Post: #1

I have been thinking of investing in the real estate market for a while. It seems like commercial properties can have cap rates of up to 10% and not have as much trouble or maintenance work as when dealing with reaidential tenants. Of course these kind of real estate investments are also more susceptible to economic downturns or shifts towards a more online based market. However these are risks I am considering taking. Another reason for researching this particular investment opportunity is to diversify a bit, despite the stock market having given me fantastic returns over the last few years. An 8% long-term (depending on the lease length) return is very appealing to me.

Now on to my questions to those that have either already considered or followed such an investment strategy. What are some of the hassles and risks I might be overlooking, despite the obvious ones like finding new tenants if the current tenant's business goes under or dealing with continuous maintenance requests?
Is it worth going the triple N route in order to avoid dealing with tenants or are returns *significantly* lower? What about using a rental mgmt company instead of going the NNN route like you would for a residential property?
Is proximity to the property as important as with a residential property or is the owner generally not bugged too often (assuming he doesn't do a NNN lease)?

I'd love to get a solid conversation started around this topic. Hopefully there are enough interested business-savvy (and liquid?) forum members to do so.

Post: #2

You are not going to find NNN properties for entry level money.

In general, commercial tenants have far fewer rights than residential tenants.

The biggest issue for commercial properties, especially higher end retail types, is that expected vacancies after turnover are much longer, and can run years.

It is probably smart to have more cash in reserve than you would for a residential property.

What market are you looking at?

Post: #3

Commercial estate gives at best a 5 % net return on investment per year, and only if you know what you are doing.

If you want constant ROIs of over 100% per year, you should look into selling or reselling digital products and digital services.
The initial investment is very close to 0, and the profits are limitless.

I have many friends who became multimillionaires in less than 4 years by building online empires

Post: #4

LCG, thanks for your input. I wasn't really focusing on a particular market yet, tenants wise, but I was thinking of some sort of chain/franchise whether it's retail or food. I would think that would have more stability.
I also found that medical tenants tend to stay in the same building for long periods of time.

Post: #5

pointbreak, on the idea of a chain/franchise you need to understand you are most likely buying a job.

Say a subway shop has 120k net profit. Thats the owners salary to run and manage a subway, a job. 12-14 hour days or so for 120k a year.

For you to hire a decent manager your talking 60-70k. Now your at 50-60k income while still having to be the boss and manage the manager. Thats a lot of risk to take for 50-60k income.

Now commercial real estate yields on average around 5-6% yearly. Residential real estate yields somewhere around 7-8% on average.

I was looking into self storage facilities and open bay self service car washes. I like the returns compared to the amount of work required.

Post: #6

No, I am NOT looking to open a franchise shop.
I am looking to possibly buy a property leased by a franchise. I would in no way be involved in their actual business.

As for return rates, I am finding plenty of commercial properties in Phoenix and throughout Nevada with 8-10% cap rates. In which areas do you think residential properties have higher returns? (Just curious)