First-time opportunities for commercial real estate out of state?

Question

I'm just getting started researching types of real estate, and commercial real estate seems to be the most appealing to me. At least, more appealing than residential multiplexes and SFR. My only real estate experience is buying my own home in the SF Bay Area.

Does anyone have advice for a first-time investor for commercial real estate? In particular, is there a specific type of real estate that can be managed efficiently (semi-active or passive) out of state, as I'll likely have to be out of CA due to the prices.

I was originally thinking 5+ multifamily, but then I saw other opportunities related to mobile homes, retail space, and even storage space. The goal would be to buy and hold for the first time and get some cash flow. Then possibly trade up to bigger and better once I'm more comfortable with the ins and outs of running the investment. Am I getting in over my head?

Thank you in advance!

Theo Hicks · Answer

Based on your goal to continue to grow an out-of-state business, you'll be able to do so faster buy acquiring value-add real estate deals. Typically, this is an active strategy, but you can make it more passive by building out the right team. Find a few brokers to send you deals. Find a solid property management company to manage your deals, making sure you do weekly calls to get updates. You might want to consider getting a mentor as well to help you with the gray areas, as well as underwriting and due diligence.

Strom Lee · Answer

One other thing, is it better to start out on small residential and working my way up, or just jumping into commercial? What things would I miss out on if I skipped that “stepping stone”? Or is it completely different, like learning to fly a plane vs drive a car?

Theo Hicks · Answer

@Strom Lee exactly. Something that you can force appreciation on. So buy for X, invest Y, and the new value is Z. As long as Z is greater than X+Y (i.e., the total project costs), then you've created free equity. You can then refinance or sell, pull out all or the created equity, and buy another deal.

Alina Trigub · Answer

@Strom Lee

Passive investing offers tax benefits. Whether they’ll be the same or different will be determined by your CPA as I don’t know your full personal situation.

Being active investor essentially entails managing a business. So think of it from this perspective to determine the best fit for your case.

Best!

Michael Parker · Answer

Hey Strom! If you want to be more on the passive side, you could also look into Triple Net commercial properties. If you go on LoopNet and just search for a Walgreens for sale or something like that...it's about as passive as it gets. Triple net just means that the tenant literally pays and takes care of EVERYTHING. You still have to make sure you find a good deal, but once the deal is set its pretty dang passive. Hope this helps!

Parker

Strom Lee · Answer

Thank you!

@Alina Trigub, I have lived in and landlorded my parents' property in the past, so I have _some_ experience with active management, but I feel that's a very small introduction to the ups and downs of management. I'm still deciding how active I want to be, as I see myself continuing to work my day job for the foreseeable future. Though as always, the goals are to get away from that life. Does passive investment carry the same tax benefits?

and @Theo Hicks, does this mean buying something that needs rehab, like BRRR? I'm definitely interested and willing to at least try.

Alina Trigub · Answer

@Strom Lee

Ideally you'd want to start by making a decision on whether you have the bandwidth AND desire to be active?

Here's a post that should give you some guidance:

https://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv

Once you make such decision, you'll be able to narrow down your focus a lot faster as to which route to take.

Taylor L. · Answer

If you're looking for passivity, then syndications are the way to go. They're about as passive as it gets in real estate, particularly while having the ability to produce great returns (with the right team and property). There are syndications in multifamily, self storage, mobile home park, retail, office, you name it.

When you buy a multifamily on your own, you're still going to be managing your property manager and making sure they're doing right by you and your tenants. Nothing wrong with that, but it does take more time than syndication investing.

Turnkeys are also an option, but most of them are single families. Turnkey companies find properties, do the rehab, get property management in place, and sell the property.

First-time opportunities for commercial real estate out of state?

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