Commercial Real Estate Investing From A-Z

In this episode we cover what does the base year mean in office leasing, what are specific things that startups want to negotiate on a lease, what happens when a startup goes out of business, LOI’s, lease negotiation & TI’s (also called lease concessions), and lastly, what makes for a good office landlord. You can read this episode here: https://montecarlorei.com/office-leases-lease-negotiation-points-what-makes-for-a-good-landlord-what-does-base-year-mean-on-a-lease/ For offices, are the leases typically NNN? No. It's typically what's called a "full service lease" where you pay your rent, and it's pretty much in all in rent. The landlord covers the utilities, the janitorial,  the operating expenses, and real estate taxes. The way that it works is you get what's called a base year. So let's say we completed our lease in 2019 and we do a three year term. You get a "base year" and 2019 is your first year, you don't need to pay any real estate taxes and operating expenses. But in the following year you are responsible for paying your proportionate share of the increase in operating expenses and real estate taxes. So let's use round numbers, for example let's say that you occupied 10% of a building. The operating expense in real estate taxes were $100 in 2019 and they went up to $200 in 2020, a $100 increase. All you need to pay is your proportionate share of $100, in this case $10. But as you do a long term lease, 7-10 years, it's growing every year, and that number can become significant. So a lot of companies will renegotiate their lease, they will do what's called an extension, or they'll expand and renegotiate the lease to get a brand new base year so that they don't have to incur those costs. Has it ever happened that a startup went out of business, and what happened to that contract? What are the recourses for the landlord?  They go into what’s called a default and the landlord eventually ends up needing to collect their money. This situation has come up numerous times and what we do is find a new tenant to sublease the space. We market it for sublease, and once you come to an agreement on terms, the landlord will say “Okay, instead of subleasing from this company who has gone bankrupt, we’ll wrap up that lease and do a new direct deal with this new tenant”. So we’re able to bring a new tenant into the space and, by doing that, cut our client out of any rent responsibility moving forward. What are some specific things that startups want to negotiate in a lease that we haven't covered yet? The few things that we've covered so far are the big items such as rent, term, free rent, tenant improvement allowance, and the security deposit. Things we haven't talked about yet are: let's say a landlord is forcing us into a five year deal, but we know we're not going to be able to make it for the full five years. We try to negotiate a termination option where after three years we can terminate with no penalty, or a very small penalty such as two months rent. Another item is sublease rights, a landlord will generally give you the right to sublease, but any profit that you get for that sublease is split 50-50 between the tenant and the landlord since they want to discourage tenants to take space and sublease for a profit. When you're in rapid expansion mode we try to negotiate what's called a right of first refusal, where if a space becomes available in the building, the landlord is required to present it to the startup first at a fair market value. Reuben Torenberg reuben.torenberg@cbre.com Steffany's Linkedin: https://www.linkedin.com/in/steffbold/ --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

In this episode, we interview Reuben Torenberg, a commercial real estate broker who specializes in helping startups, technology companies, and venture capital firms find office space in the San Francisco Bay Area and beyond.  You can read this episode here: https://montecarlorei.com/what-do-startups-look-for-when-leasing-an-office/ What do startups look for when leasing an office? Every startup is in rapid growth mode. At the very beginning you don't know exactly what your projections are 12 months out, even six months out. So you are looking for a space to do a few things: 1. Attract talent. 2. Manage growth. You don't want to get an office that's too big and be hemorrhaging money. 3. Staying flexible. It's very hard both in San Francisco and throughout the world to find space that will let you stay flexible as you continue to grow larger, as landlords are looking for three to five year terms. You have to be creative in how you're able to position your client to stay short term. One of the things you can do is actually get into subleasing. A lot of companies that are growing too quickly or shrinking faster and they'd hope need to offload space for 12 months, 18 months, which tend to be very, very attractive situations for our clients. Who would be responsible for subleasing that space? The tenant or the landlord? The tenant is responsible. They become a sub landlord in that instance, and they put the space in the sublease market, usually at a premium here in San Francisco because it is so attractive to startups. And then once they managed that whole leasing process, they need to get the landlord's consent where they present the sublease to the landlord and the landlord has 30 days to say, yes we would like this new tenant, or no. Another huge thing for startups is being near public transit. Attracting talent in San Francisco has become extremely difficult. They're now looking to the East Bay. There's also a lot of talent down in the South Bay with Stanford, with Berkeley in the East Bay. Being near Caltrain and being near Bart is a huge plus, and rents are much higher near those areas. So startups try and find something in between. Subleasing is one option.  