SPONSORED: Commercial Real Estate Investing 101 — understanding the opportunities

Any property, whether commercial or residential, can be a good investment opportunity.

Real estate is an attractive and often preferred investment alternative in a volatile market. Any property, whether commercial or residential, can be a good investment opportunity. Dollar for dollar, commercial properties generally offer more financial rewards than residential properties, but inherently carry more risk.

When investing in commercial real estate, it is important for you to determine your investment objectives and risk tolerance before purchasing a property. Do you want to produce consistent cash flow, diversify your capital, plan for your long-term retirement, or something else? Your risk appetite may change depending on your goal. At Visintainer Group, we work closely with our clients, so that they understand the fundamentals and risks of commercial real estate, enabling them to achieve their investment goals in their own comfort level.

Investors are faced with many options, but by using a financial goal as a basis, the strategy can be easily determined. Below is an overview of the benefits and risks of single tenants and multiple tenants, so you can start thinking about what best suits your goals.

Sole tenant investment

A single-tenant property is exactly what it sounds like; it is a property that is fully occupied by one tenant. Single-tenant buildings are typically occupied by rated national tenants with corporate-backed triple net leases, such as Starbucks, McDonald’s, Chick-Fil-A, Walgreens, AutoZone, Dutch Brother’s, and 7-Eleven, to name a few. name a few. Owners of single-tenant buildings collect monthly rent checks from these companies. The single tenant market includes a variety of critical investment sectors including: medical, QSR (Quick Serve Restaurants), automotive, drug, gas, grocery and more.

In today’s market, and depending on geographic location, a single-tenant investment property with a strong national tenant can be priced anywhere from $1.5 million to over $10 million with a typical cap rate ( CAP rate) between 3.50% and 5.50% (cap rate = net income ÷ purchase price). For example, on a $1.5 million transaction, a cap rate of 3.50% would generate $52,500 in net income. Generally, the lower your CAP rate on your investment, the less risk you have with tenant credit, remaining lease term, ownership involvement, and location.

Advantages:

  • — Long-term leases (generally 10 to 20 years)
  • — Predictability of income and returns
  • — National credit tenants with leases guaranteed by companies
  • — Minimal or no liability of the owner
  • — Long-term passive income
  • — High liquidity

Risks:

  • — Often the lowest yields on the market (3.50% to 5.50%)
  • — High price per square foot and sometimes irreplaceable rents
  • — Decrease in property value as lease term decreases
  • — Occupation all or nothing
  • — High costs to fill the vacancy if the tenant leaves

Multi-tenant investment

Multi-tenant investments differ in multiple ways from single-tenant assets. They can offer investors attractive returns, but carry greater risk and owner involvement. A multi-tenant building can have as few as two tenants or more than twenty. Multi-tenant properties allow, or may require, landlords to have greater control over day-to-day management decisions, expenses, negotiations, and rental terms involved in the investment. Depending on variables such as location, tenants, and lease terms, multi-tenant prices can start from as low as $1 million. There really is no limit to how much you can invest, depending on the property’s net operating income (NOI).

Advantages:

  • — Offer higher returns than single-tenant investments (cap rate of 5.00% to 7.00% on average)
  • — Mix of tenants and diversified incomes
  • — Multipurpose spaces that new tenants can occupy or repurpose
  • — Staggered expiry of leases
  • — More control to increase rents and return on investment

Risks:

  • — High operational costs and fees (property management, repairs and maintenance, rental commissions, tenant improvements)
  • — Greater involvement of owners
  • — Shorter lease terms (typically 3-5 year terms and sometimes month-to-month)
  • — Higher risk of vacancy
  • — Ongoing lease negotiations and renewals
  • — Efficiency of tenants (franchisees, independent operators)
  • — May require additional capital investment (renovations, building replacements, updating property)
  • — Competitive rental
  • — Complex accounting

What is best for you

In comparison, single-tenant and multi-tenant investments offer a variety of advantages and disadvantages to an investor. Determining your goal and risk tolerance will allow you to decide what is best for your current financial situation and lifestyle. If you’re looking for passive income for retirement and diversification, investing in a single tenant might be right for you. If your risk tolerance is higher and your goal is to generate wealth, then multi-tenanting might be a better option.

Consult an investment professional

When investing in commercial real estate, it is crucial to have a solid acquisition strategy in place before deploying your capital. Within the Visintainer Group, we carefully analyze the situation, risk tolerance and objectives of each client in order to develop a personalized strategy adapted to their needs. Whether buying your first commercial investment or adding to your portfolio, our proven track record and market knowledge ensures clients invest in the property that best suits their needs. their goals, not ours.


John Kourafas, CCIM, is a commercial investment advisor with the Visintainer Group in Fresno, California. Formed in 2018 and built on a real estate investment foundation, Visintainer Group is a client-focused commercial real estate company. The Group has executed over $500 million in transactions across the United States. John specializes in commercial property acquisitions and dispositions for owners in the Central Valley, Sacramento and Central Coast markets. He can be reached at 559.890.0419 or [email protected].

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