Contrary to popular belief, becoming a profitable commercial real estate investor does not require prior knowledge or a large sum of money. While those don’t hurt, the essential building blocks of becoming a successful real estate investor are a willingness to learn, a bit of patience, and a good commercial real estate broker who is going to work with you to identify the right opportunities for your means and goals.
Below are examples from two different real life investment deals, both of which cost well under one million dollars and were cash flow positive from day one.
This deal is a single-use retail condo in the heart of downtown Winston-Salem, North Carolina. A tenant with a solid track record was in place and just signed a 5-year lease paying $16,100.00 in rent in the first year and by year five would be paying $21,180.00 in rent. The buyer was able to purchase the property for $177,000.00 and only needed $53,100.00 as a down payment (a significantly smaller amount than most people think it takes to purchase a commercial real estate investment). This small investment earned the buyer a Cash-On-Cash return of 5.6% year one after debt services. By year five, the earnings for the buyer are projected to grow to 15%, all while the tenant pays for the owner’s mortgage, taxes and expenses.
"There are investment opportunities at all price points and a good commercial real estate broker you can find great deals that meet your passive income goals."
This deal is a 5-unit Retail building in a growing area of Downtown Winston-Salem, North Carolina. Different from the above example, at the time of closing, this building had three tenants with 3-year leases in place, one unit with a tenant paying below-market rents with only one year remaining on their lease, and one empty unit. Even with the under-market tenant and empty space, the other three tenants helped the buyer stay cash flow positive with a little over $1,000/month. After closing, the empty space was easily filled at the market rate and the owner now is experiencing a Cash-On-Cash return of 12.5% after debt services. Similar to Deal 1, the tenants lease payments helped to cover the mortgage, taxes and expenses. Once the under-market tenant is replaced when their lease is up, we expect this client to see a Cash-On-Cash return of 14.85% after debt services. All this was achieved by with a modest down payment of about $190,000.00 on a building that was listed at approximately $650,000.00.
As you can see, investing in commercial real estate is more accessible than you might have thought. There are investment opportunities at all price points and a good commercial real estate broker you can find great deals that meet your investment goals.