COMMERCIAL REAL ESTATE
Commercial real estate investing can be a worthwhile venture for those with the right experience or for those who hire a Commercial Finder. If you are a new to investing in Commercial real estate properties, there a number of factors that you should consider before investing, including the risks and benefits of the investment, the type of property you want to acquire, and the best way to protect your personal assets. Each type of commercial property brings with it challenges and it is best to surround yourself with experienced investors and professionals to help guide you through the process.
Finding a Good Commercial Real Estate Deal
Ask any real estate professional about investing in commercial property and you’ll hear how such properties are more desirable than residential real estate. Commercial property owners enjoy the additional cash flow, the beneficial economies of scale, the relatively open playing field, the abundant market, and the bigger payoff from commercial real estate.
But how do you evaluate the best properties, and what separates the great deals from the bad?
Like most real estate properties, a successful start is with a good Plan. The following will help you evaluate a good commercial property deal.
Learn What the Insiders Know
To be a competitor in commercial real estate, learn to think like a pros do. For example, know that a commercial property has a valuation different from a residential property. Income on commercial real estate is directly related to its usable square footage. That’s simply not the case with residential properties. You’ll also see a bigger cash flow with commercial property. The math is simple: you’ll earn more income on an apartment building, for instance, than on a single-family home. Know also that commercial property leases are typically longer than on single-family residences. That provides the way for greater cash flow. Lastly, if you’re in a tighter credit situation, make sure to come to the table with cash in hand. Commercial property lenders like to see at least 30% down before they’ll issue a loan.
Draw up a Plan of Action
Setting guidelines is a top priority in a commercial real estate deal. How much can you afford to pay? How much do you expect to make on the deal? Who are the main players? How many tenants are already in place and paying rent? How much rental space do you need to fill or is the space rented to capacity with no more room to expand?
Spotting a Good Deal
The top real estate professionals know a good deal when they see one. What’s their secret? First, they have an exit strategy – the best deals are ones where you know you can walk away from them. It helps to have an observant eye – always be looking for damage that requires repairs, know how to determine risks and make sure to bring your calculator to make certain that the property meets your financial objective.
Get Familiar with Key Commercial Real Estate Metrics
The common formula to use for when assessing real estate include:
NET OPERATING INCOME (NOI)
The NOI of a commercial real estate property is calculated by valuating the property’s gross operating income and then subtracting the operating expenses. You want to have positive NOI.
A real estate property’s Cap rate (Capitalization Rate), is used to calculate the value of income generating properties. For example, an apartment building, commercial office buildings, and smaller strip malls are all representative for a cap rate determination. Cap rates are used to determine the net present value of future profits or cash flow.
CASH ON CASH
Commercial real estate investors who rely on financing to purchase their properties often follow the cash-on-cash formula to compare yearly performance of competing properties. Cash-on-cash takes the fact that the investor in question doesn’t require 100% cash to buy the property into account, but also accounts for the fact that the investor will not keep all of the Net Operating Income because he or she must use some of it to make mortgage payments. The calculation determines the cash income on the cash invested. Calculated as:
Cash on Cash Return Annual Dollar Income Total Dollar Investment
THE HUNT FOR A MOTIVATED SELLER
Like any business, customers drive real estate. Your job is to find them – specifically those who are ready and eager to sell preferably below market value. The motivated seller is someone with a pressing reason to sell below market value. If the seller isn’t motivated, he or she won’t be as willing to negotiate.
DISCOVER THE FINE ART OF NEIGHBORHOOD “FARMING”
A great way to evaluate a commercial property is to study the neighborhood it’s located in by going to open houses, talking to other neighborhood owners, and looking for vacancies.
Be adaptable when searching for great deals. Use the internet, read the classified ads and a certified business brokerage to find you the best properties. Business brokerages can help you find valuable investment leads in exchange for a referral fee.
THE BOTTOM LINE
Finding and evaluating commercial properties is not just about farming neighborhoods or getting the price you want. It’s about building relationships and rapport with property owners so they feel comfortable talking about the good deals – and doing business with you. This is where a Business Brokerage has the advantage. They have already formed great relationships with sellers. The sellers trust them and know that they only bring qualified buyers to the table.
So what makes a successful purchase?
- Understand the local real estate marketBefore making that important decision on what to buy, entrepreneurs should pay heed to where they’re buying. Each local market has its own tax rates, land inventory and environmental issues. The supply of skilled labour in the area also needs to be considered. Municipalities can often provide helpful information on future industrial developments and environmental considerations.
- Get your financing in orderAffordability is a big issue in commercial real estate, so before going to a bank, you should be working with an accountant to establish what your budget is. Bankers will want to see high quality financial statements and proof that the profits you generate will be retained by your company. All of this will play a part in determining whether you get the loan you need.
It’s also worth considering alternatives to conventional banks for financing. A bank may be willing to finance 65% of the capital needed but ask you to put up the remaining 35%—a substantial personal burden if a $1 million plus property is being purchased.