What are some other things that they look for when leasing an office? It all ties into the big main question: will this place help us attract talent? Once you get past that, it goes into a lot of the comfort stuff, so a big one is how many meeting rooms are in this space. A lot of times startups like to be in wide open environment to maximize the amount of people you can fit in, and to endorse collaboration, to have everyone talking, hanging out, help the culture. But everyone at some point needs to enclose themselves in a room to have a private conversation. The question is, are there enough meeting rooms for us to fit? This is frequently a pain point. We have a metric actually for it, and it will vary between companies, but we say that startups should have at least one meeting room for every 7 - 10 employees. So if you have 50 employees, you should get at least five meeting rooms. Another one is size. Can we fit all of our employees for the duration of the term? If this is a three year lease, but we're going to be blowing out of it in a year, do we need to take on more space? Are there enough restrooms? Reuben Torenberg: reuben.torenberg@cbre.com Linkedin: https://www.linkedin.com/in/reuben-torenberg-b985b646/ Twitter: rtorenberg021 Instagram: rtorenberg021 --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we are reviewing the Investors Summit at Sea. I’ll also share a few lessons learned on this cruise that are simply invaluable. You can read this full episode here: https://montecarlorei.com/review-of-the-investor-summit-at-sea-and-lessons-learned/ Lessons learned specifically for real estate investing: – Have a team, management is key, get very good managers. – When things go wrong, it’s almost always because you had the wrong people in the wrong chairs. – Don’t try to do things that are too small because you cannot afford to get the right people in the right chairs, so go big in order to be able to afford the right people. – Really evaluate if you want to get into a tertiary market. – Cut your losses early. – A market has thousands of submarkets. Just like within your city, there are very good areas and within that very good area, or that upcoming area. – Make sure to change your investment strategy if it is reaching a peak. – Don’t say I can’t do it. Say, how can I do it? (you can do a joint venture deal, you can get a few partners, etc). – Always be building and growing your team. – The best time to get started is yesterday. – Get mentors and ask them questions that you already think you know the answer to. – FHA HUD loans can take a while to get approved, they have heavier fees, but when it’s done, you get a 40 year loan, fixed, non-recourse debt. This is very good for construction loans and refinance loans. – Don’t wish for no problems, wish that you get better at solving them (I love it!). – Statements, close the mind, questions open it. (Double love it!) How you can prepare for what is coming in the economy: – You should have five uncorrelated assets. For example: real estate, gold, stocks, and a couple of other things. – Lock your rates for 10 to 12 years, and get 30 year loans. You should have at least six to 12 months worth of operating expenses as a backup. – If you are a syndicator, you should always have cash calls in your paperwork. – Underwrite your deals based on historical rent and historical cap rates (rates similar to when we were in a recession back in 2008). What have I learned about the economy and government: Here I encourage you to do your own research to learn more about these topics: – The federal government hasn’t been audited. Has anyone thought about that before? – Pension funds are America’s greatest retirement crisis in history. State pension funds are not governed. – Fidelity Investments has $7 trillion under management, $2 trillion of that is in 401k’s, and their fees are $40 billion per year. – Inflation is a form of taxation. The Fed is committed to increase inflation by 2% every year. – The money we deposit in the bank is not ours anymore. The bank now owes us that money, this was passed very quietly under the Obama administration. – The number one asset in a government bank is student debt. It’s the only thing that you cannot remove in a bankruptcy. – If you want to revoke your citizenship here in the US, you owe the government three times your income. and if you owe $50,000 in taxes or more, they may revoke your passport. – At a $100,000 income, if you pay 40% taxes, and if you put your remaining money ($60,000) at a 12% return, it will take you 5.5 years to get that money back to $100,000! The next Summit will be from June 11th -20th, 2020. Sign up for the Summit at Sea here: https://realestateguysradio.com/summit/ Make sure to mention Steffany Boldrini to get $100 credit in the ship, which can be very useful for internet usage. --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we interview Adam Carswell, a Director with Concordia Realty and a Business Development Manager with Asym Capital. He focuses on retail, mobile home parks and self storage.  