Today let’s talk about some of the tips that we’ve given our commercial real estate customers over time.
On the website, you can see how we are active in working with both residential and commercial real estate. But these two different types of real estate are critically different in a number of ways.
Commercial real estate has to do with the lease agreements that companies use to operate stores in each location. That said, there are quite a few things to know about how commercial real estate works when you’re trying to put together a buying strategy. Trying to invest without these “keys” often spells trouble. Some of the jargon can be confusing to work out, too, which is why it’s important to work with a good firm.
The essential value proposition for most commercial real estate is that the investor will get rents from a commercial tenant according to an established lease.
When that lease ends, there is no additional guarantee of money coming in until the owner makes a new lease with a new tenant, or, alternately, the same tenant renews its lease.
So, in the market, the terms of the lease are very heavily valued in terms of a purchase price. In other words, the commercial market contemplates this value thoroughly.
Now here comes the second important point that we often talk to buyers about. It helps in making those choices about how to get gains for a real estate investment on the commercial side.
Different types of commercial real estate are built differently. Some have more multi-use buildings, where it’s easier to move a new tenant into a space previously occupied by a different store.
But increasingly, many of these larger chains of stores, pharmacies, supermarkets, fast food restaurants, and other business locations are being fine-tuned to fit a very particular tenant. If that tenant leaves, the value of the property can be compromised because of the special infrastructure that’s out there.
In some cases, owners actually go as far as demolishing an entire building to rebuild for a new tenant. There is an amazing amount of waste involved in this, and that market reality is something that’s critical for stakeholders in these deals to know about.
Don’t just settle for surface dealing commercial real estate. Talk to Dillingham and Toone about what your goals are, and we will help you to come up with a plan that works for your investment strategy.