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Cash Flow vs. Appreciation: Which is More Important?

Category: Subleasing real estate

Cash Flow vs. Appreciation: Which is More Important?

April 11, 2024

Real Estate Investing

Real estate investing isn’t one size fits all. Each investor has their own goals, typically determined by a specific timeline.

Some investors are looking for quick returns (fix-and-flips), others are looking for long-term investments with no immediate return, and many are somewhere in between. 

Appreciation vs. Cash Flow

Often, appreciation and cash flow are the two main ways to analyze a real estate investment. 

Appreciation

Appreciation is the growth in property value over a given period. Geographic location, economic conditions, and renovations all factor into a property’s appreciation or depreciation. 

If a property isn’t well-maintained and the economy takes a turn right when the owner needs to sell, an investor may face a loss. On the flip side, booming economic conditions, well-done renovations, and other increased property values in the area may cause rapid appreciation. 

Cash Flow

Cash flow, on the other hand, is purely determined by owner expenses versus the income received. Typically, we think of this as a landlord-tenant relationship, where the landlord owns a property and manages the associated costs. In return, they receive rental income from the tenant.

This model hinges on the landlord’s ability to keep their expenses under control, rental rates high, and vacancies low. While economic conditions and renovations impact any investment, cash flow may withstand changes in outside factors better than appreciation.

Your Investment Strategy

Talking with an experienced real estate professional about your investment strategy is the best first step. Some real estate types naturally gravitate toward appreciation, while others tend to have a more robust cash flow. It’s crucial to choose the investment that supports your long-term financial goals. 

If you have questions about commercial real estate, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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What is a Modified Gross Lease?

March 28, 2024

Commercial Leasing

If you aren’t familiar with commercial leases, they can appear much more complicated than a residential lease. There are various types, each with its own set of rules that the landlord and tenant must follow.

The three most common types are net leases, gross leases, and modified gross leases. Net leases assign the most responsibility to the tenant, while gross leases task the landlord with more duties. Modified gross leases land somewhere in the middle.

In a modified gross lease, the tenant pays a base rent amount and shares some of the other building expenses. Depending on how the lease is written, the tenant can be responsible for a portion of property taxes, insurance, utilities, or maintenance in addition to their general rent payment. 

Pros of Modified Gross Leases

The following are some of the pros of using a modified gross lease:

  • Negotiation: All operating expenses are up for negotiation to determine who will pay what. Unlike gross and net leases, where it’s already predetermined, a modified gross lease gives a landlord negotiating room to offload expenses. 
  • Shared Risk: As taxes, insurance rates, and maintenance costs fluctuate, the tenant and landlord share the risk. Neither party will face a drastic change in expenses on their own. 
  • Clarity: Modified gross leases provide clarity for the tenant. For example, rather than the landlord having to incorporate a fee into the rental amount to account for electricity, the tenant can clearly see their utility usage as a separate bill and budget accordingly. 

Cons of Modified Gross Leases

As a property owner, be sure you consider the following cons of modified gross leases:

  • Less Control: As a landlord, you have more control when you are in charge of all operating expenses. When you leave duties in the hands of others, you can’t be sure your renter will take care of everything to your standards. 
  • Resale: Investors tend to favor net leases as more of the expenses are the tenant’s responsibility. Therefore, selling a commercial property with a modified gross lease in place may be more difficult. 
  • Changing Costs: If the tenant were in charge of all operating expenses, any cost changes would not affect you as the landlord. However, with a modified gross lease, your yearly expenses are subject to change. 

Is it Right for You?

As you consider your next property purchase or renting your space to a new tenant, consult an experienced commercial real estate professional to determine the right fit for you.  

If you have questions about leasing or purchasing commercial real estate, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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Leasing vs. Buying Commercial Property: Which is Better?

March 14, 2024

Which is better: Leasing or buying commercial property? The short answer is that it depends on your situation.

For a brand-new start-up, taking out a long-term commercial loan might not be the right decision. On the other hand, a well-established business that has been paying rent for several years may be in the perfect place to finally make a purchase. 

Owning commercial real estate has pros and cons. A great first step is to connect with an experienced agent to discuss your strategy.

