Real estate investors are constantly looking for the best investment opportunities. Investing in the right properties and the right location will yield more profits. There are different kinds of properties that you can invest in as an investor. If you are looking to invest in properties that will yield you good financial rewards, Commercial Real Estate Investment in Dallas.
Investing in commercial properties will yield more profits than investing in residential properties. However, you need to make adequate research and seek the services of commercial real estate professionals. This is because commercial properties are high-risk, high-reward real estate investments.
What is Commercial Real Estate?
Commercial real estate (CRE) refers to buildings or lands used exclusively for business purposes for the aim of generating profits. Any building or land used exclusively for business purpose and generating profit is known as a commercial building. Profits are generated from commercial properties by selling or leasing the properties. They are either sold or rented out to business owners who want to use the properties for business purposes.
Commercial real estate includes office buildings, medical buildings, hotels, shopping centers, farmlands, retail stores, malls, warehouses, restaurants, garages, gas station buildings, and departmental stores.
Investing in Commercial Real Estate Dallas
Investing in commercial real estate is a high-risk, high-reward investment. As an investor, you can make money through property appreciation and rental increments. The management and maintenance of a commercial property is the responsibility of the tenant, hence you don’t incur more expenses in managing and maintaining the property.
You can invest and own a commercial property through two ways which include:
This is a way to own a commercial property by investing directly towards the ownership of the physical property. It simply means purchasing a commercial property directly.
To be able to purchase a commercial property directly, you need to be a high-net-worth individual. This is because you need a considerable amount of capital to invest directly and own a commercial property.
Investing directly in commercial properties in Dallas could require a considerable amount of capital. However, it is a wise investment risk to take because you will be making good profits from your investments due to its high economic growth, high employment rate, and ever-increasing population.
Indirect investment means investing in commercial properties indirectly through various market securities such as exchange-traded funds, real estate investment trusts, or investing in companies that finance commercial real estates markets such as banks and realtors.
Indirect investment means you are part-owner of the property and enjoys a part of the profits made from the property.
Advantages and benefits of investing in commercial real estates in Dallas
Investing in commercial properties in Dallas has many benefits and advantages. These include:
Making profits is the sole aim of investing in commercial real estates. When compared to investing in residential properties, the annual return of commercial properties is about 12% while the annual return of residential properties is about 6%.
The leasing rates of commercial properties is significantly higher than the residential properties. Dallas is a populated city with a good economy. Businesses are experiencing drastic growth in Dallas and commercial property owners are smiling to the bank due to high rentals. Commercial real estates have good returns and considerable monthly cash flows.
Commercial properties generally have a longer-leasing contract compared to residential properties. A leasing contract for a commercial property could be up to 5 years or more while a leasing contract for the residential property could be for 1 or 2 years.
The long leasing contract generates more cash which you can reinvest in purchasing another property.
Commercial properties are always appreciating. Business owners are constantly looking for commercial properties to rent, hence increasing the demand for commercial properties. The increase in demand leads to the appreciation of the property which in turn leads to increment in rentals. Commercial property will continually increase in value.
The maintenance and care of the property is the responsibility of the tenant
The tenant doing business in a commercial property is most often the one maintaining and taking care of the property. This means you do not spend your money on maintaining the property. The tenants are in charge of maintaining the property and keep it in good condition to keep their business running and their customers happy.
Why investing in Dallas commercial real estate market is a good investment
An expanding population, pro-business environment, increased economic growth, and some other good reasons are luring investors to invest in Dallas commercial real estate market.
A survey conducted by NYSE ranked Dallas-Fort Worth as second in the U.S for real estate investor’s interest. Dallas commercial real estate market attracts both domestic and foreign investors with Canadian investors particularly interested.
The Canadian investors have invested a large amount of over $326.2 million in the Dallas-Fort Worth real estate market over the past 12 months and this is estimated to go higher.
Germans and South Korean investors are also trooping into the Dallas commercial real estate market.
One of the strong reasons why Dallas is a lucrative ground for commercial real estate investment is its high employment rate and economic growth. A strong economic lead to rental increment as the demand for the property keeps increasing.
Businesses and organizations make good profits due to good economy and high employment rates. The people living in Dallas can comfortably afford their basic needs and buy whatever they want from these businesses. A business will not grow when the people around don’t have money to patronize the business. Hence, the high employment rate and availability of good jobs also make Dallas a lucrative ground for commercial real estate investors.
