Big purchases are continuing in Texas commercial real estate with demand outpacing supply. Learn the basics of starting out in this investment strategy.
Texas commercial real estate developments have continued to be on the uptick, though sales are not expected to reach the highs seen last year. The largest sale of 2016 was the State Farm Insurance regional headquarters in Richardson, Texas which went for a whopping $825 million. Some real estate agents are suggesting that there would be more sales this year if there were more commercial buildings to sell, but demand continues to outpace supply. Here, then, are a few of the big purchases that occurred in 2017.
The Dallas/Fort Worth area saw more than $400 million in Texas commercial real estate office building sales—the most of any city in the Lone Star State. Other top commercial property sales in this same area include the Liberty Mutual Insurance’s twin-tower office complex in Plano’s campus which sold for $360 million. The 230,000 sq ft office tower and 100,000 sq ft of retail space known as Turtle Creek Village sold for $123 million. With these types of figures and the high demand, many are considering branching out into the commercial sector.
For those just starting out in Texas commercial real estate, you probably already know the potential benefits such as a steady cash flow, multiple streams of income and increasing wealth and security. Other benefits to consider are longer lease options than residential properties which provide reliable monthly income. In addition to monthly rent, some commercial real estate requires a triple net lease in which the tenant pays property insurance, maintenance and real estate taxes.
Doing your Homework
Before diving in head first, you will want to perform due diligence. This requires knowing the markets and researching the various types of properties such as multifamily, office, industrial, mixed-use, warehouses and retail. Consider the location and understand the neighborhood as well as the current supply and demand. Analyze comps in order to determine current market value. If you’re not quite up to speed on this process, get a good real estate agent to join your team. Calculate the net operating income—revenue minus operation costs such as insurance, utilities, maintenance and taxes— as well as the cap rate. The capitalization rate is the ratio of Net Operation Income to property asset value or cost. As an example: A property listed for $1 million which generates a net operation income of $100,000 would yield a 10 percent cap rate. This figure is used to compare similar properties and to look at historical trends to determine the direction of valuations.
If you’re wondering just what you’re getting into, consider working with a mentor for a bit. Know your own strengths and then fill in any missing expertise with team members that are qualified and that you can trust such as contractors or Realtors.
When it’s time to obtain the capital that you need for your project, call us at Level 4 Funding. We specialize in private hard money loans that often fund in days instead of weeks. We offer flexible terms from 3 to 60 months and have developed a fast and easy approval process. We loan on up to 85 percent of the as-is-value and 100 percent of the rehab costs, and have become the go-to for many investors, contractors and developers who reach out to us when it’s time to fund their next project and add one more property to their portfolio. Who knows? Maybe one day you’ll be making a bid on the next multimillion dollar office complex.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.