No one talks about commercial real estate even though it's great
I know many co-workers and friends (many middle, upper-middle class) who itnvest in residential real estate, who rent out and do airbnbs or furnished finders. However, no one I know is in commercial real estate. When I talked to my friends about it, it seemed like the consensus is that people just don’t know how to invest in commercial and the upfront capital weeds everyone out. I did some research online, looks like there’s very limited information on commercials online as well. However, the information I’ve found regarding Triple Net lease and industrial seem amazing. The returns are insane in both appreciation and passive income compared to the current residential where I’m seeing 2-4% cap in CA or TX.  Any other good materials y’all got for breaking into commercial real estate investing?

Here are some videos I’ve watched so far on commercial real estate

[https://youtu.be/QA9CZQSVbrA](https://youtu.be/QA9CZQSVbrA)

How real is this deal? I’m assuming it’s a really good one since there’s a video on it, for people getting in commercial what are some returns people expect?  
[https://www.youtube.com/watch?v=FekWp1djlOM&amp;ab\_channel=BiggerPockets](https://www.youtube.com/watch?v=FekWp1djlOM&amp;ab_channel=BiggerPockets)  
[https://www.youtube.com/watch?v=9ZraWnoU\_ik&amp;ab\_channel=CommercialPropertyAdvisors](https://www.youtube.com/watch?v=9ZraWnoU_ik&amp;ab_channel=CommercialPropertyAdvisors)  
Any other resources y’all recommend for commercial real estate?
[{"id": "ivi1as3", "text": "Thanks for the videos. They are very informative. What markets are everyone investing in now and what asset types?", "replies": [], "depth": 1}, {"id": "ivi1hp6", "text": "Gotta go Midwest or bust", "replies": [{"id": "ivi993i", "text": "true, CA markets are way overpriced, people still leaving", "replies": [], "depth": 2}], "depth": 1}, {"id": "ivi2kji", "text": "Flex industrial small bay is such a fucking powerhouse. It never goes vacant and just perpetually produces good income/cap rates, more favorable than residential and appreciates to the same degree. If I\u2019m spending $2-5 million I\u2019d go in small bay flex over multifam any day of the week.", "replies": [{"id": "ivil8od", "text": "Couldn't agree more. Get a fully net lease with a decent tenant and it becomes incredibly hands off too with none of the headaches or opcost concerns that come with residential.", "replies": [], "depth": 2}, {"id": "ivm3ge0", "text": "What is a good cap rate that is being produced?", "replies": [], "depth": 2}, {"id": "ivuqf99", "text": "Could you explain flex industrial small bay a little more?  How many sqft is small?  I just acquired a 2 acre commerical property and am thinking of 1 building with several small (1000 sqft) warehouse spaces with a couple offices and bathroom.  This sounds similar.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ivi9766", "text": "First video was very information, the other two were like your stereotypical youtube video that gives you very surface level info. Thanks for sharing", "replies": [], "depth": 1}, {"id": "ivispv4", "text": "It\u2019s a huge industry. That\u2019s like saying none of your friends talk about pulling teeth, yet there are millions of dentists. You just don\u2019t have friends who are in CRE\u2026\n\nReturns were extremely compressed with all of the free money over the past decade (like every asset class), and now the increase in rates is giving the industry whiplash. Even multifamily (traditionally the safest asset class) is getting repriced to the negative.\n\nNow is the time to track opportunities and get your war chest ready to pounce - you want distressed sellers, not distressed assets.", "replies": [], "depth": 1}, {"id": "iviuc5q", "text": "Commercial real estate is very expensive in capital markets and can be a lot more complex than housing from a lot of different perspectives. To invest in CRE versus any alternative asset including Airbnb and housing you need way more cash than other product types. Additionally, if your dumb you can easily make a stupid fucking investment and than go broke or bankrupt. Nuanced things like replacement cost, lease terms and renewals, TI\u2019s, cap rate decompression in relation to interest rates and other stuff can completely blindside a novice. And that\u2019s before you even get into something such as development where even pros and 30+ year veterans can still lose their shirt.", "replies": [], "depth": 1}, {"id": "ivkkcd4", "text": "I\u2019m looking forward to buying a hotel soon, but I only have two houses so far.", "replies": [{"id": "ivlg5mt", "text": "\"How hard could it be!