Commercial REI investing material for a newbie?

12 Replies

Hello BP!

I'm still a newbie dialing in my asset type to invest in but I can say with confidence after several months of intense learning I'm leaning towards non-residential commercial (likely NNN leases) or land + development. Why? Because I'm a full time working professional with no interest in managing private tenants, doing rehab work, or the like. I am interested in long-term buy and hold commercial leases with relatively straightforward terms. I realize this means I may need to go the passive route first and build more capital before venturing out on my own.

I'm seeking to understand ways to evaluate and underwrite commercial deals (to include due diligence), ways to add value after purchase (if possible - not just through appreciation), and the best approach to engage and add value to those who are already doing this (I've already begun to reach out locally in Md without success so far).

What books/podcasts/forums do you recommend to get me going in the right direction? 


Thanks in advance for any and all feedback!

-Jason

@Jason Padgett have you considered investing in multifamily apartment syndications? You can invest passively with a Sponsor into an apartment complex, receive regular cash flow as well as returns on the profit from the sale, and you as a Limited Partner have zero management responsibility.

@Jason Padgett there’s not much info out there on commercial especially value add and ground up. I learned by doing starting first as a GC then evolving to developer. 

I am a huge fan of commercial and focusing on that strategy right now. 

Value add comes from growing rents through remodeling and renovating the buildings, expanding buildings, making use of residual land, improving tennant mix, anchors and class of tenant.

@Chris Coleman yes, I do realize this may be an appropriate start but I have yet to began looking into those types of investments. Any suggestions on where to begin?

Still, I do enjoy the allure of finding a great deal. So my hope is to continue educating myself and eventually move away from purely passive approach. I understand they are not mutually exclusive.

Thanks!

@Greg Dickerson thank you, that's what I've found...a lack of good information get started. I'm also a fan of "doing" and have already started running numbers everyday to get better at recognizing potential deals. In tandem, I'm continuing to seek partners to demonstrate what I can bring to the table besides just $.

Thanks again.

@Jason Padgett you are on the right track with finding a partner/mentor to teach you the ropes when it comes to development and learning costs, because there is no straight answer, each deal will be slightly different. As for commercial investment acquisition, there is a website called adventuresincre.com, great website that has a ton of underwriting models and they have web tutorials on how they are made and how to underwrite. It gives you a base so you can eventually create your own models but gives a good grasp of what you are looking at from a numbers sense. Everyone is right that development and commercial really is a learn as you go type of industry.

Partners and reaching out to seasoned professionals is the way to go. Of course we all make mistakes and you just learn to adapt and know for the future what to do and not do.

For development a very easy read that is more case study inspired is a book called “the real estate game” dives into the mind of a developer and what he looked for In deals

@Jason Padgett I work for some developers that pickup Vacant Land and develop multi-use buildings, multi family, commercial, etc. I work from the developer's side providing financial lenders, appraisers and city grant program specialists with development pro-formas, floor plans, etc. I hire GC's to build what we design and ensure that we are on track to hitting our ROI targets. I'd be happy to share information, baseline knowledge - send me a DM!

Jason - this is a bit of a specialty for me right now and I'm actually completing development of a 10,000 sq ft facility that I acquired in Jan 2018.

It was listed on the MLS as a 1 acre parcel with a manufactured home. I knew the highest and best use of this property on a commercial corridor was going to be office of some sort. I acquired the land and began speaking with various economic entities in the area. They confirmed that they needed more space, so I felt comfortable moving forward.

I got connected with a Realtor that specializes in medical commercial space. Within a month or two of working with this broker, I had a 7 year tenant leasing 70% of my space before we turned dirt.

I'm actually in the process of writing a book to capture the basics of getting started in TRUE commercial space and would love your feedback in the future. I think commercial is one of the best asset classes because of the long-term nature of leases, less wear and tear on the buildings, and the ability to pass along costs via NNN leases. By the time my first lease expires, and they have an option to renew, the building will already be half paid for because I'm choosing 15 year amortization.

The best thing that you can do is find what are known as "Economic Development Corporations" in your area. They may not be called that specifically, but they are a semi-government organization that works closely with city council to make sure that they are encouraging and helping economic growth in the area. They are aware of businesses and other opportunities that want to come to the city and they can help connect you with the companies that need space. This is how I was able to move forward without speculating very much. You should also get familiar with the planning and zoning maps that your city offers so that you can see where they are projecting the growth to go and how you can plan to be in the growth path.

@Michael Jones this is great feedback, thank you. And congrats on your current development, this is exactly the type of investment I'm looking to do within the commercial space. Existing structures through NNN leases or (as in your case) with land + development are most attractive to me. Looking forward to reading your book!

Be sure to carry significant reserves for a commercial building. You will have much higher bills with vacancies, roof, legal, etc.

I think starting with an existing building would be easier than new construction, but a lot of projects in Texas are making great money just due to the environment.

Here are a few of the CRE related podcasts that I like:

The BP podcast

Joe Fairless - Best Real Estate Investing Advice Ever

Kevin Bupp - Real Estate Investing for Cash Flow

Peter Harris - Commercial Property Advisers

Jake & Gino - Wheelbarrow Profits

Spencer Taylor - The Commercial Connection

Best,