Leasing Commercial Real Estate

Here are some reasons it might make sense to lease commercial real estate space:

  • No Financing: Qualifying for financing to purchase commercial property can be a pain if your business has other substantial expenses. Leasing avoids any difficulties in acquiring a loan.
  • Less Responsibility: Depending on the type of lease, your landlord will be in charge of any major issues that arise with the building, leaving you to focus on essential business activities. 
  • Smaller Up-Front Fees: While there may be a deposit at the start of a lease, you won’t have to stress about saving for a substantial down payment. 
  • Flexibility: Although commercial real estate leases are generally longer than residential, you still have significantly more flexibility to move spaces without selling property. 

Owning Commercial Real Estate

If you are ready to purchase commercial property for your business, here are some benefits you will enjoy:

  • Equity: When you own commercial real estate, your payments come back to you in the form of equity over time rather than going straight into your landlord’s pocket. 
  • Appreciation: Desirable commercial property in great areas tends to appreciate over time. Not only will you be paying down your loan, but you will also get the added return of higher property values when it comes time to sell.
  • Control: Rather than being tethered to rules outlined in a lease, you have complete control over the property and other tenants. 
  • Steady Payments: Lease amounts tend to increase over time. If you own commercial property, however, you can secure a loan with fixed payments over the term.
  • Income Potential: Besides having space for your business to operate, there is also income potential in renting out unused portions of the building. 
  • Tax Benefits: When you own commercial property, strategies such as depreciation and interest deductions can be used to reduce your tax liability. 

Your Business, Your Choice

Ultimately, it is your business, and you have to make the right choice for your situation. If you have questions about leasing or purchasing commercial real estate, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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Gross Leases: Are They the Right Fit for Your Property?

February 2, 2024

What is a Gross Lease?

A gross lease is a type of lease that requires the tenant to pay one flat fee to the landlord to rent a given space. 

Rather than the tenant paying additional fees, the owner designs the rental amount to cover all operating expenses. These expenses generally include property taxes, insurance, and utilities, but the tenant could negotiate to have additional services such as cleaning included. 

In commercial real estate, there are several types of leases to choose from, depending on the property you own. Each variety of lease affects how your tenant-landlord relationship functions, so it’s best to consider all your options before making a choice. 

Types of Gross Leases

While all gross leases are similar, they fall into two general categories: modified gross and full service. 

A full service lease, as described above, includes all operating expenses in a flat rental amount. The tenant is not responsible for additional charges outside of their weekly, monthly, or yearly fee. 

Alternatively, a modified gross lease is tailored to the landlord’s needs. In this scenario, the rental amount may include property taxes and insurance but not utilities. A modified gross lease combines a gross lease and a net lease (where the tenant is responsible for operating expenses). 

Pros and Cons

Before deciding on a gross lease, it’s essential to understand the pros and cons. On the upside, a gross lease allows the landlord to collect a higher rental amount and pass along operating expenses to the tenant, especially as costs increase over time.

On the other hand, a gross lease requires more attention from the property owner as they are in charge of ensuring maintenance is taken care of, and bills are paid.

Be sure to partner with a real estate professional to help you decipher which type of lease is best for you and your property. Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.

We give out $250 gift cards for referrals that become our real estate clients.

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5 Common Mistakes of Commercial Landlords

December 20, 2023

We’ve all heard the horror stories of commercial and residential landlords. From tenants destroying property to simply not paying their rent, it’s easy to be scared away from being a rental property owner. There are, however, some tried and true methods to ensure the success of your investment.

Let’s take a look at a few common mistakes of commercial landlords and how you might be able to steer clear of potential issues.

Common Mistakes of Commercial Landlords

The following are a few of the most common mistakes of commercial landlords:

1. Negotiations

Whether you are purchasing commercial property or working on the details of a lease, understanding the negotiation process is crucial. Landlords and buyers often go into negotiations without proper representation and not having solidified their desired terms. 

2. Property Management

The wrong property manager or poor management systems can be the downfall of a commercial investment. Picking the best property manager for your building is equally as important as choosing the right tenant. 

3. Maintenance

Deferred maintenance leads to more significant expenses down the road. A landlord who notices an issue and immediately addresses it saves time, money, and energy in the long run. 