- Get expert help with tax issuesTax implications can be complex in commercial real estate transactions. Find an accountant who knows the ins and outs of commercial investments. You may need to know, for instance, whether your purchase should be considered a corporate or personal transaction. Other issues include succession planning (a process for identifying and developing internal people with the potential to fill key business leadership positions in the company), transition financing and decisions about how assets will be broken up when the business is sold.
- Plan your layout wellWhether it’s an existing building or one that you’ll be renovating, you’ll need a layout that gives you a competitive advantage. The right layout can lower operating costs and improve your capacity to produce new products as well as your ability to produce higher quality goods. A plant’s layout has a major impact on its operational efficiency, optimize processes and reduce waste, and although some may be reluctant to make further changes on layout after a costly purchase, they usually see a payback quickly when they make that extra investment.
- Choose the right Commercial AgentIt’s a fact! It is not easy to buy, sell, lease or manage commercial real estate properties without the help of an expert. Would you go to court without a lawyer? Then why would you buy a commercial property without an expert representing you?
Hiring a reputable licensed commercial real estate agent or business broker is your best defence from losing thousands of dollars when you make costly mistakes, or miss out on solid commercial real estate investing opportunities.
That is why finding and hiring the right commercial real estate agent or business broker is paramount. This critical choice can make or break your commercial real estate venture. As important as these issues are, there is simply much more to a reputable commercial real estate agent than finding the right property and negotiating the deal terms.
This agent/business broker should be your partner for all matters concerning commercial real estate acquisitions, especially pertaining to the original transaction that this agent made with you. If your agent can’t perform these services because their knowledge is limited or they don’t want to take the time to do so for you, it would be in your best interest to find one that can.
Most agents do not have the full knowledge required to represent you effectively, so be careful to choose the right agent/business broker. Too many agents choose to do business “transaction” based instead of “relationship” based. Check references to find out if your prospective agent/business broker gives good follow up service throughout the terms of your sale or lease and has the knowledge and resources to do so. Choosing the wrong agent now can cost you money, time and headaches later.
280 B Campion Street,… $195,000.00
MLS #: 10195024
A turnkey auto repair shop that has been in business for over 20 years. The owner is looking to retire. Business comes with loyal customer base, all tools, machines and assets. There are three lifts and additional storage in the compound behind and side access for larger vehicles. (id:20794)
#c/o #14 1470 Harvey Avenue,… $109,000.00
MLS #: 10193049
A great opportunity to acquire the assets of this turnkey massage therapy business. $250,000 was invested into leasehold improvements in 2014, and the results are spectacular! Just under 1,700 sq. ft of space available for massage, acupuncture, cupping or other counselling in 7 treatment rooms and another 600 square feet on the second floor to use as a yoga studio. The lease is assignable to a buyer of this business with favourable lease terms. NDA must be signed for further information. (id:20794)
#5-6 1790 KLO Road,… $749,000.00
MLS #: 10191810
Fixed income investment opportunity, 1505 sq ft of strata retail space located in a high traffic area at a controlled intersection. Situated on the corner of KLO Rd & Benvoulin Rd. Long term tenancy in place. Currently leased at $26.00. For further information please call Tony Sprovieri at Royal LePage Kelowna 250-878-7811 (id:20794)
#c/o 102-347 Leon Avenue,… $399,000.00
MLS #: 10192743
Rare opportunity to own a well-known and established consignment boutique located in Downtown high traffic area. The business caters to women and specializes in clothing, shoes, jewelry, and accessories from many designer brands. Almost nearly a decade in business, the owner and dedicated staff have created a warm and inviting store with a reputation as one to the top retail boutiques in the area. The business features the latest merchandise from many upscale and premium brands at competitive prices with a unique retail business model. There is a robust clientele with a healthy combination of new and repeat customers. This is a unique opportunity for someone in the retail industry or an entrepreneur looking to own consistently profitable business with a sustained track record of growth. The business can be run on a semi-absentee basis or with a full-time owner/operator in lieu of a manager. There is an attractive lease in place. Dont miss this chance to take over a business in an affluent and growing market thats set up for success. The seller will offer a training program. Price + Inventory. Proudly Presented By Kara And Associates (id:20794)
1495 Gordon Drive,… $1,598,000.00
MLS #: 10193133
