Debt vs Equity Investments in Real Estate
Distressed-to-control or “loan-to-own” strategies where a fund manager acquires the debt, or a mezz piece of a failed commercial real estate project in the hopes of adding value via controlling the asset, or “turnaround” strategies where a fund manager will provide debt and equity investments.
Depending on how much equity you have available in your own home, you may be able to refinance or get a home equity line of credit (HELOC) on it to finance your rental real estate investments.
What is your debt minus the value of your stocks, bonds, equity, and any other investments you own? How much are you paying in taxes and what portion of your taxes could be lowered through the right real estate investments?.
Determine if Commercial Property Investing is the Right Strategy for You
Sound strategy begins with a sound grasp of the fundamentals. These four major commercial real estate investing strategies account for the lion’s share of activity in the sector, encompassing a wide range of risk tolerances and property types.
How to Find Buyers for Commercial Real Estate
So I have three rentals, two single-family rentals, and partnership ownership in some commercial storage units. That direct real estate is about $182,000 because I own one of the houses with no debt. The cash flow from these is great but that’s a lot of money in just two geographic areas, in Des Moines and here in Medellin, and most of it is in one property type. Also, while I’ve always taken the time to find good tenants, there’s still some management time that I have to spend every month on the properties.
Investors seeking to expand their portfolio new investors to commercial real estate that are seeking to take up a portfolio these property buyers are relatively easy to find if you have a methodical approach in your prospecting process. If you approach the prospecting process effectively and directly, you will find the people that can act in this market. Prospecting is a daily process and should never be delayed or put off. It is notable that most of the people you talk to when prospecting will not have a need for commercial real estate today. Perhaps only 2% or 3% will ever have an immediate need for commercial sales or leasing. On that basis, you can be lucky on the first approach to particular people.
There are many companies that own and manage real estate without operating as a REIT. The difference is, you’ll have to dig to find them and they may pay a lower dividend than a REIT. Companies that are real estate-focused can include hotels, resort operators, timeshare companies, and commercial real estate developers, for example. Make sure to conduct due diligence before you buy stock in individual companies, but this option can be a good one if you want exposure to a specific type of real estate investment and have time to research historical data, company history, and other details.
You may want to start looking for a property manager to proficiently manage the property. Your real estate investment advisor should present you with 2 or 3 local companies, each with its own suggestion. Your main aim is to decide which company you will employ. The property manager will be the main point of contact between you, the landowner, and the tenants. A good property manager is critical in keeping your property fully occupied at the highest market rent, the tenants happy and in turn helps you attain your investment objectives.
There are some points you must keep in mind when purchasing commercial real estate when you are a business owner.
Get prepared Most talented lenders can give you a checklist of their needed documents immediately. Full documentation loans are worth spending the extra time on in order to get organized and shave a couple of hundred basis points off interest rates. This will add up to tens of thousands of dollars, if not more, over the life of your loan.
Financing is the main requirement for the purchase of the commercial real estate. Take the steps of getting pre-qualified for your loan before you look around for the right property. This way you will look for commercial property that you can pay for.
Know the market – use an educated profitable realtor to find your new property. If you’re like most business owners, you don’t have time to go on endless drives shopping for a building. A skillful commercial realtor can save you time plus you with equivalent sales/ lease rates in the area, plans for new development in the area.
Buy commercial real estate for the right reasons if your likely exit strategy someday is not an IPO, but rather selling or simply closing your business, then it makes great sense to effectively “pay yourself lease” rather than some absentee landholder. As soon as you have the capital for the down payment, you should consider turning that rental payment into an advance payment that will at least give you something for your effort. By doing this, you no longer will be throwing away your rent payment monthly, but building equity in a significant asset that also offers multiple tax advantages.
Consider buying/building more square footage than you need right now — you can always grow into it, but this will also allow you to get some leasing income until that time.
Set up a real estate holding company or what is known as an Eligible Passive Concern (EPC) to own your new property — the formation of a master lease between an EPC and your operating company is how you’ll bind the two together. Only work with a commercial specialist your time is valuable so only deal with a lender that specializes in commercial loans. You can take the help of a specialized Property Management team. That will help you to fulfill all your needs.