Your Doorway to Commercial Property. FREE to List!

Most real estate investors get started buying single-family houses, probably because it’s what we’re the most familiar with. But whether you’re going straight to the big time or are ready to advance from houses to larger (and more profitable) deals, here are 10 time-tested guidelines to follow that will help you have more success.

Tip #1: Think Big

If buying a 5-unit apartment requires you to get commercial financing, which is more of a hassle, then why bother? I would recommend buying properties with at least 10 units. Remember that the more units you buy, the cheaper they are per unit. Also, Dave Lindahl has been quoted as saying, “It’s no harder to manage 50 units than it is 10.”

Tip #2: Take Your Time

Commercial deals take longer than single-family houses do. They take longer to purchase, renovate, and get sold. This is not necessarily a bad thing, but something to keep in mind so that you don’t get impatient or rush into a bad decision. Think of commercial deals as big bonuses or your retirement vehicle, not a way to create quick cash to pay the bills.

Tip #3: Don’t Choose Apartments By Default

There’s nothing wrong with investing in residential apartments per se. I’m just pointing out that since most investors are already comfortable with residential property, they tend to look for apartments without considering the other types of commercial property, such as office buildings, industrial, mobile home parks, land, etc. Weigh all of these property types and choose your own niche based on whatever will help you reach your unique goals, regardless of your comfort zone.

Tip #4: Be Prepared to Spend a Lot of Time at First

Fight the temptation to get discouraged if you haven’t done your first deal yet, or if you are spending more time per deal than your previous ones. Houses are so similar that it’s easy to make a cookie-cutter system for buying and selling them. When I begin looking for commercial properties, I was surprised at how long it took me in the beginning to screen deals and make offers. Just remember that there is a learning curve, like with anything else, and that things will go faster over time.

Tip #5: Learn the new formulas

If you’re buying houses, you may use certain formulas, like buying at 75% of After-Repaired Value, minus estimated repairs. Commercial property will have new and different formulas to get used to, such as Net Operating Income and Cap Rates. Learn what is considered good in your area and get familiar with them when making offers.

Tip #6: Relationships Are Even More Important

Relationships with other investors and private lenders are important when buying houses, but they are even more so when buying commercial properties. For one, properties costing a million dollars or more are probably within the financial wherewithal of most of us individually, so you probably have no choice but to get to know and work with partners. Also, many commercial properties are sold without being listing first, so the more people in your network who know what you’re looking for, the more deals you’ll find.

Tip #7: Find Good Financing In Advance

Commercial loans are a different animal than residential loans, and in some ways better. The down payments needed are usually a higher percentage than loans on single-family houses, which means you’ll have to put more down (or get your partner to put more down). However, there is often no personal liability if the deal goes south, and they are more lenient about letting you borrow the down payment money from someone else. Nevertheless, before making offers, ask around and find out who the best lenders are in your area to use when buying commercial properties, as it may make the difference between qualifying for one or not.

Tip #8: Be Prepared to Lose Due Diligence  Money

After your offer is accepted, you have a period of time (just like with houses) to do your due diligence. You should get an appraisal, property inspection, and other tests and inspections required by law. The only problem is that these cost a lot more than they do for smaller deals. You might spend $5,000-10,000 on a deal, only to find out you don’t want to buy it after all. While this is always better than buying a bad deal, you should still be prepared for these kinds of expenses.

Tip #9: Partners Are Your Bridge to Wealth

As I said before, buying million-dollar properties is not something most people can qualify for on their own (in fact, getting a loan to buy a house is hard enough!) So make sure that you spend a lot of time finding private lenders or deal partners to help you out. A partner can provide the cash and/or credit needed to purchase a property, and you can compensate them by paying a fixed interest rate or a percentage of the cash flow  or proceeds from the sale.

Tip #10: Know Where to Get Tough Questions Answered

Lastly, it’s imperative that you associate with experienced commercial investors who can answer questions that come up while you are evaluating properties. There’s no sense in losing a deal or buying a bad property because you didn’t understand certain environmental regulations or estimating what trash collection really costs. Know who you can ask to get fast answers when you need them, and make them your new best friends.

By following these guidelines I can’t promise instant success. However, you will have the right perspective about investing in commercial property that will help you start right and stick with it for the long haul. Good luck to you in “moving on up” from single-family houses to the big time.

Source: http://www.nuwireinvestor.com/articles/10-tips-for-investing-in-commercial-real-estate-54632.aspx

Q. I have been trading from commercial premises for a year. My landlord has informed me he is going to cancel what I believed to be my lease. Since looking at the document I signed it is actually called a licence to occupy. The licence still has another year left of the term and there are no clauses in it about cancelling the licence.

My landlord posted me a letter a couple of days ago that said he was cancelling my licence and wanted me out by the end of this week. He said the reason was that I was a month behind in my rent. I am not sure what a licence is, can you tell me what the difference between a lease and a licence is? Does having a licence rather than a lease mean my landlord can cancel my licence with the letter he sent me?

A. The essential difference between a lease and a licence is that a lease grants a legal interest in the land where a licence grants merely a personal right of occupation.

Further differences between a lease and licence include:

A lessee has the legal right of exclusive possession of the land and may sue for nuisance or trespass on the land. A licensee does not have a legal right of exclusive possession and will not necessarily have the rights to take similar action.

The fact that you hold a licence of the premises rather than a lease does not alter the way in which your landlord can cancel the licence.

