The TOP FIVE Reasons to
Consider COMMERCIAL
REAL ESTATE for Your Portfolio
By Tom K. Wilson
While many investors see
single-family homes as their
“bread-and-butter” investment,
investing in commercial
properties is an option that
can also help you achieve your
financial goals.
“Commercial”in its broadest lay
vernacular includes multifamily
apartments, however, the true industry
definition separates multifamily
properties (over five residential units)
from true commercial, such as retail,
office space, industrial, self-storage or
medical centers.
I’m often asked what kinds of
properties I recommend. There is,
of course, no one size that fits all
investors or markets. While in a
normal market multifamily properties
are a natural progression from single
family homes, this is anything but a
normal market and currently there are
too many multifamily buyers chasing
too few deals, so it currently has
lower CAP* rates or returns than pure
commercial.
#1 HIGHER ROI
Commercial properties often have
higher and more predictable return-oninvestment than single-family homes, in
part due to the economies of scale from
investing in a larger property not usually
available to the small investor.
For example, a current commercial
retail center that we are acquiring has
an 8.2 CAP rate and a four-year internal
rate of return* of 12.0%. When you can
borrow money at 4.25% and invest it in
something yielding 12.0%, that’s worth
considering!
Here are five reasons to consider
commercial properties for your
portfolio.
#2 FEWER HEADACHES
It’s generally easier to manage one
large property through a professional
*A GLOSSARY OF
COMMERCIAL TERMS
CAP RATE (Capitalization Rate)
A measure of return calculated by dividing the property's net operating income by its purchase price.
CONC (Cash on Cash Return)
A measure of return calculated by dividing pre-tax
cash flow from a property by the total cash invested
(e.g., down payment plus closing costs).
GRM (Gross Rent Multiplier)
The Gross Rent Multiplier is a measure of how expensive a commercial property is relative to the gross
rents it brings in, calculated as: GRM = Purchase
price of the property / Gross monthly rents.
NOI (Net Operating Income)
The total income from a property minus vacancy,
For
your
free and
copy
of Wilson
Investment Properties
credit
losses,
operating
expenses.
article “Are Real
Estate Syndications for You?” and a guide to “Commercial Real Estate
NNN (Triple Net)
Terms”
pleaselease
go to
our website,
A commercial
in which
the tenanthttp://tomwilsonproperties.com
pays three
operating expenses (in addition to rent): Property
taxes, insurance, and maintenance.
ROI (Return on Investment)
ROI measures the amount of return on an investment
relative to the investment’s cost and is calculated
as: ROI % = (Gain from the investment – Cost of the
Realty411Guide.com
investment) / Cost of the investment.
PAGE 70 • 2016
reWEALTHmag.com