Commercial real estate investing, Dallas


If you follow the principles of long term investing, you can earn much higher returns than most debt instruments. Keep the following points in mind while investing.


Lease structure

Commercial lease strictures are very different from residential ones. They are structured as 3+3+3 or 5+5+5 meaning 9-year (or 15-year) lease with escalations every 3 ears (or 5 years). While analysing an investment, the investor has to understand how the lease is structured and the inherent risks involved. In general, the longer the lock-in, the better it is for the investor.

Base rents vs fitout rents

Developers often dupe investors by showing higher rental returns by including the fitout rent component while hustling them for a higher price. But here’s the catch: fitout rents are not permanent and are payable only for a fixed period (generally five years).

Security deposit

Security deposits in commercial properties vary between 10 and 12 months’ rent. Be careful when a tenant offers 6 months or less as it means that they could be looking at a short-term option or have cash flow issues. Startups typically tend to ask for smaller deposits and shorter lock-ins.

Diversification

We’ve all heard that diversification reduces risk. This is especially true in commercial real estate. If you invest all your savings in one property, you are exposing yourself to a higher risk.
In case the tenant vacates, rents will stop while maintenance payments, property taxes etc will have to be paid. Investing, Dallas in multiple properties across cities will reduce variance in income by diversifying property evel risk.



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