Dallas-Fort Worth is a dynamic region where no one industry dominates and growth projections are generally higher than other large U.S. Due to its diverse economy, the city is much more insulated against unforeseen macroeconomic events which might cause stronger economic headwinds in other States.
Nationally, industrial real estate is attracting the most investor interest, with 50 percent citing it as their preferred investment opportunity. Multifamily real estate follows at 20 percent, office at 14 percent and retail at 10 percent.
Along with investments, the region’s real estate scene continues to expand. CBRE reported it’s tracking more than 5.6 million square feet and 15 million square feet in current active tenant requirements for office and industrial space, respectively.
That’s an indicator that Dallas-Fort Worth will remain an attractive investment opportunity.
Dallas has remained on top of the list for the top real estate investment market for years. Dallas was ranked 12th after cities like New York, London, Paris, and Tokyo in JLL’s 2016 investment market survey.
Dallas city is comprised of high-tech and high-value sectors with good infrastructure and transparent business practices that all combine to make the city a robust commercial real estate market.
Commercial real estate market Data in Dallas-Fort Worth area 2019
The population of Dallas-Fort Worth is about 7.4 million, making the cities two of the fastest-growing cities in the U.S. The Urban Land Institute recently named the Dallas-Fort Worth area like the top real estate market in the U.S. This recognition was given for both commercial and residential real estate market.
Top business sectors in the Dallas-Fort Worth area reported employment growth over the years, especially in transportation, utilities, professional and business services.
Below are the following Market data highlights from Q2 2019 Dallas-Fort Worth MarketView reports from CBRE:
Multifamily rental homes
- Rentals grew 3% year-over-year as demands exceed supply
- The net absorption in Q2 2019 is the highest that the market has experienced in 30 years.
- The annual delivery in multifamily homes is exceeding annual starts, while the single-family development is declining simultaneously.
- The gross asking rentals increased overall from $25.01 per sq. ft. to $25.26 per sq. ft. between Q1 and Q2 2019. Also, Class A asking rentals rose from $30.95 per sq. ft. to $31.37 per sq. ft.
- Over the most recent quarter, vacancy remained flat.
- The net absorption of office spaces slightly declined within the Q1 and Q2 2019.
- 4.3 million sq. ft. of office constructions are currently ongoing and 46% of the offices are already pre-leased.
- Occupancy of retail stores reached a record high of 94.7% in Q2 2019
- Retail construction and absorption both increased during Q2 2019.
- The Collin Creek $1 billion redevelopment project has been approved by the planning and zoning commission in the DFW suburb of Plano. This is a mixed-use project including a hotel, 500 homes, 2,300 apartments, 300 senior living units, and 300,000 sq. ft. of retail space.
How to get started in commercial real estate
Do you want to invest in commercial real estate but you don’t know how to start? Here, we are going to show you how to get started and invest in commercial real estate. To ensure success and going into investment loss, you must first do your homework and thorough research. You must know the ins and outs, dos and don’ts of commercial real estate.
Below are some vital tips you need to follow for a successful commercial real estate investment:
Understand how commercial real estate is different from others
Commercial real estate is different from residential real estate. The income from commercial real estate is typically usable resulting from longer leasing period. A commercial real estate investor has better potentials and opportunities to earn a higher income than a residential real estate investor.
The location of the property and the type of tenant also has a great role to play in determining the demand for the property. A property located in a location with the low economy and low population will have a low demand. This will affect the value of such property. Also, commercial properties have better performance and value in urban areas compared to residential properties.
Analyze comparable properties
Before buying or selling a property, you must first compare the property with other recently sold similar properties. This is to help you determine the current market value of the property. To determine the current value of the property you want to buy, search for a similar property that the square footage is not higher or low than 10% of the property you want to buy. Doing this, you will come up with the most accurate comparable value for the property.
Use the right success metric
As a commercial real estate investor, you need to understand real estate finance and investing. Real estate finance and investing involve a lot of calculations and formulas. These include:
Net Operating Income
The net operating income equals all revenue and costs from a property. This calculates the amount investors will make from an investment after removing all operational expenses. This is calculated before payment of taxes.
Cash On Cash
This is a calculation that shows investors the rate of return on a commercial real estate investment. Real estate investors that rely on financing to purchase their properties commonly uses this. It measures the returns on out-of-pocket cash or the personal cash invested relative to the return on the part that was financed. It provides an accurate analysis of an investment’s performance.
The cap rate or capitalization rate is used to calculate the value of income-producing properties. It is the ration of the net operating income to a property asset value. It provides investors with an estimate of future cash flows or profits from an investment.