Darren Lizzack, MSRE Associate VP NAI James E. Hanson 201 488 5800 x104 dlizzack@naihanson.com More Info

Investing in Commercial Real Estate Today and the Foreseeable Future

Have you ever thought about investing in commercial real estate?  How about the stock market?  Do you own your own home?  I am betting that many of my readers own their own home, they own or have owned stock at some point in their lives and invested or have thought about investing in Commercial Real Estate.  I am also sure you have heard the terms “Buy Low” and “Sell High!”  I learned a long time ago about getting on the bandwagon of investing money for the future!  I studied Finance through my undergraduate years, and when I got out of school in 2000, the economy was booming and the stock market was exploding.  I thought that I had to begin investing in the stock market only to find my hopes knocked down as I watched the bottom fall out of the market.  I learned a valuable lesson the hard way and I am not prepared to do the same again.  Have you experienced this with any of your investments?

My post-graduate studies were at NYU’s Real Estate Institute where I learned how all the financial skills learned duringmy undergraduate studies were applicable to real estate.  And for as long as I have been working in the industry over the past nine years, I have only seen the market as one-sided; in other words, it has been a Seller’s market.  Today, that has finally changed!  The time has come to “Buy Low” for commercial real estate and I strongly believe that if you have cash to invest, opportunities have only begun to surface in the commercial real estate marketplace.  The most important thing to recognize is that demand for real estate is low today on the buy side and the tenanting side.  Therefore, the tenants and buyers of today are in the driver’s seat for the first time in the probably 15 to 20 years!  I am telling you that you can purchase real estate today at prices that were available 15 to 20 years ago!

I was speaking with a relative the other day about a home they purchased a few years ago.  They recently moved out and tried to rent it out, thinking let’s keep the home as an investment that will grow in value over time. Today, that house is thankfully rented out and it barely covers the mortgage, taxes and other expenses incurred by maintaining a home.  I asked this relative if they knew what their return on investment was and they had no idea.  I told them about another real estate venture today where another relative is about to invest some money into a commercial real estate venture offering 8% on their money today, which is the equivalent of about 10% because the majority of the return on the money invested is sheltered and therefore, tax free.  I asked the relative how much equity they invested for the purchase of the home and was told approximately $50,000.  Now, if the house is rented out and barely covering the expenses, they are happy to know they are not coming out of pocket to carry the home any longer.  BUT the home is only providing for $1,200 to $1,500 per year which is averaging 2.7% return on the initial investment.  And with a home purchase, you are only able to deduct the interest expense on the mortgage to shelter that income, but you cannot depreciate the asset unless it was purchased purely as an investment; therefore, the income is taxable!  And think about all the risks associated with carrying this house that is only providing a small return on investment.  And it would not take much to go wrong to wipe away that small profit either!

Now focus on my other family member who is investing money into a commercial real estate venture as a passive investment.  Let’s say for illustrative purposes they park the same amount of money, $50,000.  At an 8% return beginning day one, personal will receive $333 per month without the headaches of taking care of the real estate and this income of $4,000 per year is virtually tax free!  Granted there are risks associated with this investment but they are quite different in nature and goes beyond the scope of this “conversation” for today.  The point I am trying to make is that you want to purchase or INVEST when prices are low!  Think about the recent stock market crash last November 2008.  Had you been purchasing stocks as everyone else was losing their shirts, what kind of return on investment would you be experiencing this year when you prepare your tax returns?  Unfortunately, real estate does not react as quickly as the stock market and you cannot see clear valuations minute by minute, HOWEVER, you should clearly see that pricing is much lower than it was in recent years and therefore, buying opportunities are finally here!  I encourage you to seek out investments into commercial real estate today and in the foreseeable future; I foresee this opportunity is here for the next few years and the economy rebounds!  Just remember, real estate should be a long-term investment!

NJ COMERCIAL REAL ETATE ALLIANCE (www.njcrea.com).

I have been mentioning the NJ Commercial Real Estate Alliance over the past few months and I am happy to say that the website is up and running LIVE today and offers some really great tools free of charge to add to your quiver.  You will not only find blog posts from the other members on this website, but also a plethora of information pertaining to commercial real estate.  This can be your “One-Stop-Shop” for all professional resources required for a successful real estate endeavor.  You will find 13 established firms representing this alliance and I welcome you to reach out to anyone of us individually or collectively; we are Independently Proven, Collaboratively Strong NJ Expertise!  You can ask questions, respond to materials posted by any of the members associated with this alliance, and see a plethora of real time news articles pertaining to the real estate industry from many facets!  Feel free to maneuver through the site and your leisure and I welcome your feedback!  You can also sign up to receive daily news feeds delivered to your email that include information regarding business in NJ, architecture, legal, local and national commercial real estate, and much more!  Please let me know if there is information you would find beneficial to you and I will work diligently to get that knowledge into your hands; after all, knowledge is power!!  I guarantee if you have a commercial real estate dilemma, we can help you solve the issue(s) professionally, ethically, and most importantly, in a timely fashion!  Welcome to the NJ Commercial Real Estate Alliance (www.njcrea.com)