Rental Property - Northern Colorado Commercial Real Estate

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.

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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.

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#longmontcommercialrealestate #commercialrealestatebroker #northerncoloradocommercialrealestate

Build-Outs in Commercial Real Estate

January 18, 2023

A commercial build-out comes into play when a space, previously occupied by a tenant, is now leased by a new business that will use the suite differently.

Tenants use commercial real estate spaces for various reasons, and every renter has their own needs. Some spaces may be the perfect fit as is, and some will require minor or extensive renovations to suit a new tenant.

Commercial Real Estate Build-Outs

A commercial real estate build-out refers to anything required to make a space ready for your business. Depending on the existing building, a build-out may include new lighting, removing or adding walls, designing a waiting area, installing a kitchen, or creating new offices or storage areas.

If the current space functions well for your business, a build-out may be unnecessary, and you may simply add a fresh coat of paint to complement your brand.

If your company is looking for new office space, you will likely be able to find a building that works efficiently as is. If, on the other hand, you are looking to open something more unique, like a bar, restaurant, or arcade, you will likely renovate (build-out) to create the right atmosphere.

Who Pays for a Build-Out?

There is no perfect answer as to who pays for a build-out. Everything is negotiable in commercial real estate transactions, and the same applies to a build-out. The landlord may cover the expenses, the tenant may be solely responsible, or they may share renovation costs, depending on the negotiated lease.

Be sure to consult an experienced commercial real estate broker as you choose your new space and decide on a build-out strategy. 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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Types of Commercial Leases

December 8, 2022

If you have ever considered purchasing, owning, or renting commercial property, it’s critical to understand the different types of commercial leases. Not all commercial leases are created equal, and being familiar with the pros and cons of varying lease structures could save your business money.

The three most common commercial lease types are gross leases, modified gross leases, and net leases.

Gross Leases

In a gross lease, the landlord collects one lump sum rent payment from the tenant, which includes taxes, insurance, utilities, and maintenance. Then, the owner is responsible for using a portion of the collected rent to pay their taxes, insurance, etc.

Rental amounts tend to be higher when using a gross lease as it includes all operating expenses and is the only payment the landlord receives.

Modified Gross Leases

A modified gross lease is similar to a gross lease, but the tenant pays a certain proportion of the operating expenses on top of the base rent.

Properties with multiple tenants, such as office buildings, often use modified gross leases. Overall, this type of lease offers a great middle ground between gross and net leases.

Net Leases

A net lease is where the tenant pays a base rent to the landlord and is also responsible for other costs associated with the building.

There are three general types of net leases that each require the tenant to take on different costs. The cost categories the tenant may be required to cover are taxes, insurance, and maintenance.

Single-Net Lease: The tenant is responsible for one of the three cost categories mentioned above.
Double-Net Lease: The tenant is responsible for two of the three cost categories mentioned above.
Triple-Net Lease: The tenant is responsible for all three cost categories mentioned above.

In general, these leases are a great fit for owners who don’t want to be responsible for coordinating building maintenance or paying taxes, insurance, and utilities. They can tend to favor landlords but also give tenants the ability to review the landlord’s operating expenses.

Have Questions?

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

What to Know About Tenant Improvement Allowance

November 22, 2022

A tenant improvement allowance (TIA) is one of many important details in a commercial real estate transaction. Your tenant representation broker will advise you on the best way to negotiate a TIA based on your organization’s needs.

What is a Tenant Improvement Allowance?

A tenant improvement allowance is a specified amount of money that the landlord agrees to give the lessee so they can make changes to the leased space.

For instance, if your company was searching for new office space and found something nearly perfect but just needed a few renovations, you may be able to negotiate a tenant improvement allowance. A TIA can, in some cases, also be used to cover other expenses associated with the move.

The allowance is written into the lease agreement (typically seen as a dollar amount per rentable square footage) and details how the funds may be used.

How Can You Use a TIA?

You cannot use a TIA for everything. Your business will be responsible for equipment, furniture, and other decorating costs.

The landlord typically only wants tenant improvement allowances to be used for things that will provide lasting value. Building new or removing unnecessary walls, adding doors or windows, new plumbing and HVAC, or new paint and carpet are all common uses for tenant improvement funds.

Don’t Leave Money On the Table

Working with an experienced commercial real estate broker who negotiates on your behalf will ensure you don’t leave money on the table. Securing a substantial tenant improvement allowance can tremendously benefit your company in its next move.

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

Remote Work Impacting Commercial Real Estate

August 31, 2022

Remote work became necessary during the global pandemic and continues to impact the commercial real estate industry. Tenants are looking for different options than they were a few years ago, and commercial property owners are learning to navigate the new normal.

Here are a few trends to be aware of as working from home increases in popularity.

Digital Nomads

A digital nomad refers to employees who work remotely and use the flexibility to travel to and live in different locations throughout the year. This trend has broadened the demand for short-term rentals and more flexible lease agreements as workers choose to leave expensive cities for other areas.

Co-Living

Co-living spaces typically have individual rooms for rent and shared amenities such as kitchens, living rooms, and working areas. As the cost of renting and purchasing has skyrocketed, co-living spaces have become much more popular.

With flexible and affordable lease terms, some remote workers have shifted away from renting traditional apartments and are choosing co-living as they explore new states and cities.

Work-from-Home Amenities

Working from home means people spend much more time in one location and aren’t experiencing the social aspects of in-person work. Tenants are increasingly determined to live in buildings or areas with amenities like gyms, pools, and common working spaces that make remote work feel less isolated.

Have Any Questions?

If you currently own or want to purchase or lease commercial real estate, it’s essential to understand the current market trends. Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 if you have questions about the commercial real estate market in Longmont, CO, and our neighboring communities.

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Pros and Cons of Hiring a Third-Party Property Manager

June 22, 2022

Does it make sense to use a third-party property manager for your rental property? Whether you are buying a single-family home or a large apartment complex, hiring a property manager will have its pros and cons.

Hiring a Third-Party Property Manager

Let’s dive into some pros and cons of hiring a third-party property manager.

Pros:

Knowledge & Practice: In the same way you would rather see a trained doctor or take your vehicle to an experienced mechanic, you can trust a property manager to conduct business properly. They have created an entire career out of managing properties, and that experience can significantly benefit you or your organization.
Protecting Your Time: Your property manager will take care of tenant phone calls/requests, contractor coordination, and the financial and bookkeeping aspects of owning a rental property.
Avoiding Conflict: When you manage your own property, it’s easy for your business and personal lives to become intertwined. Having a neutral third party can help protect your private life from the emotions and stress of being a landlord.

Cons:

Control: Your property manager will oversee the communication with tenants and take care of tasks associated with the building. This means you won’t have complete authority to make decisions and handle issues as you see fit.
Cost: The fee to hire a property manager will inevitably affect your bottom line. Depending on the situation, the extra expense may or may not be worth it.

What Strategy Works Best for You?

Many factors play into whether or not it makes sense to hire a third-party property manager. You should work with a real estate professional that can help guide you in that decision based on their experience.

Please contact Steve at WeBrokerCORealEstate or 720-600-9513 if you have any questions about the commercial real estate market in Longmont, CO and our neighboring communities.

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How to Maximize Your Building’s Cap Rate

Tag: Rental Property

How to Maximize Your Building’s Cap Rate

Maximizing Your Building’s Cap Rate

What Affects Cap Rates?

Understanding Cap Rates

Calculating Cap Rates

What Affects a Cap Rate?