You can read the full interview here:  https://montecarlorei.com/retail-investing-strategy-why-be-optimistic-about-retail/ What is your business model? Why do you guys invest in the properties that you invest in? What is your strategy? My business partners at each firm go about things in different ways. Starting with Asym Capital, Hunter Thompson (the host of the Cashflow Connections Real Estate Podcast) focuses more on the syndication side of things, we look to partner with experienced operators, and as you can see with our track record, we really take our due diligence with operators and sponsors seriously. The level of due diligence that we do, not only on the asset or the deal that we're going into, but on our sponsor at underwriting is literally what I would call next level. And that's one thing that I've been fortunate to be in an environment like that, with someone who is this diligent. Transitioning to Concordia Realty and Michael flight, we are retail focused, shopping center focused, and we look for opportunities to add value to shopping centers anywhere across the US. We normally will stay away from primary markets, but we do like secondary and tertiary markets. We like for our shopping centers to have a grocery store as an anchor, and at least one, and sometimes two discount stores in the plaza as well. So that could be a Family Dollar, Dollar Tree, Dollar General, etc. Drugstores are always good too: CVS, Walgreens. If we see a shopping center that fits that mold and is less than a hundred dollars per square foot, we will take a closer look at it, put it through our financial model, make assumptions and see if it will be a good fit for us and our investors.  Can you share with us why are you optimistic about retail nowadays? The first reason is that Amazon invested $13.7 billion into brick and mortar. That's a lot of money! And a company like Amazon has a lot of data that they have access to, and the amount of information that they have access to is also next level. There are very few people that can make a move like that. Sears is also doing a few things in retail. The second reason is when you look at life in general, and you look at trends, and you look at things that people gravitate towards, retail has had its moment of super success and it's had its moments of no success. Kind of like what we're going through right now, but it's all cyclical. Retail has been around since the Roman Agora. It just evolves and takes a new shape and a new form. You had the general store in the 1900's, and then you had Sears catalog, which killed that general store. But then Sears did brick and mortar after the catalog with all their department stores. Amazon is like the new catalog that came out and kind of killed the brick and mortar movement. But again, it's, it's just very cyclical. Right now is the perfect time to start at least researching and learning as much as you can about retail real estate because it is going to make a comeback nationally, and it's not going anywhere. It's just going to evolve. Contact Adam Carswell here: carswell.io adam@carswell.com  iTunes: https://podcasts.apple.com/us/podcast/dream-chasers/id1441685534 Spotify: https://open.spotify.com/show/0fqzz3iJS2uARrz4N6dlmN?si=1Yjisi-JSRK_1vRyU34JWA --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we’re interviewing James Chung, he is the Executive Managing Director and Managing Principal for the Western US for Cushman & Wakefield's Retail platform. He has been with the company for 15 years and has worked with over 30 national tenants and over 9 million sf of retail across the Bay Area in Silicon Valley. Some of his clients are: AT&T, Chase Bank, Adidas, In&Out Burger, and Sur La Table. Read the full interview here: https://montecarlorei.com/lease-negotiation-points-for-national-tenants-lois-what-happens-when-a-tenant-goes-dark-part-2-of-2/ In terms of leasing retail space to a national tenant, what makes a national tenant want to lease a particular space? Every tenant has a different purpose, and each tenant also has a different requirement for the optimal environment for which they can thrive on, and we are often involved in developing a strategy for them in our market. For example, some tenants only want to lease in grocery anchored shopping centers, and they only want to look at a Safeway or Whole Foods anchored center (or the like caliber). Or we could be working with a 100,000 sf box tenant who needs