By Paul Long
January 2016
The Commercial Real Estate Market is moving well in the Puget Sound area. Vacancy rates are down and lease rates are up. According to INFORUM, Commercial Property Revenue is foretasted to grow at an annual rate of 4% between 2015 and 2019 which is proof that it is a great time to invest in commercial real estate. Personally I look at new commercial real estate listings here in Tacoma/Pierce County weekly and are averaging about 5 new listings a week as of January 2016, so there are plenty of new properties being added to the market.
In this article I wanted to address some of the individual properties and how to capitalize on them.
Bank owned Properties– People ask me often about bank owned properties. There are plenty of them still out there, some are still at amazing prices with a decent cap rate! Just recently I had a client that purchased a 6 unit Multi-Tenant strip mall here in Pierce County for $380,000 located on a busy highway. It was a bank owned foreclosure and the client only needed to put in about $30K in differed maintenance. After the deferred maintenance as well as renting out two of the vacant units it had a stabilization price of $620,000! He was getting on average $1000/month each of the 6 units and his mortgage was only $2,200/month. If you are looking for long term growth, these types of properties are the way to go.
Yes, you do need to be very careful in purchasing bank owned properties but if you have the money and know how you can turn a nice profit and make some good monthly cash flow.
Check out your local banks websites for their Repo list. Most small banks have this information easily accessible on their website because trust me, they want to get rid of these properties.
Single Family Real Estate (Including under 4 Unit complexes)- Single family real estate is still a good deal if you can find the right property. In Pierce County there is more job creation happening and we are seeing bigger box stores opening in Pierce County. One of the big reason Pierce county market is growing so quickly is because home prices are still affordable. The median home price in pierce county is around $225,000 compared to $400,000 in King county. With this news many investors are looking to pick up properties that need a little work and get them rented.
On the lending side many people don’t realize that you can use a commercial loan to finance a home if you are looking at purchasing it as a rental. When mortgage company’s look at a loan for a rental property, you must still have low debt to income in order to qualify (normally 43-48%) many borrowers have multiple properties and debt to income can be higher and not be able to qualify. Commercial loans use Debt Service coverage for underwriting which looks more and your cash flow coverage than debt to income. The bottom line is if you get turned down for a traditional mortgage for a rental property, talk with a Business Banker, there may be other options available to you.
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