Office and warehousing can be a powerful combination. 10-30% of the building is designated as commercial or office space, and you can offer this to attract a diverse tenant.
Office and service combination, 20-60% of the building is designated as an office and service area. With this, it is best to avoid a manufacturing base tenant.
Large manufacturing facilities are generally available when a business closes or moves. This is often an excellent opportunity for owner financing and development for higher use.
Research and development parks are designated areas for companies to conduct research. Most are located near universities and might be utilized to develop new products.
Industrial Parks, be sure you know if all buildings and land are included. Allow plenty of time for your due diligence.
There are several types of commercial office buildings, and the definition can vary by location, especially urban v. suburban. More stories are required in the urban areas.
- High-rise buildings are considered 25 stories or more and located in large cities.
- Mid-rise buildings are 8-25 in the Business District or 4-6 units in the suburbs.
- Garden offices are buildings with a courtyard and 2-6 stories with open space between the buildings. This may be an excellent place to begin investing in commercial real estate as there is good cash flow.
There is a class system for commercial buildings:
Class A buildings are in high-income areas and are less than ten years old. The tenant has been in business for a minimum of 5 years and has been profitable for at least two years. NOI 2.5 times rent.
Class B buildings are 11 – 18 years old and in middle-income regions. They are clean, safe, and modern with good amenities. The tenant has been in business for at least three years and has been profitable for at least one year. NOI 3 times rent.
Class C buildings are functional with few amenities. Rent rates are determined by location and are at the lower end of the price range. Personal & business income is 2.5 times rent.
Class D buildings are typically not maintained well, and rent rates reflect that. There is a wide range of tenants in D buildings.
It is possible to purchase one class building and upgrade it to another using renovations and capital improvements. Forced appreciation can be a very profitable strategy in a neighborhood and area that is improving.
Multi-Family Properties can be a natural progression for investors who have enjoyed success with single-family investing. Multi-family properties are available in many sizes, styles, classifications, conditions, and price ranges.
5-25 units: This can be a good comfort area for newer investors. As always, due diligence is essential. Include the expense of a part-time property manager. 60 or more units: You will need a property manager on site.
Garden apartments have less population per square foot. There is more actual land and a lower density of tenants.
High rise buildings are taller and equal higher rents. Be sure to have a mix of good tenants on the upper floors.
Commercial real estate can be a fantastic place to invest if you have the right skills. With the addition of creative financing, you can build a very desirable portfolio of cash-flowing properties faster than you could have imagined.
Always research to understand the return, yield, and risks for any project.
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