a certain amount of land, they need access to major freeways, and they need the demographic to be above a certain threshold within a 1 – 3 – 5 mile radius ring area. Or we could be working with food tenants who just want to be on downtown, street front environments where they want to be part of a community, there is a lot of foot traffic, and they don’t want to be in a shopping center. In order to help them position themselves in the market it depends so much on the tenant and their process. We also provide analytics on anywhere from psychographic, to demographics, to data on their competitors and sales volume, so there’s a lot of information that goes into the analysis of an opportunity and while one person’s success or failure won’t dictate the success or failure of the tenant at hand, it at least gives a certain starting point of who has done what in a particular market. The appetite for growth is so unique to each tenant that it depends on their requirements, some people are positioning for public events, some are repositioning the market, some people are closing stores, and only want to combine units, so each requirement is truly unique, which makes our job unique. James likes the work he does with a lot of household names that we see, and being able to walk in the stores, shop at them, and eat at them after completing the process. The deal cycles may take a few months to a few years and it’s fascinating when he sees the body of work in the form of storefronts, or a restaurant as a living organism since it creates jobs, it is feeding people, or simply seeing people buying clothes, it’s very rewarding to him and some of the reasons that it attracted him to retail. Once we’re past the LOI Are they going to try to renegotiate the price when the lawyers get involved? Typically no, it is assumed that the business items have been agreed upon, and at that point you’re only negotiating the legal language. What are some deal-breakers for national tenants that we as investors should be aware of? It depends on how bad they want the site. For example, for a lot of landlords, termination clauses are deal breakers, that means early kick out language and things like that, but ultimately everything is negotiable, so the deal breakers will be dictated by the opportunity and the players at the table, unfortunately there is no standard there. Contact James Chung here: http://www.cushmanwakefield.com/en/people/james-chung --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today we’re interviewing James Chung, he is the Executive Managing Director and Managing Principal for the Western US for Cushman & Wakefield's Retail platform. He has been with the company for 15 years and has worked with over 30 national tenants and over 9 million sf of retail across the Bay Area in Silicon Valley. Some of his clients are: AT&T, Chase Bank, Adidas, In&Out Burger, and Sur La Table. Read the full interview here: https://montecarlorei.com/leasing-retail-property-to-national-tenants-and-what-to-look-for-during-due-diligence-part-1-of-2/ Tips for Listing Retail Properties for Lease and What to Charge Tenants per Square Foot First you need to understand the health of the shopping center, and one way to do that is to understand the health ratio of the tenants. The health ratio is the relationship between gross sales and total occupancy cost. Then go through the health ratio tenant by tenant, and understand if the rent they're paying is equitable to their sales performance. The challenge with pricing is that geography will often dictate pricing. However, you can have an asset next door to you charging half the rent! Part of that reason is co-tenancy, part of it is how updated the center is, part of it is who anchors the center, as well as how accessible the center is. Retail is not commoditized in the way where we can say "By virtue of being on this block or that block, your rent should be X", it's like when you are getting comps for a home, the price/sf in that area gives you an indication, but it is within 10 to 20 to 30% of where things could be, depending on the home itself. Block-by-block can change dramatically. Are the tenants in place at highest and best use for the positions that they are in the shopping center? What are the lease expiration dates, who's lease is coming up and when, who is healthy or not, where we could reposition tenants, etc. What are Good Types of Tenants to Have in Your Center? It depends on the opportunity, if it's a neighborhood shopping center, the most coveted asset class would be a grocery anchored shopping center. One of the most desirable investment opportunities for people, especially in the Bay Area are grocery-anchored centers in the retail space. If you're in any neighborhood, if there is a strong national grocery tenant who is the hub of the center - that is typically the most desirable. Besides that, there are lots of asset classes like malls, lifestyle centers, outlet malls, and so many different types of shopping centers, but if he had to pick one, he would probably say grocery anchored. How Can We Make Money in Retail When the Cap Rates Are so Low