4. Due Diligence

Due diligence is paramount when buying commercial real estate or considering a prospective tenant. Investigating each aspect of the building and tenant to ensure they are a good fit for you and your portfolio will increase profitability. 

5. Leases

Any ambiguity in a lease can lead to conflict. A correctly drafted lease with black-and-white terms keeps everyone on the same page regarding rules and responsibilities. 

An Agent Ally

A commercial real estate agent ally can make all the difference. Your broker should be well-versed in the above-mentioned issues and will guide you toward success.

Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.

We give out $250 gift cards for referrals that become our real estate clients.

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How to Attract the Best Commercial Tenants

December 6, 2023

The type of tenants you have in your commercial property can dramatically impact your return on investment. 

Hand-holding or excessive wear and tear can quickly reduce cash flow and increase staffing and building expenses. On the other hand, a renter who operates autonomously and goes above and beyond with building care and maintenance may increase the value of your commercial asset. 

Attracting tenants that best fit your space and management style is the key to being a successful landlord.

Attracting and Retaining Great Tenants

Here are a few things to consider in your attempts to attract and retain great tenants:

  • Location: Always at the top of the list when it comes to real estate, an appealing location will attract many tenants, allowing you a larger pool to choose from. 
  • Access: Buildings with easy access and plenty of parking can be hard to come by. Having great accessibility at your commercial property can help secure an exceptional tenant. 
  • Safety: Safety is typically at the top of the wish list of a high-quality tenant. Offering top-notch building security is extremely attractive for prospective renters.  
  • Appearance: Appealing interior and exterior appearance helps your building stand out amongst other options, driving higher cash flow and quality tenants.
  • Amenities: Shared amenities (conference rooms, lounges, kitchens, etc.) are great tools in marketing to a wide variety of renters. 
  • Responsiveness: As a landlord, responsiveness is crucial in attracting and retaining great tenants. Whether scheduling showings or following up on maintenance requests, quick responses are always appreciated.
  • Feedback: Collecting feedback and doing all you can to keep renters satisfied is the best way to keep solid tenants.

Use Your Broker 

Using your broker for property marketing and recommendations on best landlord practices will guarantee high-quality tenants. Experienced commercial real estate agents know where to look to find great tenants and the right questions to ask to ensure a smooth lease going forward. 

Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.

We give out $250 gift cards for referrals that become our real estate clients.

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Perks of Owning a Storage Facility

November 21, 2023

Office buildings and apartment complexes are often top of mind when it comes to commercial real estate. While these options make up two of the largest categories of commercial property, there are many other types of investments.

Storage facilities, although often overlooked, can provide a strong return and cash flow. 

Why Invest in a Storage Facility

Here are a few reasons why you might want to consider investing in a storage facility:

Demand

As the population and economy grow, so do our storage needs. Rising demand for storage space helps boost property values and rental income. 

Turn Time

Compared to other types of rentals (residential, office space, etc.), storage facilities typically have a very short turn time. Smaller self-storage units may take less than a couple of hours to have cleared out and ready for the next renter. 

Operating Expense

Operating expenses are relatively minimal compared to other commercial real estate investments. Lower taxes, fewer management requirements, and minor utility expenses (especially if your storage is not temperature-controlled) keep operating costs down.

Group of Renters

Storage facilities bring value to a broad group of renters. Both businesses and individuals consistently use self-storage for various needs, minimizing vacancies and turnover. 

Number of Units

Self Storage typically involves owning a large number of units. The greater quantity means that a single renter deciding to leave minimally impacts cash flow.

Make a Game Plan 

You should start by mapping out your long-term investment goals and making a game plan to get yourself there. Even if a storage facility is not your first investment, you may consider adding one to your portfolio in the future. 

Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.

We give out $250 gift cards for referrals that become our real estate clients.

Like, Share & Follow us on LinkedIn and Facebook.

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Are Apartments the Answer to Unused Office Space?

November 13, 2023

Much of the workforce now has the ability to work part-time or full-time from home. Remote work, in turn, has freed up a large portion of commercial office space in certain areas.

At the same time, many metros across the country, including Denver and the surrounding suburbs, are facing housing shortages. So, how do we fix the problem? Transforming unused office space into apartments may be the answer.

