5 Best Commercial Real Estate Types for Individual Investors



hi this is Peter Hobbs from commercial property advisors comm and co-author of this book commercial real estate investing for dummies as well as coach and mentor to many investors across this great nation of ours the subject and title of today's video is called the five best commercial real estate type for individual investors so let's get started the five best commercial real estate type for individual investors are apartments sub storage shopping centers office buildings and mobile home parks and in each of those categories we're going to discuss why we invest in them the sweet spot and the pros and cons of each okay so let's start with apartments apartments are in the commercial business five units and greater all right four-plex triplex and a duplex is considered residential five and greater is commercial I am personally seen apartment buildings as large as a thousand units and as small as five units all across the u.s. why do we invest in apartments well there are several reasons first of all everyone needs a place to live so the demand is great next is cash flow you can generate lots of cash flow in the apartment business next is force appreciation that's right you can force the appreciation of your investment by increasing the rents and reducing expenses or combination the both the net result is your your improved bottom-line will increase your property value so you can force the appreciation next is apartments produce great tax shelters all right they do and lastly the apartments as you make your mortgage payments you're reducing your principal and you're creating equity so after a few years you'll be amazed at the amount of wealth you can rate by reducing your your equity I'm served by increasing your equity increasing your cash flow you'd be amazed at what you can create there now in my opinion out of these five the EES is to get into our apartments and the most difficult to get into would be office buildings which we will discuss in a couple of minutes okay next is the sweet spot what's the sweet spot in your part of business it is between 500,000 and 5 million I personally don't do anything below 500 thousand it just isn't worth the effort now anything above 5 5 million I avoid as well and I recommend as the individual you avoid as well because there's so much competition at that level you're playing against the big dogs the large institutions the the trust and folks like that where we can't compete with all right so the sweet spot would be between 500,000 and 5 million a calm for the apartment business would be if if your neighborhood developer is building or building new apartments now new bills can affect your ability to attract the best tenants so that will be con something to watch out all right and the other condom when discussed briefly would be sometimes people would do bad deals and that's that's definitely a con so I'm hoping that you'll continue to watch these videos and learn how not to make those mistakes okay alright next is self storage now sub storage are commercial buildings with individual rooms where people store their stuff and the the rooms or the units can be as small as 5 by 5 or 10 foot by 30 foot long and people store their stuff in there they can also store on the outside their RVs and their bolts and you probably seen these buildings as you drive along your freeway that a large single story of two-story buildings where there's roll-up doors all in a row all right okay next is why do we invest in self storage well the sub store business is is pretty much identical to the apartment business but you're missing two things is to your advantage to two things are you're missing tenants here and you're missing repair of toilets so you're missing tenants missing toilets here in some sort of isness and people love that so stores you can also create lots of cash flow and as well as force the appreciation now let's discuss the sweet spot for self storage I'm going to keep it simple for you the sweet spot for sub stores is to buy a large enough sub storage facility where you can employ a property manager okay so if you are a beginner do not try to manage this by yourself so buy a large enough self storage or sweet spot – big enough to afford a prompt manager alright don't do this yourself all right next is the pros and cons of sub stores compare this to apartments is it is not labor intensive or maintenance intensive meaning that there's no tenants so you have very few employees and also since there are no toilets and things repair as much it's not the maintenance intensive it well as well the evictions in sub storage are rather easy to do basically if someone doesn't pay or some skips town you can actually take their things and sell it for the rent to recoup your rent the next Self Storage Pro would be that experts consider itself stores to be recession proof and what I mean by that is during the economy when the economy is booming people buy extra I'm going to store their extra things and in what economy is tanking people downsize and need to store their the things they bought previously so it can be a win-win here is a con for self storage the con would be that if the neighborhood tank or neighborhood has decreasing value or is going the wrong way what can happen is it can make your self store facility not that desirable who wants to put their valuable things into a neighborhood where they don't feel comfortable driving to much less storing and so in the sub story business location location location extremely important the last con for self storage is that it can take a while to fill up your self storage to occupy all the units in your partner business everyone needs a place to live in a sub stores nut everyone needs storage so be careful there alright next are less we just discussed the apartments sub stores let's discuss shopping centers now I'm going to group shopping centers into one category if I may and I'm going to say that shopping centers are strip centers large or small and less include shopping malls indoors and outdoors okay we're going to lump them all together all right why invest in shopping centers well I would say stability stability is the word here did you know that most shopping centers the tenants sign a 5 to 20 year lease that is long-term income that's a good thing all right also you want to make sure your shopping center is that you are extremely selective in your in your tenant types what I mean by that is your 10 types we're going to attract your foot traffic foot traffic is going is going to bring you people to your shopping centers to use the artist shop at the stores and that's going to create value for the shopping center and its owner so they will stay there a long term do well now what you also wanna do is make sure that you pay attention to your your tenant mix want to make sure that that each tenant complements the other in other words that you compliment the foot traffic for each different tenant now for shopping centers a great tenant that we're being great foot traffic would be for example a grocery chain large grocery chain that's great another one will be a chain pharmacy like a CVS or Walgreens or riding will be there they will generate foot