How does commercial real estate investing make any sense financially?
[deleted]
[{"id": "frs8buw", "text": "Show me the reits where I can get, 7-15% cash on cash, 12-20% total return, a ton of tax advantages, have operational control of an asset, ability to force appreciation, and refinance my appreciation over and over again taking my equity out tax free.\n\nIt's a business like everything else.  They all have the expenses and risk you've stated above.", "replies": [{"id": "fry8zo6", "text": "I would also add, it takes a lot of time, patience and work, just like anything else worthwhile.", "replies": [], "depth": 2}], "depth": 1}, {"id": "frs8fu0", "text": "Lots of reasons. Maybe the illiquidity is strategic for estate planning, a lot of investors want their family to own the assets forever. Maybe there are tax reasons, where early losses can offset current gains from other investments. Maybe the land itself will appreciate due to rezoning in 5-10 years and it has good holding value.\n\nMaybe the vacancy rate is low? Maybe the REITS are not heavily invested in your market. Etc", "replies": [], "depth": 1}, {"id": "frs9mmc", "text": "The numbers are maybe better in other instances like owner financing, cap rate does not include remodel/rent increases/current vacancies, appreciation, tax incentives, less headache dealing with commercial tenants as opposed to residential, etc.\n\nHigher risk, possibly higher returns.", "replies": [], "depth": 1}, {"id": "frsa7sn", "text": "Bruh. I\u2019d ask the same question about residential (single family). Commercial is a cake walk (until corona virus). \n\nI only have 1 unit but numbers wise \n$350k purchase \n15% down (call another bank homie) \nManagement? Learn about NNN. Mine is leased at $4k/month NNN. Air conditioner breaks? Great, the tenant can figure it out and pay for it.", "replies": [], "depth": 1}, {"id": "frsaxi6", "text": "Look into net lease properties with corporate guarantees (or large/strong franchisees), and long-term leases. Generally, the tenant pays for all property taxes, insurance, and maintenance. Landlord collects a check.", "replies": [], "depth": 1}, {"id": "frsb0lv", "text": "If you are committed to being in the business of real estate and operating as such, there is no better investment than owning the actual property. I have an industrial property, purchase price was just above $3mil. I put 30% down so ~$900k and with all closing costs was in the deal for under $1mil. \n\nProperty was vacant for a year before I got a tenant in it so paid $50k in property taxes and another $20k in utilities and insurance and all the normal stuff that plus my debt service that year with no income. Got a tenant in that\u2019s paying $480,000 a year NNN with a 7 year lease plus options. My yearly debt payment is in the ballpark of $140k but that alone is a 34% cash on cash return. I have money set aside for capex but I\u2019m responsible for so little on the property. \n\nAs far as accounting costs go, I do the accounting myself so i don\u2019t even pay an accountant and I literally spend about 30 minutes a month at most on it. Liquidity doesn\u2019t really matter because they are an established company with strong financials so I know exactly every dollar I\u2019ll be getting for the next seven years. And if I do decide to sell it, with the lease in place it\u2019s currently worth $7.1mil(430k noi / 6 cap) . Obviously I rounded the numbers here and there are a lot more details that affect certain numbers but  you get the point. I find it hard to believe a REIT can give me a 34% COC return plus a 100% return on the sale with a tenant in place. Didn\u2019t even bother o calculate the IRR for you but no REIT could touch it\n\nEdit: I forgot you mentioned tenant improvements. I put up about 700k for tenant improvements BUT they are paying back that cost on top of their normal rent including interest so it was also an investment on my side. I also want to put it out there that this isn\u2019t a typical deal and this was an absolute home run but it still shows what\u2019s possible. Even if it was a 20% COC return id like to see a reit that provided that PLUS whatever your actual return is once you factor in Depreciation, tax benefits, and equity accumulation...", "replies": [{"id": "frt3czd", "text": "How did you find the tenant? Were you nervous that the property might not rent?", "replies": [{"id": "frt97tm", "text": "It was a unique situation because I was in talks with the tenant before I purchased the property. I knew them through prior experience and networking but luck was the main driver.  I was nervous the whole time but I also kept options open knowing that I needed to be prepared to find a new tenant for the space. It was a very high risk purchase but it has also been incredibly rewarding. Not even including tax benefits, I\u2019m pocketing over $300k a year from it. With equity, tax benefits, etc, I\u2019m probably seeing over a half mil a year in gains from it. \n\nJust to put it out there that I wouldn\u2019t recommend trying to make this type of play happen as a first or early deal. I knew going into it that it wasn\u2019t guaranteed and that there was a chance I was going to need to spend a ton of money on it. But I was also in a position that I was able to risk that money and it wouldn\u2019t have ruined me because my other business operations would support it.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "frsg1tn", "text": "I turned 120k into 3.5m with commercial real estate since 2017. Show me anyone who can do that with SFH or a REIT.\n\nAlso you should know CRE has many different types of RE. Examples: multifamily, mobile homes parks, self storage, office, industrial etc.", "replies": [{"id": "frsiqpo", "text": "What asset class do you operate in? 3.5 NW or 3.5 total value of assets", "replies": [{"id": "frsjezb", "text": "NW. not including bank debt.\n\nI prefer mobile home parks.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "frsiujc", "text": "In a very simple answer: your returns are far greater than what you\u2019d get from a savings account or stock market/mutual fund.", "replies": [], "depth": 1}, {"id": "frsltm6", "text": "Have you seen the high valuations for REITS? (aside from retail and hotel reits during covid). That's what you pay for ease and liquidity.", "replies": [], "depth": 1}, {"id": "fruaxq2", "text": "You\u2019ve raised some excellent points. I could easily tack on *another* 10 reasons why CRE doesn\u2019t make sense for 95-99% of the investors out there, *especially* now. You just scratched the surface of challenges CRE investing confronts. \n\nHere\u2019s the thing, that 1-5% sure as hell aren\u2019t sharing secrets about how they make their money on Reddit. I know how they do it. I bank them, and I\u2019m not talking either.", "replies": [{"id": "frxvach", "text": "At least give us a few hints or nuggets! Or DM me.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fry8vrl", "text": "There is huge variety in commercial real estate, there's land, there's developing, there's fixing and flipping, lots of different opportunities.  You can also partner up with someone who is flush with cash and do the bird dogging, diligence, project manage the renovation, whatever.\n\nThe way you make money is to become a total expert in the markets you target, be a very patient deliberate buyer, know your costs and the worst case scenarios going in and plan to look at dozens of properties for every property you buy.  \n\nWith the resources today on the internet, unless your target property is in a podunk area, it's ridiculously easy too research and do diligence on property.  My husband calls us mom &amp; pop developers; I don't work with him, I have my own full-time \"real\" job lol.  But when he finds a property, in 10 minutes I've got the zoning, comp plan designation, flood zone, property history and sales comps.  When I was a commercial appraiser years ago, it would take me a few days to work too assemble that data.", "replies": [], "depth": 1}]