The Challenging Process of Purchasing,
Remodeling, and Leasing a Commercial Building
Many people strive to fulfill
the American Dream. One way of satisfying the American Dream is to purchase and
invest in real estate. Although the recent economic crisis has forced many
people away from the field of real estate, many ambitious risk takers have
chosen to pursue real estate because they strive for the kind of success
available through real estate investments. Indeed, commercial real estate is an
attractive field that requires determination, expertise, and the ability to follow proper steps, but it
can often reward investors with large profits. By making smart business and investment decisions, a
knowledgeable and experienced investor is able to make a large profit by taking
advantage of the low property prices available resulting from an economic
crisis. Successful and wealthy people often realize that real estate is the way
to go. "...[R]eal estate is one of the best ways - maybe the best way - for
everyday people to build wealth" (Alcorn).
Three
Main Steps: Purchase of a Building, Building Remodel, and Occupying the
Building
An investor should spend numerous hours
looking for the right building to invest in and purchase, consult with various
vendors and professionals during the remodel of a building to succeed in
attracting a large clientele, and choose a well-known broker or agent to
advertise and market the vacancies of the new remodeled building. Purchasing
the building is one of the most difficult parts of a commercial real estate
transaction because the right location plays a significant role in the success
of a building. Remodeling the building is also a difficult task, and is often
the phase when outside expertise is needed. Remodeling usually takes the most
amount of time of the three phases because there are various aspects that go
into a remodel. Lastly, and often the simpler part of the three phases, is
searching for and finding tenants to lease out the newly remodeled units. Undoubtedly,
the commercial real estate field can be a difficult field, but the investment
brings the kind of large profits that more than exceed the risk.
Step
1: Purchase of a Building
An investor’s expertise and knowledge is
tremendously impactful when it comes to assessing and acquiring the right
building to invest in. Often,
one must truly educate themselves as to the finances that are
involved in the purchase of a building. Although some investors purchase
buildings strictly with cash, it is the norm to get a loan in order to finance
the purchase of a building. Once a loan is able to be secured, an investor will
search to acquire a building that, after completion, will render large profits.
Commonly, the process of finding the right building can take years because of the
numerous factors involved. Some key factors investors take into account is
location, population surrounding the building, demographics of citizens who
reside next to the building, and the age of the building (Seth). When financing
and location is secure, the investor can move forward with the purchase of a
building, which involves going into escrow. In escrow, money is exchanged for
the deed; however, the process is a bit more difficult than a simple
transaction. During escrow, an investor completes the due diligence on the
property they are interested in acquiring. Once due diligence is complete and
money is deposited into escrow, an escrow agent completes the transaction, and
the investor becomes the new owner of the property.
Step
2: Building Remodel
The purchaser’s insight and talent is
usually discovered during the remodeling of the building, because remodeling
can be the most difficult task that requires endless hours of consultations,
labor and expertise. Many investors find the remodeling of the
building to be the most laborious, but also the most rewarding. Investors have
to consult with numerous vendors, including architects, financers, plumbers and
construction workers, when it comes to a remodel. In addition, investors either
need to be or should consult with an expert in the remodeling phase. If a
mistake is made in the beginning phases, and needs to be fixed when the remodel
is complete, the repair might render the investment unprofitable. Thus, experts
need to be following the remodel on a step-by-step basis to make sure that all
necessary and required protocols are taken and adhered to. A new investor
usually consults with an expert remodeler when completing his first few
projects, but typically understands the process and is able to remodel future
buildings without an expert by his side. The remodeling phase can take anywhere
between three months to well over a year. However, if done diligently and
professionally, the right remodel to an old building can bring new life not
only to the building, but also to the surrounding area. "Renovating
exteriors is an especially attractive remodeling option for landlords. For
example, a new facade to part of a building’s exterior entices previous
customers to return and revisit the store on a regular basis" (Bridget
& Richardson). Once the remodeling is complete, an investor moves forward
to the next step, which is marketing the building and finding tenants for the
newly remodeled space.
Step
3: Occupying the Building
Finally, after acquiring and
remodeling, the success of an investment truly lies on how much of the space
the landlord can lease out to tenants for maximum profits. In order to make the
investment profitable and successful, the investor has to find a talented and
professional broker who can properly market the property. Accurate and
aggressive marketing is essential to the success of finding respectable
tenants. A good broker has knowledge of the area where the building is located
and is also acquainted with the surrounding real estate market. Moreover, the
investor must also calculate the price per square footage for which the property
will lease. Like all other goods in the market, an attractive price often
brings forward numerous tenants interested in the space. An intelligent
investor is always looking at market trends and the necessities of the
surrounding neighborhood. As long as a landlord offers what is needed in the
area at a reasonable price, then there is no reason they should be
unsuccessful. However, it is also important to understand that negotiations of
leases is a part of the leasing process.
Negotiations will take place not only about the rent, but also about the
length of the lease, types of lease, improvements to the space, permitted
uses and the ability to sublease or assign the lease (Findlaw). Overall, the
investor should truly motivate his broker in order to lease as much space out
as possible, through various negotiations, at the highest price possible to
maximize potential profits.
Key
Takeaway Points
In
time of economic crisis and upheaval, not many people are able to make a huge
profit by taking advantage of the economic situation. However, certain
knowledgeable and experienced investors are able to turn the negative impacts
of an economic crisis into a positive large monetary return by purchasing,
remodeling, and leasing out commercial real estate. For example, Rick Caruso,
owner and developer of the Grove Mall, as well as numerous other commercial
properties has built an empire solely from real estate. By working diligently
and skilfully, Caruso was able to grow massive wealth from commercial real
estate. By purchasing the right building, making the right remodeling
decisions, all while spending minimally, and leasing out to strong prospective
tenants, an investor who decides to take a smart risk in real estate, can reap
large rewards.
Works
Cited
Alcorn,
Ray. "How to Get Started in Commercial Real Estate." How to Get
Started in Commercial Real Estate. N.p., n.d. Web. 07 Feb. 2016.
Findlaw.
"Negotiating a Lease for Commercial Real Estate - FindLaw." Findlaw.
N.p., n.d. Web. 09 Feb. 2016.
Grams,
Bridget, and Mark Richardson. "Retail Remodel." Retail Remodel.
N.p., Sept. 2013. Web. 08 Feb. 2016.
Seth,
Shobhit. "The Most Important Factors For Investing In Real Estate |
Investopedia." Investopedia. N.p., 06 Nov. 2014. Web. 07 Feb. 2016.
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