In Part 1, we were introduced to the strategy Joe Investor followed in his search for a commercial real estate investment property. The article also covered the challenges and obstacles he faced. Part 2 explores the parameters and reasons Joe has for working his deal.
Property Parameters and Rationale
- In order to limit his dependency on a single tenant, Joe decides that he would search for a multi-tenant property to invest in. He will not consider properties where there are less than five to seven suites or less than 75 apartments (a minimum requirement for cost-effective on-site property management). If he were considering a retail center, he would avoid anchored centers. He does not want any single tenant to be so large that if the tenant moved out after his lease expired, Joe would face a long lease-up time to get a similar-size tenant. This lengthy period could negatively impact his original projections. Assuming that it is possible, Joe has the option of dividing the space.
- Joe knows that in real estate, location is key. With his requirement to have long-term appreciation, Joe looks for properties within the growth areas of the cities or towns he plans to invest in. He avoids older, tired areas or areas that are in a downward transition.
- Again with an eye towards the long term and to hedge against a market downturn, Joe would like to acquire property that he can buy right, create some added value and then be in a position to sell in a few years at a solid profit. Some examples of adding value to the property could be:
- Rehabbing the property
- Repositioning the property (changing the usage via a change in entitlements)
- Buying a property with below-market rents and bringing the suites or apartments up to market rents
- Buying properties with low-occupancy rates (but not less than 25 percent) and then being able to lease them
- In order to avoid costly maintenance expenses, Joe is targeting buying property built no earlier than 1985 (multi-family, self-storage or industrial) or 1990 (office or retail
- Joe lives in Texas. He knows the state. He also wants to be able to easily check on his properties and, as such, he limits his search to the state of Texas. He prefers no more than a few hours of driving time.
In Part 3, we will present what Joe should do to successfully find and acquire the right property.
Photo credit: Pong Published on 25 May 2014 FreeDigitalPhotos.net
Texas Investment Property Group is a Commercial Real Estate Brokerage and Investment Company. Since 1991, the principals have created limited partnerships for over 65 successful investments, never once losing money for the investors and never once having a capital call. They invest their own money in every deal. All of the principals are Certified Commercial Investment Members (CCIM) and are hands-on property managers. Two of the principals have earned the Certified International Property Specialist designation (CIPS). For more information, please visit us at www.TexasIPG.com. The author would like to acknowledge the contributions of Wes Walters, CCIM, and V. Bruce Evans, CCIM.