Sections 243 to 252 of the Property Law Act 2007 relate to cancellation of leases. Section 206 (3) of the act provides that those sections also apply to cancellation of licences (provided the licence was entered into after January 1, 2008).

Under s245 of the act a licensor can cancel a licence for non-payment of rent. However, there is a procedure the licensor must follow. This includes the licensor giving you written notice that you have breached the covenant in your licence to pay rent.

The notice must include certain elements for it to be enforceable. These elements include that the notice can only be served on you if the arrears in rent have existed for 10 days or more. The notice must also outline the amount that must be paid to remedy the breach – for instance, the amount of rent outstanding including any interest due in accordance with the licence or lease.

The office market in Auckland’s central business district is in worse shape than people realise, says Craig Tyson at ING New Zealand, which manages funds worth nearly $300 million in listed New Zealand property.

That’s clearly of concern to Tyson because office buildings account for about 60 percent of the listed property sector; industrial property accounts for about 20 percent and retail property the remainder.

While retail and industrial rents have held up well during the recession, office rents are declining and are probably going to fall further, Tyson says.

The trend for major corporates to move out of prime office buildings into campus-style accommodation at places such as the Viaduct is creating ever-rising vacancies.

Vodafone and Air New Zealand have already moved to the Viaduct while Telecom will move about 2500 staff into its new purpose-built, four-building headquarters on Victoria St next year and ASB Bank wants to move about 1100 staff out of the CBD into a new $160m development on the waterfront within three years.

Westpac and Ernst & Young are moving to Britomart and Bank of New Zealand is also moving.

ANZ National Bank, now occupying nearly half of Kiwi Income Property Trust’s 26,141- square-metre National Bank Centre on Queen St, is also rumoured to be moving.

Its lease expires in 2012.

Kiwi’s building is already 12 percent vacant.

“The trend has been around for a while but we can probably least afford it now,” Tyson says.

“Who’s going to be left in these towers?”

Chas Keogh, office leasing manager at real estate agency CB Richard Ellis, says the vacancy rate in Auckland’s CBD is officially 13.3 percent and, if taking into account sub-leases, it’s probably more than 16 percent.

Keogh agrees 2013 “is going to be a tough year for leasing”, but says the market has seen worse.

In the early 1990s, Auckland’s vacancy rate was about 25 percent and in the late 1990s climbed above 15 percent.

Keogh is clearly an optimist: “What everyone has to take into account is we had a fantastic boom. When you look at where we are now in comparison with where we’ve been, it isn’t actually as bad as people are making it out to be. There are some great opportunities.”

Forsyth Barr analyst Jeremy Simpson, who notes rival real estate agency Colliers is expecting the vacancy rate to climb closer to 20 percent, says while the rate is lower than at the same stage of the cycle in 1991, “we are arguably in worse shape from an economic and employment perspective”.

In past downturns, poor vacant space has been converted to educational uses or into apartments or short-term accommodation, Simpson says.

“It is harder to see such a saviour in today’s climate.”

Still, the super-city’s office space requirements will help and a few large non-CBD tenants are moving back from suburban locations to take advantage of lower rents and previously unavailable large, vacant contiguous floors.

“Perhaps the latter will have more of a positive impact this time around given improved public transport linkages into the city.”

Source: http://www.stuff.co.nz/business/small-business/3585130/Firms-turn-backs-on-CBD-towers

In the past few months I’ve noticed a definite trend towards organisations searching for new premises.

A year ago, this was not the case at all. The bulk of our work then was negotiating rent reviews and lease renewals. People were still nervous about making decisions in recessionary times.

What’s also interesting is that we are now seeing more and more new clients who previously would have taken a DIY approach to managing their commercial property leases and negotiations.

Executives are increasingly recognising that property is more and more complex and involves significant risk. They see the value in outside expertise such as that offered by us at Parallel Directions Ltd.

That value is tangible and can be directly related to profitability and direct return on investment.

Take for example a franchise
A franchise holder may have plenty of expertise in the product or service they offer, but know little about the complexities of searching for premises and negotiating a commercial property lease. The biggest pitfalls are the ones people are completely unaware of.

There are known unknowns… things that we know we don’t know. But there are also unknown unknowns… things we do not know we don’t know. It is the latter category that tends to be the difficult ones.
– Donald Rumsfeld

The risks involved really struck home when I told one client that the entire profit from their franchise over the 3 year period of a property lease could be completely wiped out by the tough “make good” clause.

This is the clause that requires a tenant to restore the property to the state it was in when they signed the lease. It can involve huge costs, such as removing partitions and all alterations made during a fit-out, relocating lighting and air conditioning, and painting and redecorating parts of the property that may have changed during the term of the lease.

So while many organisations have personnel with some property management expertise, there are a large number of increasingly complex matters that many are unaware of and therefore unprepared to handle effectively.

As I often say, smart management of property leases can have a significant impact on profitability. In complex and increasingly volatile environments, it pays to have the right expert advice.

Source: http://www.officeblog.co.nz/new-trend-in-commercial-property-leasing

Local Commercial Real Estate firm, McIntosh Realty, has embraced the power of ClientSpace.

ClientSpace is a feature available from FindSpace that pushes all their listings from our site back to the clients website, on a real-time basis.  The feature means the client does not need to maintain data on multiple sites, nor got the expense of building a listing system on their own website.

The ClientSpace option is a totally FREE service available to all users of FindSpace.

You can view the site at www.mcintoshrealty.co.nz