Real Estate Investment Real Estate Investing Guide for Beginners in Newca | Page 12

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purchase price between 6% and 12%, depending on the area, which is a much higher
range than typically exists for single family home properties (1% to 4% at best).
Professional relationships. Small business owners generally take pride in their
businesses and want to protect their livelihood. Owners of commercial properties are
usually not individuals, but LLCs, and operate the property as a business. As such, the
landlord and tenant have more of a business-to-business customer relationship, which
helps keep interactions professional and courteous.
Public eye. Retail tenants have a vested interest in maintaining their store and
storefront, because if they don’t, it will affect their business. As a result, commercial
tenants and property owner interests are aligned, which helps the owner maintain
and improve the quality of the property, and ultimately, the value of their investment.
Limited hours of operation. Businesses usually go home at night. In other words, you
work when they work. Barring emergency calls at night for break-ins or fire alarms,
you should be able to rest at night without having to worry about receiving a midnight
call because a tenant wants repairs or has lost a key. For commercial properties it is
also more likely you will have an alarm monitoring service so that if anything does
happen at night, your alarm company will notify the proper authorities.
More objective price evaluations. It's often easier to evaluate the property prices of
commercial property because you can request the current owner’s income statement
and determine what the price should be based on that. If the seller is using a
knowledgeable broker, the asking price should be set at a price where an investor can
earn the area’s prevailing cap rate for the commercial property type they are looking
at (retail, office, industrial, etc.). Residential properties are often subject to more
emotional pricing. See the Nolo article Is that Residential Real Estate Investment
Property Worth It? for more on the subject, including an explanation of cap rates.
Triple net leases. There are variations to triple net leases, but the general concept is
that you as the property owner do not have to pay any expenses on the property (as
would be the case with residential real estate). The lessee handles all property
expenses directly, including real estate taxes. The only expense you’ll have to pay is
your mortgage. Companies like Walgreens, CVS, and Starbucks typically sign these
types of leases, as they want to maintain a look and feel in keeping with their brand,
so they manage those costs, and you as an investor get to have one of the lowest
maintenance income producers for your money. Strip malls have a variety of net
leases and triple nets are not usually done with smaller businesses, but these lease
types are optimal and you can’t get them with residential properties. For more on
common lease terms, such as net leases, see the Nolo article Commercial Leases:
Negotiate the Best Terms and related articles in the Business Space and Commercial
Leases section of this site.
More flexibility in lease terms. Fewer consumer protection laws govern commercial
leases, unlike the dozens of state laws, such as security deposit limits and termination