traffic for years to come again the sweet spot for shopping centers I would say as an individual type just beginning buy small start small and then scale up because the the con for shopping centers is that it is capital intensive meaning that you need lots of cash and what can happen is in your shopping center if let's say for example your anchor tenant your your your grocery store tenant moves up they can take your dick and take with them over as much as 25 to 3 percent of the income in meantime if they leave you're going to have to be paying the mortgage insurance of taxes while they're gone and while you're building up the place for the next tenant so you need cash to hold on to this alright next let's focus on office buildings all right so we covered apartments sub stores shopping centers office buildings now office buildings could be a single building with one tenant all the way up to a skyscraper that's 80 floors and dozens of tents so so from a single all the way up to a skyscraper all right why why do we invest in office buildings well when the economy is booming their risks can be astronomical they really can i person Slean office building investors and owners make tinta mein of dollars if not hundreds of millions of dollars by holding on to their office building for long term eight to ten years I've seen it alright the sweet spot for office buildings again start small by an office building with multiple tenants with long term leases alright next is the the con for office building would be office buildings tend to follow the economy so as the economy goes up your office building performance goes up as the economy goes down your office building performance tends to trail and it goes down as well so you have to make sure that that you follow the economy you painters in the coming cycle as you own your office building alright now one thing an ops building is one thing I would avoid I would avoid buying a luxury Class A office building and the reason why is again this is something that the big dawgs the large institutions the REITs all these big players go after the class a lecture buildings and they're overpriced because those guys will pay for that and as intimate investors we have to pay attention to our returns which should be higher than what those guys want okay all right lastly our mobile home parks now mobile home parks get a bad rap and over the years they have and just doesn't deserve it all right so here are two situations for mobile home park investments the first situation is you own the mobile home park and what you do is you rent to a person who has a mobile home and they put the mobile home on the lot and they pay you locked rent are you just renting out the dirt the second situation is you own the the lot the park and the home and you rent both of them to them we prefer and the experts prefer that you have the mobile home park and you rent up just the dirt and your reason why is to make sure that you're only paying to maintain the dirt in the surroundings and not the home mobile mobile homes can deteriorate very quickly and you don't want to get into the business that way if you're going to buy a mobile home park with lots of homes and take care of them you might as well do apartments right use the rinser much greater and you have a efficiency there all right next is why why do people in decimal home parks well they invest in and them not because they're pretty but because they produce cash flow so mobile home parks are a cash flow vehicle next is what's the sweet spot again I'm going to keep it easy for you there sweeps up the sweet spot should be buy a mobile home park that is big enough to employ a property manager now if you want to manage it yourself I still recommend you hire a management company or a manager put them on site learn from them and later on if you can do it yourself you can let them go and take over yourself but if you are just starting out how do you recommend you buy an a mobile home park big enough to employ a property manager now let's discuss pros and cons mobile home parks all right the pros are the demand promote from four mobile home parks all right affordable housing demand in this country is great and will continue to great degree now if you know that over the next 20 years there will be 10,000 baby boomers retiring each each day that's right over the next 20 years so the demand for affordable housing there's just not enough supply there's going to be a limited supply mobile home parks in your city because city governments don't want brand-new mobile home parks they want brand-new off brand-new apartment buildings they want brand-new sub stores they want brand-new episodes they want brand-new office buildings nut mobile home park so mobile home parks are good to have because you won't be building any more new ones next is a pro for mobile home park would be tennis tent to stay a long time and that's because it's rather difficult complex and costly to move their home from one part to another or from one city to another so they tend to stay a long time alright next our cons for mobile home parks the first con would be mobile home parks do have a negative reputation they just do it's I believe it's not deserved but let's face it they do the the next column would be financing for mobile home parks banks will prefer to lend on something that they can see touch and feel so banks tend not to want to lend to mobile home parks all right because of that because banks are they're seeing mobile home parks as lending on dirt and again they were preferred to lend us something they can see touch and feel that means that if you were to get a loan of owe home park the interest rates would be rather high compared to recipes and adult payments rather high compared to the rest of these but there's a silver lining and the server lining is because of the bank situations here lending situations most mobile home mobile home park transactions are seller financed that means that you can creatively finance mobile home parks so now we finish discussing apartment self-storage shopping centers office building mobile home parks I'm going to leave you with two nuggets the first nugget is I want you to focus all right and what I mean by focus is as an individual investor I want you to focus either on one of these at the beginning not on all of them the acronym I have for focus is follow one course until successful alright in my experience I have never seen a really really good apartment operator who also own self stores shopping centers office coax the the best inventions I've seen they focus all right number one number two is as you jump into this business all right I want you to weigh the profitability and the size of the investment for example if you have if you're considering a five unit or 100 unit I want you to consider the profitability and size of each because the amount of time and effort it takes to buy a five unit or hedging it is will be just about the same okay so that concludes this video on the five best commercial real estate types for individual investors if you want more videos like this go on to commercial property of Agios comm or simply subscribe to this youtube channel thank you very much everyone have a great day and I'll see you later