in This Market, and What Should We Look For in a Deal? Low cap rates are actually not necessarily a bad thing if the income on the property is under market. Even if you're paying 3.5% cap on a deal but the rent is 50% of what it should be, that's when market intelligence comes into play, and understanding how things are being underwritten. There is currently a compression in cap rates just by virtue of geography and being in Silicon Valley, but there still are great opportunities out there, you just may not find them listed openly. It's about understanding how to unlock the value in whatever asset you're looking at because there are many ways to skin the cat, and oftentimes people are looking at it very one-dimensionally, when in fact there may be multiple ways to create value. Contact James Chung here: http://www.cushmanwakefield.com/en/people/james-chung --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

In this and final episode, I'll go over the financials and how I made the decision to move forward (or not!) with the purchase, and then we'll come to a conclusion at the end. You can read the entire episode here: https://montecarlorei.com/my-first-commercial-real-estate-offer-what-happened-part-3-of-3/ When we made an offer on this theater that had been abandoned for 30 years, we had three options in mind: 1. Do a very basic remodel and sell it. 2. Go all the way with the remodel, bring the property up to an impeccable state, and run it as a business: running events such as corporate events, weddings, parties, etc. 3. Remodel as much as we should, rent it out to a tenant, and decide then if we would sell it or keep it. Since we were unsure how the economy was going to go by the time the construction was done, we had to be very conservative. At the time of purchase, the cap rates were at around 6% for the area, and we wanted to think ahead and in case the economy took a hit, so we also ran the numbers at an 8% cap rate. Why? When the economy tanks, cap rates to go up because people are able to buy less property (because interest rates are higher and banks are more conservative), and there are more "discounts" happening (because less people are buying), that's why we had to calculate an increase of 2% in the cap rate, just in case that there be something going on in the economy by the time that the property was fully remodeled. This is a very important calculation for all of us at this time in the economy. Calculation breakdown for construction costs: Construction costs: the best case scenario was $780,000 of renovation costs, the medium case scenario was $1,000,000 of renovation costs, and the worst case scenario was $1.5M of renovation costs, plus the purchase price of $430,000. At the worst case scenario, we could have ended up with almost $2M in total costs, in which case we’d definitely have to sell above that number. Options for what to do after renovations, and their associated costs: 1. With our first option of doing the very basic remodel of $780,000 of minimum renovation and selling the property for a worst case scenario of 8% cap, we would be making around $200,000 – at this number it was not worth the headache for us. 2. The number two option was to remodel incredibly well and run it as a business and do events. For this option, I contacted quite a few events places in the area and I found one place that was very comparable to ours. They were charging around $5,500/event which included security, tables, chairs, linen, staff, water bill, electricity bill. I estimated that out of that $5,500 we would probably end up keeping around $2,000-$3,000 per night. In the worst case scenario we would rent it for 40 nights per year, and in the best case scenario we would rent it for 60 nights per year. I was also adding a revenue for a church to hold services on Sundays for a few weekends during the year. At the end of the calculations, our net income on the worst worst case scenario would have been around $110,000/year, in the best-case scenario would have been around $160,000/year, however this was very conservative at a net revenue of $2,000/night. Out of these three options, we were calculating the least amount of construction costs that we were going to incur, as well as the highest amount of construction costs. Because we didn’t know exactly how much the construction cost would end up being until we started the construction, we had to understand the minimum cost, and the maximum costs we could end up incurring. --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

