monthly Profits
- Cash on Cash Return 10% or Greater – how long does your down payment come back?
How To Analyze a” Commercial Deal”
Annual Income $57,600
Annual Expenses -17,000
Annual Mortgage -16,105
Annual Cash Flow $24,495
Here are some great investing guidelines & tips to use when evaluating a commercial real estate investment deal:
- It MUST cash flow or don’t look at it. At least $100 per unit per month at no down payment
- If you do not have that much cash flow you have an unrealistic seller or a property that is upside down
- Proformas are best case fantasies. Unrealistic and unreliable
- Operating expenses from sellers are understated. Verify every number
- Taxes can go up on sale – call assessors office to check if reassessed upon sale
- Get tax return from accountant and certified by accountant as true for real numbers on income
- Look for separate utilities
- You can fix a property but not location
This was a brief introductory into Commercial real estate investing and you can always access are FREE Commercial Investing Training Videos to pick up more information and tips on how to invest in commercial real estate.
Hope you have a great investing week!