25 thoughts on “5 Best Commercial Real Estate Types for Individual Investors

  1. What about single tenant commercial properties? I find Verizon Wireless, Taco Bell etc. with absolute NNN, 6% CAP rate. The bank said these are great and they love to lend for the properties (especially if there is still 15+ years on a 20 year lease). But I can't find videos on this. Got any?

  2. really great video, and perfect laying out of steps and guides, i am amazed at how detailed and informative this video is as well. Robert Kiyosaki also advocates the acronym of FOCUS , Follow One Course Until Successful in his book Rich Dad Poor Dad

  3. Hey man, great video!! You forgot to mention ware housing, fulfilment centers, steel buildings. Do u consider these commercial investments? Some of these ware houses can range 50-150,000 sqf

  4. Thank you for sharing your knowledge. Your presentation and the quality of your content is excellent. I appreciate the lack of overt marketing (distracting music).

  5. hi and thanks for this great video. I currently live in NYC and considering trying master lease deals. I search for properties on Loopnet, but these listings have brokers. Do you know of any other sources to find commercial properties for sale by owners besides loop net or craigslist? thanks

  6. Peter, I can build office buildings right by a hospital where I grew up. Good growth, hard to see how I can get burned here. For health care offices, I see them as more recession proof. Probably less bump up too as the economy heats up, but obviously a more stable investment. ANything else you would add about your experience in the health care space?

  7. thanks for you videos. Very informative. your thoughts on being a tenant and owner of shopping centers on a small scale.

  8. Hi Peter,

    Love your videos. I was wondering if you think that in today's market, investing in shopping centers is riskier because of people are increasingly shopping online. I do understand that some businesses like barber shops and restaurants are here to stay, but many other categories are going online.

  9. You. You have given me the confidence and the know-how inability to move forward into buying or purchasing my first 20 unit apartment building it's something that I've been you know but I have a passion about and be able to own I now have about 17 properties but now I have the confidence looking at you and listening to you about moving forward and giving my hand a try and purchasing my first 20 in the building thank you again keep up the great work I would like to become a student of yours I believe you are a great mentor and look there are those I can go back as far as Carleton Sheets so that speaks how long that I've been interested in real estate and thank you and looking forward to more videos become a student .. and I also would like to know how to purchase your book commercial real estate investment for dummies.

  10. What about car parking buildings? Low management cost, great cash flow.

    Thats a good one to invest in, isn't it?

    Thanks for the videos on your channel, very useful! 🙂

  11. Hello Peter, 

    Would it be possible for you to create a "Office Building Investing for Beginners"? I see that you have similar videos for shopping centers, mobile parks and apartments. I'm interested in the office building investing and wanted to see if you can go in greater detail about the pros/cons and what to look for. Keep up the great videos!

  12. So if i begin as a commercial investor in apartments, say its my first investment purchase ever, do I start with one or two apartments or do I purchase the entire building?

Leave a Reply

Your email address will not be published. Required fields are marked *