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Cash Flow vs. Appreciation: Which is More Important?

Tag: Rental Property

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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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.

Like, Share & Follow us on LinkedIn and Facebook.

#longmontcommercialrealestate #commercialrealestatebroker #northerncocommercialrealestate

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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What are Commercial REITs?

September 6, 2023

What is a REIT?

A REIT, or real estate investment trust, is an investment vehicle that is used as an alternative to purchasing a single piece of real estate. 

Purchasing a property takes large amounts of time, effort, and money. If buying real estate on your own feels out of reach, a REIT allows you to be a shareholder in a company that owns many pieces of real estate. This eliminates the need to search for and manage a property, and also greatly reduces the financial commitment. 

There are three major types of REITs, including equity, mortgage, and hybrid. Each offers unique benefits that are worth exploring if you are considering investing. 

How do Commercial REITs Work?

Commercial REITs are companies that own income producing commercial properties. These types of REITs typically own real estate such as apartment buildings, shopping centers, hotels, hospitals, and corporate offices. 

Most REITs focus on a specific type of property, however, some try to diversify their portfolio by owning several different subtypes of real estate. Diversification can help to reduce risk in the event that one sector of the real estate market performs poorly.

Overall, the company generates revenue by leasing its owned real estate to businesses in need. In turn, the REIT pays out a portion of its rental profits to the shareholders. 

Your Investment Strategy

Depending on your investment strategy and your financial situation, a REIT may or may not be the right option for you. Consulting a real estate expert is the best first step to determine how you’d like to set up your investment portfolio. 

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.

#longmontcommercialrealestate #commercialrealestatebroker #northerncoloradocommercialrealestate

Tips for Subleasing Commercial Real Estate

July 18, 2023

What is Subleasing?

Subleasing is common in both commercial and residential real estate, and involves the current tenant leasing their rented space, or part of it, to a new tenant. 

The new tenant, therefore, is known as the subtenant, and the agreement between the two is known as a sublease. The subtenant pays their rent directly to the original tenant, who then pays the landlord. Subleasing has many advantages, and following the tips below will ensure the process is successful. 

Tips for Subleasing

Here are a few tips to consider prior to subleasing commercial real estate:

  • Work with a knowledgeable commercial real estate agent who has experience in subleasing agreements and can advise you accordingly.
  • Research the area and property extensively before signing. Make sure it will be an excellent fit for your business!
  • Consider having an attorney review the sublease in detail to ensure the agreement is fair. 
  • Don’t be afraid to negotiate the terms of the sublease to better benefit you. 
  • Interview the tenant to make sure they are someone you can trust.
  • Throughout the sublease, communicate frequently with the tenant/landlord about expectations. 

Depending on your situation, subleasing might be the best option for your business. Subleasing can broaden opportunities for office locations and is often more cost-effective. Knowing the ins and outs of being a subtenant and following the tips above will help ensure success in your next subleasing endeavor. 

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 Maximize Your Building’s Cap Rate

April 26, 2023

Maximizing Your Building’s Cap Rate

Maximizing your commercial real estate building’s capitalization rate, or cap rate, tends to bring the best return. 

A cap rate considers a building’s current market value and net operating income and produces a percentage that shows the investment potential. Additionally, a higher cap rate typically leads to higher risk, so each investor needs to determine their comfort level based on their situation. 

What Affects Cap Rates?

There are various ways that cap rates can be affected. The following are factors to pay attention to when evaluating the investment potential of a property:

  • Market Trends: Market trends substantially impact a building’s value. When there is strong demand, a building will be worth more. When there is a large influx of supply, a building’s value may drop. Any change in a property’s value will ultimately alter the cap rate for better or worse. 
  • Leases: Cap rates are dramatically affected by the amount of income the building produces. The types of leases in place and the rental rates are crucial in maximizing returns. 
  • Location: The location of any piece of real estate is essential. If you are looking to draw a specific tenant or demographic to increase rental income, you need to be in the correct location. 
  • Condition: The condition of the building can have a major impact on cap rates. A property that needs little to no updating will likely draw higher-paying tenants but will have a heftier price tag. 

Finding a building that doesn’t just excel in one of these categories is crucial. To maximize your property’s cap rate, you must ensure it has the best combination of the abovementioned factors. 

For example, just because a building may be in perfect condition, a bad location may result in a lower cap rate. Or, if the real estate market is strong, but the leases in place don’t have great terms, you may be leaving money on the table. 

Your commercial real estate agent will work with you to understand your investment goals and strategy, and help you find the right property to fit your needs. 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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Understanding Cap Rates

March 22, 2023

The term “cap rate” is commonly thrown around in commercial real estate. But what does it actually mean? Cap rates, or capitalization rates, are a way to measure the return on investment of a specific property. It takes into consideration operating expenses, income, and the building’s value and is commonly represented as a percentage. 

Cap rates are an excellent way for investors to determine how quickly they will recoup their investment and how much risk is associated with a given property. Typically, lower cap rates correspond to less risk and smaller returns. Inversely, higher cap rates correspond to more risk and higher returns. 

Calculating Cap Rates

To calculate a cap rate, divide the net operating income of a building by its value. Net operating income is the property’s total income minus any operating expenses. Dividing this number by the building’s asset value gives the capitalization rate. 

For example, a building worth $5 million with a net operating income of $200,000 has a 4% cap rate. Generally, different categories of commercial real estate tend to fall into specific ranges of cap rates. 

What Affects a Cap Rate?

Cap rates are affected by several different factors. Some of these factors include location, type of building, property class (A, B, or C), and types of leases. Understanding each factor’s impact on a building’s cap rate is crucial in finding a suitable investment for your portfolio. 

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.

#longmontcommercialrealestate #commercialrealestatebroker #northerncoloradocommercialrealestate

Four Benefits of Real Estate Investing

February 14, 2023

Some investors want to own a large portfolio of cash-flowing properties. Others only own their primary residence and don’t consider themselves investors at all. In reality, if you own any piece of real estate, no matter the type, you are an investor.

Let’s take a closer look at the four benefits of real estate investing.

Cash Flow

Cash flow is the big one on which many investors focus. For example, if you own a rental property, you want the rental income to be greater than any associated expenses (mortgage, maintenance costs, insurance, etc.). You aren’t cash-flowing if your costs are higher than your rental income. 

Appreciation

Appreciation benefits any and every property owner. It’s likely shocking how much your parents or grandparents bought their first home for versus what the same house is worth now. That is the power of appreciation.

When there is more demand than supply (more people who want to buy property than there are properties available), real estate becomes more expensive as multiple buyers drive prices up. 

Tax Incentives

Mortgage interest deductions, insurance deductions, and depreciation are a few of the tax incentives that come with owning real estate. Some only apply to a primary residence, and some are the benefits of owning rental properties.

Your trusted CPA can help guide you on how to maximize your tax savings regarding your real estate investments.

Debt Reduction

Debt reduction only applies to real estate investors who finance their properties. When you use a mortgage, you put a certain amount of money down and then are left with an outstanding loan balance. As you or a tenant continue to pay the mortgage each month, the debt amount shrinks, and the property’s equity grows.

Ready to Become a Real Estate Investor?

Building your team of local real estate professionals is the first step in becoming a real estate investor. Please reach out to 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.

#longmontcommercialrealestate #commercialrealestatebroker #northerncoloradocommercialrealestate

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