In this episode I'm going to share the things that we had to do on our own during the due diligence process of my first offer, as well as the things that our attorney looked at and objected to on the title report. Read the full details here: https://montecarlorei.com/my-first-commercial-real-estate-offer-what-happened-part-2-of-3/ What did we on our own: 1. Checked Geotracker which is a website to see if there is contamination near the property. This helps us understand what our Phase I report will probably look like. The Phase I report is an environmental report that costs around $3,000-$4,000 and that you must do in order to see if the ground of the property is contaminated. If it is contaminated, it’s going to be very costly to decontaminate the property, and the city will make sure that you eventually decontaminate the grounds. It’s very important to know if your property is contaminated or not. When you search Geotracker, you’re able to have a preliminary idea if it is contaminated or not, based on existing data. 2. Checked the current assessed value of the property to see how much taxes they were paying. 3. Reached out to the City Department Services Division, and the Community Development Division and asked to see if there were any approved permits for the property. I also had to find out information on zoning in the downtown area to see if we could do what we wanted to or not. 4. Because we were potentially going to run this as a business and do events in the property, I had to check prices for the following: audio and visual installation, new chairs, how much it would cost to level the floor, how to dispose of the existing chairs (could we sell it or not?). I also had to find out how much we could charge per event and the costs associated with that (tables, catering, security, electricity, water, etc). Reports that we paid for during the due diligence process, and the contractors that we had come by to give us quotes: 1. Phase I Environmental report: the report came out clean (as we expected after checking Geotracker). 2. Roof survey: we found out that it was going to cost us around $127,000 for a new roof since the existing roof already had three layers on it, and we could not add another layer. We had to redo the roof from scratch. 3. Structural engineer: we had one come by to assess the structural damage and do a shear wall test – this meant that he was going to test how strong or how weak the wall was and he was going to tell us if we had to redo the wall entirely, or just reinforce it. 4. Architect: the architect came over to assess some of the costs that we were going to incur during the renovation. 5. I had to find a person that was working at Calwater (California Water Service) in order to find out where there was a water source for the building. Also, where was the line, and if there were fire hydrants near the property. During this process I learned that in California the businesses are the ones who have to pay for installing a public fire hydrant if the property does not have one nearby! This alone can cost at least $50,000. We had to understand how much it would cost for us to pull in water for the fire sprinklers because the property was not up to code and we would have to install fire sprinklers. 6. Fire sprinkler contractor: he came over to give us a quote on how much it would cost to install the fire sprinklers. We ended up finding out that we would have to bring water from the back of the building to the front, and that was going to cost quite a lot of money (I believe it was around $100,000). --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

In this episode I’ll go over my very first offer (which happened about 4 months into my real estate education).  You can read the process here: https://montecarlorei.com/my-first-commercial-real-estate-offer-what-happened-part-1-of-3/ This will be broken down into a few episodes because it’s going to be a detailed explanation from beginning to end, and it will be as follows: How did we decide to make an offer on this property What did we ask the real estate agent to send us during the due diligence process Are we running this as a business or selling after remodeling, plus all the financial calculations Which items our attorney looked at and objected to from the title report What ended up happening and conclusion Things to note on the offer agreement We used the standard commercial offer agreement, and as noted above, we had to give the seller all of the inspections if we didn’t end up buying the property, so they could give them to the next buyer. A few other things that I highlighted on the purchase agreement were: 1. We needed to deliver the removal of contingencies or cancel the agreement within those 45 days, 2. If there was any problem with his purchase, we would have to resolve it through arbitration, 3. Both buyer and seller pay for escrow fees, the seller pays for County transfer fees, the seller pays for the city transfer fee, the buyer pays for all the reports, and the buyer also pays for the title insurance policy. These are just standard terms and we agreed to them. Things to ask the real estate agent to send during the due diligence process: 1. Recommendations for Structural Engineers, roof inspector, and contacts in the city of Salinas since she had been a broker there for a very long time, and she knew quite a few people. 2. The last structural report done on the property. 