When it comes to investing, real estate has always been a smart way to make your money grow. An area open to virtually anyone who is willing to do some research and learn the market, it can be a very lucrative way to make your money work for you month after month. However, as with any type of investment, commercial real estate investment can be complex. Therefore, prior to sinking any funds into Los Angeles commercial real estate, there are some hot tips you'll need to keep in mind.
High Income Potential
Since commercial property can include office buildings, warehouses, apartment complexes, retail buildings, and much more, the possibility of achieving a high income level is quite high. Yet with each type of property, there are different nuances involved not only in managing, but also in receiving the highest income possible. The good news in this case is that a commercial real estate development has an annual return of up to 12 percent, which is substantially higher than the average annual return of four percent for residential single-family properties.
Fewer Hours of Operation
As any real estate investor who deals in residential properties knows all too well, it's quite common to find yourself being called at all hours of the day and night for a variety of issues. Whether it's a clogged toilet, a leaky faucet, or a pipe that has burst, landlords of these properties often have one problem after another. However, for those investors who choose to specialize in Los Angeles commercial real estate, they find these properties are usually much easier to own and manage. In fact, with almost any commercial real estate development, businesses are closed at night, and except for a rare call regarding a break-in or fire alarm, most investors dealing with this type of real estate development can look forward to a good night's sleep.
Professional Relationships
When compared to residential real estate properties, commercial real estate investment allows owners and tenants to maintain the utmost of professional relationships. Since most commercial properties are heavily in the public eye, tenants and owners have a mutual interest in maintaining the property. After all, by maintaining and improving the value of the property, the overall investment value almost always rises. In addition, owners of commercial properties usually form a corporation or limited liability company, better known as an LLC. By doing so, landlords and tenants generally maintain a business-to-business relationship, helping both sides keep a relationship that is both professional and courteous.
Objective Price Evaluations
Unlike some properties whose true value may be hard to determine, most commercial real estate properties are able to be priced and evaluated in a very objective manner. Since a potential investor for a commercial property can request the current owner's income statement, it is a great aid in determining a fair price. In cases such as these, if the current owner who is selling the property has hired an experienced and knowledgeable broker, an investor can often come out quite well on the deal. By setting the asking price at a level which allows the potential investor to earn the standard cap rate or higher, buying and selling these properties can be much easier than residential properties. In many deals where residential properties are involved, prices can be greatly affected by emotions coming into play, which can not only cut down on the investor's rate of return, but also lead to deals taking far longer to complete.
Flexible Lease Terms
Along with enjoying a higher rate of return on their investment, most commercial property owners love the fact that lease terms for these properties are far more flexible than those associated with residential properties. When owning residential properties, landlords are almost always dealing with issues regarding security deposit limits, rules of termination, and other related matters. Along with the flexible lease terms, most commercial properties have what are known as triple net leases. Freeing the property owners from paying any expenses on the property, investors can find themselves having no expenses other than the mortgage. In most cases, large retail chains prefer these types of leases, allowing them to have more control in how their properties are maintained. While giving them this advantage, investors are able to own properties that are low-maintenance income producers.
While managing any type of real estate property can have risk associated with it on an almost daily basis, most investors agree that a commercial real estate investment offers many more benefits than those found in residential properties. Whether it's enjoying a high rate of return, having far fewer emergencies in the middle of the night, or maintaining relationships with tenants that are extremely professional, investing in Los Angeles commercial real estate can turn out to be one of the best deals you'll ever make.