Incredibly rare large commercial space available on busy intersection with private entry. This 3700 Sq/ft property is part of the Centria Urban Village just above the previously Nesters Market. Zoned CD17 Mixed Use Commercial you can use this space for pretty much anything! Currently setup as a business professional office with reception, two conference rooms, large presentation room, kitchen, two bathrooms and eight offices alone with private roof top access and executive wrap around patio. Owner has access to pool, hot tub and gym within Centria towers and 10 parking passes. Showings on week days after 5PM and anytime on weekends. Floor area measurements are approximate and should be verified if deemed important. Proudly presented by JP Letnick and Joanna Wang of the “Letnick Estates Group” http://LetnickEstates.com (id:20794)
c/o 1553 Harvey Avenue,… $297,850.00
MLS #: 10193210
Well established turn key childrens activity centre has hit the market. This is the perfect opportunity to own and operate a community focused family business that has been operating for over five years. All of the hard work is done for you. Please make note the address and picture do not represent the actual business as it is a confidential listing that requires the signing of a NDA from a qualified Buyer. Proudly Marketed by Carlo Giusto Personal Real Estate Corporation and Stu Morgan of the Invest In Kelowna Real Estate Group and RE/MAX Kelowna. (id:20794)
#103 532 Leon Avenue,… $99,000.00
MLS #: 10194356
This downtown Kelowna Hair Salon is your golden opportunity to take over a turn-key business. This purchase affords one the opportunity to have 7 chairs for hair design, 3 chairs for shampooing, 2 chairs for hair drying, large staff room, reception area where products can also be showcased for sale and a spacious washroom. A team of highly skilled hair stylists has allowed the business to develop a loyal customer base and a client retention rate of over 85%.Â Moreover, the business enjoys location advantages, being located in a high traffic area surrounded with plenty of businesses, law and accounting firms which generate additional business through referrals. This opportunity is ideal for a private buyer looking to acquire a growing business with an innovative and easy model to manage, or a strategic purchaser seeking to diversify and expand its product line and client base. Financial statements provided only on signing a NDA. Proudly Marketed by Carlo Giusto Personal Real Estate Corporation and Stu Morgan of the Invest In Kelowna Real Estate Group and RE/MAX Kelowna. (id:20794)
#204 c/o 1505 Harvey Avenue,… $999,900.00
MLS #: 10194324
Proudly Marketed by Points West Realty Group. Profitable paving business for sale. Owners looking to retire. Does the lifestyle of working for 6 months and off for 6 months sound appealing? Then this business is for you. Includes the company, equipment, staff and contracts. Well establish business with increasing profits. All equipment is owned, many repeat customers and ongoing contracts. Call Ryan Mayne for further details. (id:20794)
5538 Airport Way,… $499,995.00
MLS #: 10195138
Exclusive National brand gas station located at the Kelowna Airport. This gas station is only 2 years old and is doing approximately $5 Million in sales and growing. Cost more than $700,000 to build. Currently operated as an absentee owner. Increase the cashflow of this business as an owner operator. 1772sf plus 533sf of an additional common area, 6 pump station with lots of parking. Also tenanted with a Tim Hortons and Freshii. Long term lease available. (id:20794)
#C/O 1685 Pandosy Street,… $288,888.00
MLS #: 10193006
Selling pre-engineered and Quonset steel buildings including insulation, doors and accessories. Great for Orchardists, Wineries, Agriculture, Industrial, Commercial, Aviation and more. Exclusive distribution agreements. (id:20794)
#8A 1060 Leathead Road,… $1,600,000.00
MLS #: 10192389
Established screen printing business with loyal customer base that has been operating in Kelowna for 25 years. The Business is largely Corporate Contracts with Repeat and Referral Clients. All equipment ready to go for a new owner operator to just step in. This is the largest screen printing business in the Okanagan. Price includes the ownership of a 3,200 square foot commercial strata unit. DO NOT TALK TO OR APPROACH STAFF. For financial information please request a CA. (id:20794)
#c/o 14 1470 Harvey Avenue,… $279,000.00
MLS #: 10191761
Winter is coming and this very successful Central Okanagan landscaping company has year-round income. This business has been in operation for almost 20 years with trained employees, many loyal customers, with lots of client referrals and an excellent reputation within the community and with suppliers. This company includes equipment / tools, maintenance / construction contracts and established customer lists. The current owner can offer training and mentoring if required. Grow this business to the next level by capitalizing on the Okanagans continued expansion and development. Signed NDA must be in place for further information on this opportunity. (id:20794)
5538 Airport Way,… $3,999,995.00
MLS #: 10195140
Kelowna YLW Plaza. $3,995,995 – 5.5% CAP RATE, 1.43 acres This is a development play. Approved further to add car wash, detail shop and 2-3 storeys building to 15,000sf+ (zoning CD12) City leased land until 2054 with renewals in 20yr increments. This building is only two years old, exclusive to the Kelowna Airport with Three National Tenants. The Kelowna Airport is the 10th busiest airport in Canada with over 2 million passengers. Every car that goes to the airport or exits the airport must drive by this Plaza. (id:20794)
364 Lawrence Avenue,… $94,000.00
MLS #: 10190938
Garden of Eden. Only the business for sale – includes all the assets on site. Owner lives on site which is open 24 hours a day. Buyer must show ability to pay cash to Seller on sale prior to viewing or disturbing the daily operation. Most assets are in pictures. ONLY SERIOUS OPERATORS WILL BE ADDRESSED PREFERABLY BUYER WILL HAVE EXPERIENCE IN THIS LINE OF BUSINESS.Iconic Garden of Eden DO NOT APPROACH OWNER OR ANYONE ON SITE. (id:20794)