Alternative Types Of Real Estate Investment…

March 10th, 2011 · 8 Comments · Commercial Property

Puerto Natales, Chile
Creative Commons License photo credit: Evelyn Proimos

So after my last two posts about the Big Fat Lies Told To Real Estate Investors and then A Bonus Lie I Forgot About, I got a reader question.

Good two articles, Rachelle. The thing I like most about your writings is that you are willing to make a correction, however, you were also right on in the first article. I agree with both of your points. I’m not sure what do you mean by a commercial or industrial condo. Do you think you could eleborate on this sometime. Thanks.

Answer

First of all let me explain what a condominium is. It’s a legal description of space. So for any condo… you own the space that’s carefully outlined in your purchase documents. Plus you’ll own a certain percentage of the common elements as well. Now we are all familiar with residential condos, but the exact same kind of legal description can be used to sell retail, industrial, offices and even storage space.

Benefits of Buying Industrial, Retail, Office Condos

Basically there are a few advantages, first, these properties tend not to be very liquid or easy to sell. This can mean that if someone is close to bankruptcy or having business problems you can get a good deal. There is not very much competition.

The second advantage is that there is no Residential Tenancies Act to deal with. No four month ordeal to go through. There is no ceiling on rent increases either once the lease is up, unless you want to loose your tenant.

The third advantage is that you will in most cases be dealing with business people, not residential tenants.

Cash Flow is better if you buy properly and… it’s the space you rent so it’s not very sexy but no one will ask you for granite countertops. If the business wants something they pay to put it in, and you get to keep it unless you make other arrangements.

Here’s A Sampling

Here’s a few listings current as of today on the MLS. Compare to the prices of residential right now.

So there’s a few and I would consider them entry level of course the sky is the limit and you can spend millions if you want.

Disadvantages Of Buying These Spaces

There are fewer clients to rent these spaces and you may well have to deal with significant vacancy between tenants. Once the place is rented though you are looking at years of tenancy as long as the business does well. I used to manage a building on Carlton and I rented a space to a hair salon that’s still there. So is the Sushi Restaurant next door. That was 15 years ago.

They are also harder to sell. A Lot Harder…but who wants to sell when you’re making good money?

Learn Your Investment Style

I spend quite a bit of time over at Canadian Money Forum and one thing I learned there was that investors tend to gravitate towards a certain type of stock. Some people buy just ETF’s others love dividend funds, I personally like warrants. The important thing to note is that for every investor there is a niche. What kind of investment will suit you best depends on your personality and strengths. This is something you have to figure out for yourself.

Any salesman will tell you that it’s a lot easier to sell or rent something you believe in than something that has no value for you. So if the idea of dealing with residential tenants turns your stomach… there are options.

So You Don’t Know Anything About Industrial or Retail or Office Space

When you were a baby you didn’t know how to walk either, but you learned right? The biggest deal in this type of space rental is the lease, and you can use Jeff Shabes or another paralegal to make up a good lease for you. The point is you have options and now that the down payment requirements for residential houses is 20% it makes more sense for investors to put up the 30% or so required for these other kinds of properties. You can learn the skills required.

 

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8 Comments so far ↓

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  • Wendi

    So happy readers of Landlord Rescue lets get 50 of us to pony up $10,000 each, have Rachel find us a property to buy, sign a legal contract to become ABC corp, hire Rachel to manage the property and have Jeff to due the paralegal stuff. I would raid a college fund for that.

    Did I mention we couldn’t pull out any profits for the first 3 years to build up a nest egg for repairs. and to pay Rachel and Jeff?

    It’s a pipe dream, I know but feel free to tell me why it wouldn’t work.

  • Afford-Anything.com

    The other problem with commercial real estate is that it can have more vacancies. In economic recession, more offices might be empty. People can always work from home.

    With residential, the vacancy risk is lower (people always need a place to live; they don’t always need an office). The exception is if you’re investing in a place that everyone’s moving away from.

    • Rachelle

      People cannot always work from home… yes you may have more vacancy for a while with commercial but I turn over my residential one bedrooms every 18 months or so. I rented commercial space on Carlton that is still rented 14 years later to the same people with substantial increases. No rent guideline increases and they pay Taxes Maintenance and Insurance. How much of an increase can you get on your residential properties if they add HST to utilities? Or property taxes go up? Plus if your commercial property is vacant how much of a vacancy tax credit do you get? None.

      I’ve also rented in high vacancy buildings…25% clearly people have to live somewhere but it’s not necessarily your building.

      Ontario Landlord & Tenant Board 4 months for a standard eviction for non payment of rent. Commercial = 17 days, no court just a locksmith.

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  • Mela

    Good information about investing on office spaces. I’d like to add on that there is a investment property calculator called IPV which is FREE apple apps that people can use if they want to evaluate a possible investment. Here is the link http://itunes.apple.com/us/app/investment-property-valuator/id421059096?mt=8 and tehy also have a site http://www.ipvcalculator.com/

    Go check it out its free!

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