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jazzyaldan 12-05-2011 08:48 PM

The Commercial Real Estate Business
 
I already feel your skepticism. Buy commercial real estate? This year? Doesn't this guy know that vacancy rates are skyrocketing, unemployment is on the rise and market sentiment is that commercial real estate will be "the next shoe to drop"?

Actually, I do, and I want to be very precise with my strong buy recommendation. This article is specifically for business owners who are currently leasing space and who also intend to be in business for at least the next 10 years. If that's you, the remainder of 2009 may present the best buying opportunity you will see in your lifetime. Consider the following:

1) You Need a Place to Operate Your Business

This may seem obvious, but unless you've set up shop in your home, every business needs space to operate. You've already decided to be in business, now you must choose to either rent or own your space.

Real estate rental costs are typically the third largest expense a business incurs (after payroll and taxes). On average, lease payments typically increase by 3% or more per year, every year. Finding an ideal location to purchase can convert this large, consistently growing expense into an investment that you will someday recapture, hopefully with a nice profit, when you eventually sell the property.

Furthermore, you will be the owner of all tenant improvements you make to the property and never need to worry about a lease not being renewed or having a property sold out from under your business. Don't underestimate the pride of ownership you will feel as the owner of your business and the place from which your business conducts its business.

2) We Are in a Buyer's Market

This year is clearly a bad year for many commercial property investors; rental rates are down and vacancies are high. These investors, unlike business owners, depend on the rental income their property generates to pay the mortgage. The vast majority of investment property loans have balloon payments every 5, 7 or 10 years. In today's unstable market, banks are very conservative with property valuations and refinancing investment properties is harder than ever.

Many investors need to sell properties, even ones with positive cash flow, due to a lack of available financing. As a consequence, there are a large number of attractive acquisition opportunities available at historically low prices relative to the cash flow they can generate.


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