Investing comes in many different forms, for example you may purchase stock in one of your favorite companies, or acquire a tangible investment, such as gold or silver, hoping the price skyrockets. Figuring out where to invest your money can be a difficult task, of course you want high returns on your investment, and minimal risk. This article describes the search for Commercial Real Estate (CRE) investment property that has a substantial rate of return, and finding it before one of the many other investors. In a sense, it is about how a CRE broker can give you the best chance of finding that “diamond in the rough.”
A CRE broker is vital to helping determine how much yield a property can provide, which sometimes takes a creative mind. A major trend in CRE investing is converting space to accommodate different uses. We see this trend in once thriving shopping malls, being transformed into climate-controlled storage, distribution warehouses and office space. Reconfiguring a space allows the landlord to appeal to different uses that are thriving in today’s market.
- A main focus for CRE investors is return on investment, or ROI. ROI determines the amount of profit a property makes within a year, divided by the purchase price, usually viewed as a percentage.
- Another main focus of a CRE investor is a CAP rate, or capitalization rate, which is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on real estate investment property. The CAP rate is found by dividing the NOI by the current market value of the asset.
- A third component investors look at when purchasing a property is cash on cash return. Cash on cash return measures the cash inflow of the property, divided by the total amount of the cash invested. All of these equations will be analyzed by the CRE broker when searching for the right property for their client.
With a high number of buyers, scooping up properties just days after they are listed, we find ourselves in a highly competitive market, or commonly referred to as a seller’s market. This market limits the amount of high yield property available for purchase and makes it nearly impossible to find the return on investment needed for a suitable investment. This is mainly due to the amount of cash within the market, with more buyers in the market, there is more money to be placed into CRE. In this case, that money is going to the sellers, contributing to the seller’s market. With a vast amount of buyers and a high money supply, the best way to increase your chances of securing a strong investment is to use an expert.
Acquiring CRE can be a cumbersome process that requires a CRE expert. CRE experts are networked with other CRE brokers, investment property owners, and business owners. With these relationships, your CRE broker can find the best fit for your CRE investing standards. When making the decision to purchase a property that is worth hundreds of thousands of dollars or even more, it is necessary to use an expert.
Real estate brokers and agents have inside knowledge and vast networks that will give you the best chance of securing a high yield property. These experts are constantly watching the listing sites and reaching out to other brokers, seeking out the best fit for their client. When buying, a broker will allow for a buying process with little hassle, handling negotiations, and keeping you updated through the duration of the process.
Mitigating liability is another reason to use a seasoned CRE broker. When purchasing an investment property, a broker will know the fair value of the property, from years of experience. With that experience comes knowledge of different types of buyers. Brokers understand that different properties suit different buyers, for example, some buyers may be okay with a property that may need a little work, but others want tenantable space. Some people have certain types of properties they want to stay away from, and a broker will be able to work through those preferences to find the right deal.
Article by Luke Rogers of Q4 Commercial Real Estate.