For those of you who want to invest in real estate but do not have the time to manage the property, there are companies who make it all easy. Or maybe you want to invest in one state and live in another. These companies are perfect for you.
The companies find the properties, do any repairs, manage the properties for you and act your agent. Each company operates a little differently, and I suggest some due diligence, but these companies make it easy.
There have always been Real Estate agencies who would handle your rental properties for you. The full-service type companies specializing in investor residential real estate are new. These companies will find the property for you, fix the property, manage the property and dispose of it for you. Some companies buy the properties get them ready, put in a tenant and then sell the property to you ready to go. Then they manage your property for you, depositing the rent in your bank.
Others real estate agency companies find the property, get it ready to rent after you buy it, rent it out and than manage the whole thing. They get p[aid from the rel estate commission on the purchase, charge a fee to handle the make ready, and than collect a % of the rent as a monthly management fee.
Commercial real estate investing
I do not write a lot about commercial real estate investing, it is a much more complicated and riskier venture. A comparison of residential and commercial real estate from an investor point of view will illustrate the differences.
|Down payments||5% to 30%||10% to 30%|
|Financing||Easy- typical 30 years||Hard- typical 5 years balloon|
|Finance Interest Rates||Published||Negotiable|
|loan cost with all fees||Average 0-3%||2% to 15%|
|Ease of refinancing||Easy- based on income and value||Can be difficult & more costly|
|Typical Fin. rate 2016||3%.5% – 4.5% typical||7% typical|
|Appraisal fees||Average $650||Widely variable|
|Tenant Leases||1 year typical||5 years typical|
|Ease of renting||Easy- a lot of demand||Slow- long vacancy periods|
|Remodeling Allowances||Not common||Common|
|Negotiation with renters||Not common||Everything is negotiated|
|Property value||Cap rate and dwelling value||Cap rate|
|Re-sale||Under normal market conditions fairly easy.||Can be a long process to find a buyer and close.|
Commercial income producing properties can be very lucrative and easy to manage when they are leased up. When they are in decline and not leased up, it can be a long, slow, and expensive process to turn them around.
Commercial properties tend to be more costly to acquire, require larger down payments (30% is normal, some special programs for owner occupants reduce down payments), and the banks want stronger financials from a buyer before they approve a loan. The bank will want to see five-year leases and name brand tenets. Where a house might be vacant for six months and require a rent reduction to get it leased, a commercial property could be vacant for years and require further investment to get it leased.
I have owned, and do own commercial properties. I have made more money off commercial properties than from residential properties. But, I have also had long periods of negative cash flows on them. If you have the resources to withstand long term negative cash flows and the assets to enable you to refinance no matter what happens, with the economy at large, then by all-means proceed.
Currently, finding bargains in commercial real estate is a little hard to do. If you can figure out a way to make the property cash flow, there is money to be made.
I will look at commercial properties in this current economy, but I will not buy unless I can be sure that I can cash flow it for at least five years. I will also want to figure a way to make a 20% a year cash-on-cash return. I will need to find properties that are under-performing and have a plan to improve the property so that it attracts higher rental rates to make the return I want.