Henry has inherited some money, got a big bonus or just won the lottery and decided to invest in real estate.
His next decision is where to start and what type of real estate to invest in. Henry must now decide to specialize in residential or commercial properties. Each requires a separate set of evaluation skills.
While many investors may begin by investing in both, most will move toward one or the other. If he moves toward commercial real estate, he will eventually settle on one of the five investment types: industrial, office, retail, hospitality or commercial land. Many investors will invest in more than one type but eventually develop a skill set that allows them to better evaluate one or the other.
Residential investors will purchase based on comparing the sale of similar properties in the area and the projected monthly rent. Commercial investors will value a property on the income and potential value from an investment perspective. Commercial investing is always a numbers game, most often based on ROI (rate of investment).
The ROI may be calculated on the” out of pocket” Method. For example, if a property is priced at $100,000 a 20% down payment is $20,000 and let’s say the property requires $50,000 in repairs and with that it is now worth $200,000. The ROI is $130,000 ($70,000 out of pocket expenses verses a new value of $200,000) or 65%, Investment Gain Vs. Investment Cost.
Some of the best investment returns I have in seen is in commercial land where something happens to change the value to a potential user. One investor I represented owned land where a national company wanted to build and sold for a 900% gain after owning for just two years. Another wanted a corner location and paid $40 psf for the land.
The purchase of commercial buildings usually takes several years and a significant increase in rent to yield a high return while a small inflation increases the value and the tenant continues to pay down the mortgage.
On the Local Scene
WELL ROAD, West Monroe between Cypress Street and I-20 has become a magnet for new development. On the West side Circle K has started construction on a new and larger Convenience Store.
On the East side a new hotel is under construction with an entrance through the Texaco Station parking lot or down Vernon Lane.
Also, on the East side watch for a large new development on the vacant land at the exit ramp.
Bill Roark is a Commercial Associate Broker at Tri State Properties and may be contacted by email to email@example.com.