3. The blueprints so we can give them to our architect, otherwise if the architect did not have the blueprints we would have to pay around $10,000 to get have them redone. I needed those blueprints not only in paper format, but also in digital format since I wanted to forward it to our architect digitally via email. Both of these cost money so since she had the original blueprint (and it was about 11 pages long) she had to scan the blueprints and send them to me. 4. Rent comps, and sales comps in the area. Both of these are important in order for us to understand what we could rent the property for (and therefore what we could sell the property for), and what were people paying in that area once the property was fully leased and fully remodeled. All of this information was used in my financial analysis to do a best and worst case scenario so we could see what was going to be an ideal price for this property. Note that I asked for leased comps and sales comps from two different real estate agents and both of them provided me different numbers so I had to average them out to come up with the final number. You really want to make sure that you ask for comps from more than one real estate agent. 5. The lease for the nail salon, they were on a month-to-month lease and I wanted to understand if they were below market or not. It’s also important for us to have a copy of that. 6. Who the owner of the building next door was, because we were sharing a wall with them and we needed to understand if they did anything to the wall or not.  --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support

Today you will learn why I picked commercial properties for my real estate investments and not residential properties. But first, let’s learn what types of properties fall under “residential investments” and what types of properties fall under “commercial investments”. You can read this episode in detail here: https://montecarlorei.com/why-commercial-properties-and-not-residential-for-real-estate-investment/ Residential Properties: Residential are properties where people live in, where people have their bed and pillow to sleep on at night, so it’s not only single family homes, it’s also duplexes, triplexes, fourplexes, mobile home parks, multi family properties like apartment buildings, high rises, lofts, student housing, and senior housing – and each of these categories have their own pros and cons! Also, each of these categories can be good or bad investments depending on the state that you invest in because of things like property prices, local economy, and state and city laws (i.e. some states have laws that benefit the tenants and you cannot kick them out, some states have laws that benefit the property owners, so if a tenant doesn’t pay the rent, they are out of the property within days). Commercial properties: 1. Industrial: distribution center, warehousing, or manufacturing 2. Office: you can have a regular office that you lease it out to several companies, lawyers, etc, or you could have a medical office building (for example) where you lease to a hospital, or to dentists, dermatologists, psychologists, etc 3. Retail: within retail you can have a single tenant building, for example in the downtown area of where you live, you can own a building that is leased out to a coffee shop for instance, or you could have a restaurant in your building, so that’s a single tenant retail. Another type of retail is the small neighborhood service center, like the places that have 5-10 tenants where you go to the dry cleaner, and there’s also a nail salon, or a cash advance business for example. Another type of retail can be a strip mall with let’s say 20-40 tenants, like the place where you go grocery shopping and they also have a bank as a tenant, some food places like Burger King or a big box shopping center where they’ll have a Target, Macy’s, a food court, etc 4. Storage units: this is where people pay you a monthly fee to keep things they’ll never need in your building, and within storage you could focus on storing wine for instance, because people like to collect, but don’t have a lot of space to have a temperature controlled storage at home. If you have a lot of courage, you could store gold for people 5. Land: you could lease your land to all kinds of businesses. For example: for agricultural purposes, to wind farms, for RV’s to park for a few days, for truck drivers to park their trucks when they’re on the road Why commercial and not residential? 1. NNN: this means that your tenants will pay for property taxes, insurance and common area maintenance (also known as CAM), this doesn’t happen in residential 2. With commercial properties you also get better tenants, you can get big companies such as Jack in the Box, or a bank, or a supermarket, and if you can get big name tenants to lease from you, you can increase the value of your property significantly. Why? Because these big companies are unlikely to out of business and the rent is pretty much guaranteed to come in, and the next investor buying your commercial property values that 3. Commercial tenants also sign longer leases: commercial leases can vary from 10-20 years, and sometimes more, there are yearly price increases that are negotiated on those leases, the leases typically start to get increased after year 5 for commercial properties --- Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support