\"\n\n/s", "replies": [], "depth": 2}], "depth": 1}, {"id": "ivlslhr", "text": "Shhhh... Stop talking about CRE!  Don't let the cat out of the bag!  Just kidding..  a rising tide does float all boats, so the more competent and educated people in our industry becoming successful, the better.  And that's the key,  competent and educated.  I'm afraid that there are many people who don't take the appropriate time to learn how CRE and development works themselves and decide to rush into commercial, seeing dollar signs and trying to make a fast buck.   Since your username has the word \"cynical\" in it, I'm going to assume you'll be ok with my post here.  You have to be a little cynical when you come across videos like these (the first one you posted).   Let's keep something in context: the purpose of these videos are generally to get views.  And with a headline of \"..we made $1,600,000 in 1 commercial real estate deal...,\" I believe that's what they are trying to do.  I'm sure that there are individuals who like teaching, writing books, making videos, etc...and I'm sure that's rewarding.  But the author of the video is hoping to market themselves and get views, maybe build a network of investors who reach out to him individually (impressed that he knows what he's doing), or driving business to the RE company that he shouts out to at the one minute mark of the video.  So now that this is out of the way, let's evaluate his video and find that large grain of salt that we should take with the information he's sharing:\n\nFirst, the YouTube author says \"the higher the cap rate, the better.\"  I can't tell you how wrong that sentence is as an absolute.  I would argue that it isn't always better for the cap rate to be higher.  There should be context here.  When you're selling your asset, do you want a high cap rate?  Really?  No, you want a low cap rate.\n\nSecond, he says he found a \"slam dunk deal.\"  Well, with only two years left on the lease, and without knowing you would find a new tenant to replace the outgoing one, that's not a slam dunk.  There's actually a huge risk here.  If you had a tenant leave at the end of the lease, and it took you 6 months to a year to find another one, would you be able to weather that storm?  What if the bridge loan you had taken (which he says was only for the duration of the remaining lease) matured as the first tenant left and you were now in an empty building with a balloon payment..what then?\n\nThird, do we understand NNN leases?  What if your new tenant decides to have a termination clause that your broker doesn't catch and you don't catch, but when you show the lease to the lender who will take-out the bridge loan, they catch it and decide not to proceed.  So now you're  stuck in a lease with and the bridge loan is maturing with no refi option.\n\nWhat about TI allowances?  What if the new tenant decides that they would only move-in if you provide certain improvements to the building to accommodate them?  How does that impact your lease rates?   Worse yet, what if your comps were artificially high because those tenants had TI allowances from the landlords but you weren't aware of this, so when it comes time to get your new lease, you don't offer any TI credits and in-return, find that your PSF annual rental rate is actually lower than you had pro forma'd.  What do you do now?\n\nSure, you could say \"I'll avoid all of these pitfalls if I partner with someone who knows more than I do about CRE, someone who's an expert.\"  To that I say: \"So what are you bringing to the table?  A winning smile and a can-do attitude?  I have a meeseeks box...I'm good on those.\"  But seriously, you need to be educated yourselves so you know who to bring to your team AND you have to be able to bring something to the deal yourself.   When I first joined a board as a director for a nonprofit, I learned of the three Ts: Time, Talent, and Treasure.  You have to at least bring one to the table (you're either going to do the work and add value directly, you know who can do the work and add value with your network, or you're going to contribute $$ and add value to the organization this way).  Similarly, think about what you bring to the table for a CRE deal.\n\nLastly, but most importantly,  read read read read and become a sponge when it comes to CRE.  Learn everything you can, keep up with books, news, journals, and magazines for commercial.  If you can work for a CRE firm (either investment or development) in any capacity, it would benefit you greatly and you will learn so much!  Good luck!!  And if you need any materials, reach out.  (Sorry to anyone that's still waiting to hear back from me, sometimes my inbox gets cluttered and I might miss your messages!)", "replies": [], "depth": 1}]