Office Space to Apartments

Converting office space to apartments is rapidly gaining popularity across the United States. If you are a commercial real estate owner, there are a few things to consider before making the decision. 

Zoning

Changing a building’s use depends on how the property is zoned. When a property is built as commercial space, changing the zoning to allow for residential use can be a complex and lengthy process. Be sure to check city, county, and state regulations to determine whether it’s possible to change how your building functions. 

Budget

Converting office space to apartments is not for the faint of heart. The infrastructure of the building will need to be entirely reworked to account for new plumbing, electrical, HVAC, etc. If you are interested in diving into this development project, be sure you have the budget to support its completion. 

Investment Strategy

Considering your investment strategy is a crucial aspect in making this decision. Would you prefer to manage residential space or office space? Both involve a different set of skills, tasks, and potential problems. Additionally, offices and multifamily residential each bring differing returns on investment, so it’s crucial to pick the one that supports your long-term goals. 

The Good News

The good news? In real estate, you always have options. Converting the use of your commercial assets can be an extremely successful strategy when done wisely. Talking with your trusted commercial real estate advisor is the best first step.

Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.

We give out $250 gift cards for referrals that become our real estate clients.

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Top Strategies for Marketing Commercial Real Estate

October 13, 2023

Ready to Lease or Sell?

Whether you are getting ready to lease or sell a piece of commercial real estate, having a top-notch market strategy is essential. 

Online platforms mean that buyers and renters have access to massive amounts of real estate information in the palm of their hands. When you are in a position to lease or sell commercial space, you need to be sure your property stands out among the rest. 

Commercial Real Estate Marketing Strategies

The following commercial real estate marketing strategies will help you find the right buyer or tenant in no time.  

  • Know Your Audience: If you don’t know who you want to market to, it will be challenging to get the word out. Knowing your target demographic helps narrow your focus and lets your advertising connect more effectively.
  • Understand the Value Proposition: What do you and your property have to offer? It is vital to know your value proposition and how to present it to potential buyers or tenants. 
  • Showcase the Property: There are various ways to showcase a property, from professional photos and videos to 3D walkthroughs and even virtual reality tours. Determine the best way to showcase your property and get as many eyes on it as possible.
  • Use a Budget: Having a budget and sticking to it will ensure you stay within your means. Marketing is not all about who has the most significant budget but who is consistent and strategic.
  • Be Responsive: With rapidly available content everywhere and consumers looking for instant gratification, quickly responding to inquiries about your commercial space is paramount.

Talking with an experienced commercial real estate agent who is well-versed in the most up-to-date marketing strategies is highly beneficial. Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.

We give out $250 gift cards for referrals that become our real estate clients.

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Best Practices for Commercial Property Maintenance

September 27, 2023

Managing Commercial Property

Acquiring commercial real estate is one piece of the puzzle; managing a property is another. Whether you hire a property manager or take on the responsibility yourself, it is an essential part of ownership. 

A property manager will help facilitate tenant relationships, negotiate leases, and preserve the building’s condition. Consistent property management maximizes your return on investment by increasing cash flow and boosting appreciation potential. 

Maintenance is Key

While there are many important aspects of property management, maintenance is key. A building that is well-cared for will not only be appealing to tenants looking for a new space to lease but also for future buyers if you end up needing to sell. 

Preventative Maintenance 

When people think of building maintenance, they often imagine a handyman fixing a broken light fixture or a plumber repairing a leaking pipe. Preventative maintenance, however, is even more essential. 

Preventative maintenance may include regularly scheduled plumbing, electrical, and HVAC inspections, checking roofs for leaks, and consistent cleaning to avoid general wear and tear.

Tenant Communication

In addition to preventative maintenance measures, having proper systems in place for tenant communication is critical. When issues arise, you want your tenant to understand what steps to take and how to efficiently communicate the situation to the property manager or owner. 

Quick Repairs

Once an issue is identified, the landlord or property manager should address repairs quickly. Strong relationships with contractors and vendors allow for speedy resolutions at fair prices. 

Overall, following best practices for commercial building maintenance is essential in preserving your real estate investment. Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.

We give out $250 gift cards for referrals that become our real estate clients.

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