Inland Empire Commercial Real Estate Investing [6 Steps to Get Started]
Here are 6 great tips to get started in Commercial Real Estate "CRE" investing in the Inland Empire.
The Inland Empire is generally defined as San Bernardino and Riverside Counties. The Inland Empire or the "I.E." is one of the most affordable and fastest growing areas in Southern California. The major cities in the Inland Empire include San Bernardino, Riverside, Corona, Ontario, Rancho Cucamonga, Fontana, Rialto, Colton, Redlands, Temecula, Victorville, Palm Springs, Cathedral City, Palm Desert, Indio, Murrieta and more.
Step 1 - Put together a like minded team.
How to get into commercial real estate investing is always a key question, to get started gather and surround yourself with people who can help and advise you, talk to your tax advisor and real estate professionals who specialize in commercial real estate in the Inland Empire. Talk to lenders and potential investors who may want to work with you. You may even be able to put deals together with no money out of your pocket if you are willing to do the legwork and research. All these team members will be vital as you start your journey, they will be your mastermind group to bounce ideas off of and get advice.
"Success Leaves Clues"
Ask questions, a lot of questions and listen to those who are making it happen and who have a proven track record of success.
Step 2 - Determine What Types of Properties You Will Specialize In.
Usually an investor starts out with very small properties but that all depends on your background, experience and access to capital. There is a massive amount of commercial property types out there, ranging from 1 million square foot high rise office buildings to 500 square foot office condos. There is the potential to make money on what ever you are good at and specialize in.
Narrowing your focusing to a specific property type of property will allow you to gain specialized knowledge in one sector.
Step 3 - Research the Inland Empire Commercial Real Estate Investment Market
Know your market, this includes researching what properties are for sale and what properties have sold and what areas have the best inventory. You must also be very familiar with lease / rental rates as well.
Know the price per square foot the properties have sold for, vacancy rates, absorption rates, amenities and favorable locations that seem to be in demand.
There may be favorable financing available for areas that are in redevelopment zones as well, discuss these things with your team. Each market goes through economic cycles and having market situational awareness and recognizing trends can also help you be ready for and take advantage
Step 4 - Understand how Commercial Real Estate is Valued
Commercial investors, lenders, private equity firms and banks all understand and value commercial investment property using specific industry standards.
3 Basic Commercial Real Estate Valuation Methods.
Professional investors and appraisers will typically apply all the methods and then assign a weighting to each method depending on the type of property being evaluated.
Comparable Sales
Replacement Value
Capitalized Income Value
Comparable Sales Value
The comparable sales approach is basically how a home is valued, the appraiser looks at similar properties in an area and makes adjustments based on condition and features to determine the cost per square foot. This method is most applicable to owner user types of properties and not those that produce investment income.
Replacement Value
Basically is and analysis of how much would it cost to buy a parcel of land and build a similar property on. This in it self can be a complex evaluation and is typically used on newer properties were estimates on building cost would be abled to be obtained.
Capitalized Income Value
This is one of the most widely used methods of evaluating commercial income property, basically it is a calculation that places a value on the Net Operating Income a property produces based on Market Capitalization Rates. The more net income a property produces in relation to it's peers the higher valuation is placed on the property.
Step 5 - Understand How to Evaluate Each Commercial Property
A vital skill that can not be overlooked is property evaluation, you may find a what seems to be a perfect property that produces great income but it could have serious structural and system related issues that may cost hundreds of thousands of dollars. You also want to look at and evaluate the layout of a property, for example if you are looking at apartment buildings do they have features that tenants will want and or that can be upgraded to add more value to tenants so you can also increase the income of the property?
A best practice is start by taking someone who has a lot of experience when initially walking through a commercial property to purchase, keep in mind the initial walk thought is just the start, you do this to see if you want to move forward with more detailed inspections by professionals.
It is always recommended to have all properties inspected by qualified licensed building professionals to ensure the roof, structure, foundation, systems, zoning are everything is in compliance with current codes.
Step 6 - Study and Use Professionals to Learn
Many great books have been written about property evaluation and conducting due diligence, it's always important to increase your investment knowledge.
Areas you can study to accelerate your expertise:
Legal aspects of commercial real estate
Real estate finance
Property evaluation
Contracts
Negotiation
Syndications
Using Popular CRE Databases
Summary
By building a strong team and foundation of local and specialized knowledge and expertise you can become a market expert on the area you want to focus on and get started.
The more knowledge you have and the more value you can bring to the table the more you will be able to attract the resources you need to grow.
Disclosure
This discussion focuses on the Inland Empire and surrounding markets in Southern California and this is for general information only, it is not intended to offer investment, tax or legal advice.
Keep in mind each area has it's own laws, rules and standard accepted practices and it's vital to know and follow the laws in each area.
Always consult your tax and legal advisors when purchasing commercial property and have an experienced attorney review contracts and property information prior to entering into a legal contract.