Don’t Assume Commercial Investing is Out of Your Reach

10

I am in the business of buying, fixing, leasing and selling single family detached residential properties. I’ve been doing this for 8 years now and have the model down to a science. Many investors that we work with ask me if I would sell multi-family or commercial properties, and my standard response is that we stick to what works … and for my day to day business, that’s single family.

With that said, I have personally invested in two commercial properties this year. Granted, I didn’t have much experience with commercial before this time, but what I’ve found to be quite interesting is the ease with which I’ve been able to finance and purchase these deals.

Commercial Purchases

The first property I bought was a 10,000 square foot office/warehouse combination. This purchase was made in conjunction with one of my vendors who plans to lease a good portion of the building. Interestingly, the cash flow is stronger than an average single family deal and the financing was much easier to obtain than a conventional loan. For this particular property, I was able to work with a local bank on the financing side (with terms not too different than a conventional loan). One of the big differences, however, is the personal underwriting style of a local bank – in stark contrast to the rigid, in-the-box approach that conventional lenders take.

The second commercial property I just closed on is a large 8 acre storage facility. This property had been foreclosed a year ago and we were able to pick the property up for half of what it was financed for just a few years ago. Again, I was amazed at the kind of financing that was available for such a considerable purchase.

For this particular deal, we were able to obtain an SBA loan with terms and down payment requirements that were even more favorable than a conventional, non-owner occupied loan. To get the loan, we worked with our local bank again as well as an SBA representative that the bank brought into the financing process. While both the bank and SBA needed documentation, it was really no different than what would have been required on a conventional loan.

It’s Not as Difficult as you Might Assume

With the help of a good commercial broker, it was a very smooth process. There were a few additional inspections and considerations, but not nearly as daunting as one might think a multi-million dollar purchase would be. While the scale of the purchase is much larger, the fundamentals really aren’t any different than a single family investment.

Don’t get me wrong, I’ve never been a proponent of getting into commercial just because it seems like the natural progression from single-family. Some guys get caught up in the appeal of the larger deal, but end up crashing that much harder when things don’t pan out. However, if a commercial deal presents itself and the numbers pencil out very strong, it is good for investors to know that it’s not as difficult as you might assume to pull the deal together. Find yourself a good local banker, build a relationship and put yourself in a position to move quickly when that sweetheart commercial deal falls in your lap!

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

10 Comments

  1. While I have friends and family who are extremely wealthy due to Commercial Investing, mainly Triple Net leases, my personal experience was quite the opposite. After my last commercial property, an 8400 square foot office building, was vacant for 3 three years, I decided to sell it. that was in 2010. Coincidentally, the property is STILL vacant and I purchased 5 SFRs with the proceeds. Those five SFRs have brought in over a quarter of a million dollars while the buyer of my commercial property has brought in ZERO and had to pay property taxes, insurance and upkeep, to the tune of over $10,000 a year.

    So while commercial can be very good, it can also be very bad. I can show you many commercial properties in Orange County, CA that have been vacant for DECADES.

    • Jeff Brown

      That’s what I caution investors about all the time, Mike. On the other hand, the storage facility Ken bought is, in my experience, one of exceptions to my ‘no commercial’ rule. I bet he does exceptionally well with it.

  2. commercial loan on triple net net lease is easy. reason, lender is giving loan to the credit of the tenant, and do even check your credit. Also, loans can be 70-90% LTV, check Google for CTL and CMBS loans.

  3. I’ve been down the commercial path twice in as many years, but the factor that has halted me each time “sales tax”. Here, if I purchase a 12-unit residential apartment building {technically still commercial, but the special class of residential} for $800K, I pay $800K. If I were to purchase a strip-mall or office building at the same price, I would pay $800K plus $104K in sales tax for a total of $904K.

    If you get past the upfront sales tax, commercial properties have their advantages and you are permitted input tax credits, so eventually, you will recover a large portion 104K in sales tax … if you can get past the extra 13% at close.

  4. In my opinion it comes down to knowing your market. If you understand SFR, then invest in SFR. If you understand the office market, then invest in the office market. I understand commercial property after being in it for over 40 years. I bet that there is a rental rate that the office building that Mike talks about will rent. However, if you don’t understand that building and know what it takes to rent it by all means pass on the deal. Knowledge about your business is the key to any of your businesses.

    Ken, you are absolutely correct that commercial property is very easy to buy, with Triple Net Properties being the easiest to get loans on because the Bank is mainly loaning on the credit of the tenant. However, research your market and know what you are getting into before you purchase.

  5. I’m pretty new to Bigger Pockets and have mainly been reading posts and listening to the podcasts. I’d like to add that they are extremely educational, informative, and may I add (FREE),, I like free,,I’ve spent thousands of $$$$ on guru products for information and here I get more info for free. I’ve been focusing on SFR. As of this past week through my marketing, a Very Motivated Seller calls me stating that he needs to liquidate his 13,000sqft Building and ask for my assistance in marketing it for him. (He’s in his 70’s, ready to retire, and tired.)

    This particular Seller comes from my Absentee Owners List. He resides in LA California and I, in Mpls, MN. I speak with him on a regular basis. He’s given me permission to market this property on a COD, Seller Finance, or Negotiable. The building is newly updated, Cash Flowing $13,000/mo. One business occupied and extra space, plus more.

    Since I have never flipped a commercial building, which would be the best way to structure and market property that he has given me permission to sell along with lender’s -bank Authorization To Release Information? All advice will help greatly,. Thanks in advance,,

    • CORRECTION ON SQUARE FOOTAGE< $11,000/mo. Cash Flow,
      Well actually there was a mis-calculation in square on the property mentioned in my 1st post. The square footage is 30,000sqft. Building that my Seller is looking to liquidate.

  6. Ayodeji Kuponiyi

    Thanks for sharing your experience via your article Ken. I’ve been hearing that buying commercial isn’t as hard as people may think because it depends on the income that the property brings in. I’m reading all I can so that I can be prepared when the time comes.

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