Costa Bajjali Studies The Future of Commercial Real Estate Management
Commercial real estate is a potentially lucrative business when managed and practiced correctly. Costa Bajjali has over twenty years in the real estate business. Now working as a commercial broker and business consultant, Costa Bajjali helps other companies in Houston, Texas.
The Very Basics: What Is Commercial Real Estate?
Residential real estate and commercial real estate are both promising investments. Residential real estate includes any property used for residential purposes. Single-family homes, duplexes, townhouses, condos and high-rise or mid-rise condos, all fall into this category.
Commercial Real Estate (CRE) is defined as property that is used for business-related purposes. Since the pandemic, an increasing part of the population is now working from home. Although working remotely may still be considered a business, homes do not qualify as commercial real estate.
Examples of commercial real estate include retail shopping centers, big-box retail centers, office buildings or office condos, medical office buildings, mixed-use developments, industrial facilities, land, etc. Basically, everything that is not residential is considered commercial.
Is Commercial Property Worth the Extra Money?
Commercial real estate is often more expensive to purchase than residential real estate. However, this cost is largely up-front. Over time, commercial real estate can be much more lucrative investment than buying a house or condo.
Furthermore, just because commercial real estate is more expense, does not mean that you can’t invest in it. There are several opportunities to invest in real estate through partnerships, REIT or even family partnerships / trusts. Since Covid, some commercial real estate types have struggled, so those struggling properties may be an opportunity that is likely to eventually increase in value if purchased relatively soon.
Real estate is an asset that is considered tangible. This is an attractive investment quality for those who are unsure about the financial market. Buying stocks or shares is often regarded as risky if an investor has little experience or the economy is unstable or unfavorable.
There are tax advantages when purchasing commercial property. Furthermore, investments in Opportunity Zones allows you to defer capital gains taxes and could provide other substantial tax breaks.
How To Build A Commercial Real Estate Business
Costa Bajjali has expertise in both business and real estate. Combining these two areas of interest, he can show others how to profit. Commercial real estate can be complicated without professional help, but Bajjali notes a few critical steps.
Choose an Investment Option
Commercial Real Estate is so broad and comprehensive and offers multiple business opportunities. To be in, or to invest in CRE, you need to know what market segment you would like to focus on. Would it be retail, medical, office, hospitality, industrial or land? Do you want to be in the Student Housing business or in the Senior care / Independent or Assisted living facilities? Do you want to develop and build the property, or do you want to purchase it? Do you want to own and manage the property, or do you want to be an equity investor? Each business or property type will have its unique requirements, so research and experience are key.
Research The Market
Before purchasing property, research is essential. Thorough market research will allow a buyer to understand the property values based on the then current Capitalization Rate (sometime called Cap Rate) for that particular type of property. Paying attention to the history of market trends is also valuable.
An accurate record of all finances should be kept monthly and annually. This record will give an accurate depiction of the financial condition of the property and the potential rate of return on the investment. In general, the higher the net income a property generates, the more valuable the property is to an investor. Furthermore, the lower the Cap Rate a property can be sold for, the higher the sales price.
Keeping track of the finances does not have to be a difficult task. Income and expenses can be tracked using certain software programs or even a basic spreadsheet. Once current income and expenses are considered, a refinance loan would also be much easier to secure.
Management Is a Part of Every Business
Managing a commercial real estate business can take hard work and extra hours. This is one reason why many new property owners may need a mentor. A professional, with expertise in the business, can provide guidance and support.
Management can include hiring a management company to manage the property or hiring maintenance workers, professional cleaners, and landscapers directly. In addition to scheduling upkeep, a manager must also pay attention to the tenants. Individuals working in an office building or industrial park will undoubtedly have concerns at some point. Unexpected building issues are a natural part of owning real estate.
While many issues can be easily fixed with the right maintenance company, other concerns may be beyond the scope of an owner or crew.
A solid lease agreement can protect from legal problems and from negatively impacting the real estate company should unexpected events occur. Depending on the area, this can include weather catastrophes or natural disasters. Drafting a lease takes specific legal knowledge and a lease should be done by an attorney or reviewed by an attorney.
Insurance and Property Protection
Property insurance will cover a variety of incidents such as theft, fire, and natural disasters. This form of insurance is designed to help cover the cost of property and equipment damage. Although this can be a major expense, businesses can often deduct the cost.
Common factors insurance companies consider can include location, construction, and occupancy. Newer buildings with fire sprinkler systems, that are located in large cities, may have adequate fire protection, affecting the cost of real estate insurance. Some that are made from fire-resistant materials may qualify for a discount. Conversely, older and more crowded buildings or businesses that operate under hazardous conditions may negatively influence the cost of property insurance.
Is Formal Education Necessary?
Education will help any business owner run a successful real estate company. While there are formal Real Estate classes, many people choose to learn through hands-on experience. Buying commercial property without the right type of knowledge and research can be extremely costly for many first-time business owners. Working with a mentor is one way to obtain important information, in a way that can be easily digested.
By using professional help, the contracting, legal and financial processes can run smoothly and efficiently. Insurance, leases, and other property contracts are crucial to overall net income of a property. To purchase and manage commercial real estate, a certain curiosity and entrepreneurial spirit are necessary.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes