Commercial Real Estate Investment Groups: What are They and How Do They Operate?

If you are interested in investing in commercial real estate, then it helps to get involved in networking in the field. Commercial real estate investment groups can be found online that educate and direct you into the world of commercial real estate investing. Like many other investment strategies, it is very important to know the details of commercial real estate investment groups. In this article, I will try to give the basic information to you.

Let’s jump in to the Commercial Real Estate Investment Groups:

Commercial Real Estate Investment Groups

Commercial Real Estate Investment Groups

 

Taking the Next Logical Choice – Commercial Real Estate Investing

Investors typically turn to commercial real estate investing when they feel they have come to a crossroads in their investing career. Most do so after venturing into the residential real estate market. After all, if you are used to buying, selling, and managing residential properties, taking steps into the commercial field seems like a logical move.

Testing the Commercial Waters

If you are used to working with realtors, painting contractors, and rehabbers, taking steps to network with commercial real estate investors is a decision that seems to make a lot of sense. However, when you start to look at the commercial properties on the market, you may feel discouraged. That’s because the prices are often out of range.

That is when you should be networking with like-minded investors. If you have experience raising private money, you can easily join a team and assist in raising funds for private capital. Even if you don’t have that kind of experience, you can learn from others in the group. When you take their kind of approach however, you can make sizable purchases without using your own money. However, keep in mind that you will need to work with others in a group… It is important o be in a group that you can work with easily.

 

How Commercial Real Estate Investment Groups Work?

By using private placements, you can obtain the money you need to succeed in commercial real estate. For instance, by joining a commercial real estate group you can assist in raising funds for down payments and improvements as well as obtain owner financing.

 

Working with Private Placements

Private placements insulate owners from most of the liability or risk. Therefore, you can turn commercial sites around in a short amount of time (about five years), raise the rent, refinance, and pay back the private investors. With that kind of approach, you can actually own millions of dollars of commercial real estate.

If you are wondering how a private placement works, you can gain first-hand experience when you are part of a commercial real estate investment group. To give you a brief overview, a private placement represents a sale of securities to a small number of investors.

The Difference Between Private Placements and Public Issues

Placements make it possible to raise capital. The investors are normally large financial institutions, insurance companies, and pension funds. Private placements differ from public issues in the way they are issued. That’s because public issues represent securities that are sold on the open market. Therefore, these types of securities are available to just about any kind of investor.

Since a placement is offered to only a few select individuals, it does not have to be registered with the SEC (Securities and Exchange Commission). In a large number of cases, detailed financial information is not disclosed, and the placement is not issued along with a prospectus.

As a result, underwriting the security is quicker, which permits the issuer to receive proceeds from the sale in a shorter amount of time. If the issuer is selling a private placement bond then, the cost and time incurred for obtaining a credit rating is completely erased. Therefore, a private placement issuer is able to sell a more complex type of security to investors who understand both the rewards and risks.

However, a buyer of a private placement bond issue anticipates a higher interest rate than he can earn on a public traded security. Because of the risk involved in not obtaining a credit rating, the buyer cannot purchase a placement bond unless said bond is secured by specific collateral. As a result, a private placement stock investor may want to participate more heavily in the ownership of a business. He may also expect to receive a fixed dividend payment for each share of stock.

 

Looking at the Advantages of Owning Commercial Properties.

Even with its drawbacks, working with other commercial real estate networkers has far more advantages. For example, the economy of scale is better when you own commercial real estate, or property that you secure with the assistance of other investors. You can also manage more apartments or offices than you can residential single-family homes.

Owning large commercial properties in this manner also reduces the need to secure a large number of contractors. The contractors that you do hire will work at a discount as well as they are working on sizable properties. All the carpeting, paint, and furnishings are generally too, which simplifies the maintenance for a property.

Net Operating Income

While replacement values and comps do play a role in valuing a commercial property, the actual and true value is determined by the NOI, or the net operating income. The net operating income is the gross income minus the operating expenses. For example, if a property that is priced at $1 million returns a $100,000 NOI (10%), it suddenly becomes very desirable. This ideal rate of return is also known as the cap rate.

Flexible Financing

When you work within a commercial real estate investment group, you can buy multi-unit properties, again, with little or no money down. That is because, once more, you are working with private money partners. Commercial financing arrangements are frequently more flexible than residential loans as well. In addition, you can use a combination of financing arrangements.

For example, if you are purchasing a commercial building for $10 million, you may obtain financing from the bank for $8 million. The rest of the purchase price can be raised with private money and owner financing. In this case, the seller may hold a second mortgage for $1 million. In turn, a private placement could be issued for the remaining $1 million, all which would cover the renovations, capital and closing costs.

This type of scenario is what you can experience when you network inside a commercial real estate group. If you wish to dive into the commercial pool and take action, you need to join a commercial real estate group, make inquiries, read, and do your due diligence. Just get started today. And don’t forget 😉

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