Investing in So. California real estate can be financially rewarding

In a recent UCLA press release, a senior economist for the university observed that the California economy continues to move forward in rebounding from the depths of the Great Recession. Another bellwether indicator of the economy, office leasing, also reflects positive news. According to an article published in Business Journal, a rise in employment in Southern California has resulted in the filling of vacant office space. Data shows that office leasing is up in Southern California and so are the rents, as entertainment, media and technology companies move in as tenants. Not coincidentally, office vacancy dropped significantly in the third quarter of 2014. This news may entice some to consider investing in commercial realty.

If you are a real estate investor, one question is whether you want to invest in residential single-family homes or broaden your horizons to investing in commercial property. NuWire Investors notes that most real estate investors get started buying single-family residential houses because that is what they are most comfortable with. However, a person with the financial means should not neglect to consider investing in office buildings, apartment complexes, mobile home parks or industrial sites.

The BiggerPockets website reports that in commercial real estate transactions, it is common for several investors to pool their capital together and enter into syndicate deals. In addition, smaller private equity firms and finance companies are often inclined to do joint venture projects and provide the needed capital to complete the deal if it's a good one. Indeed, it may be easier to raise larger amounts of capital for a modest commercial realty deal than for buying residential homes. It is noted that most commercial properties with a price tag of less than $5 million tend to be too large for many residential realty investors and yet too small for most big institutional investors.

BiggerPockets observes that buying commercial property can offer benefits that buying up single-family residential homes cannot. First, commercial realty usually offers higher returns on your investment than residential property. Second, leases for commercial office or store spaces are generally longer than leases on single-family residences and this will help immensely with the stability of your cash flow.

Tips on purchasing

Entrepreneur magazine recommends that, before you buy commercial realty, you need to do your homework. If you are buying commercial premises subject to leases-whether office or apartment buildings-find out what the vacancy rate was under the seller. You should determine when tenants' leases are up and whether or not indications are that most of them will renew their leases. Additionally, inquire as to how many tenants are delinquent with their rental payments and if delinquency has been a problem for the sellers. If the tenant is a commercial tenant, another factor to take into account is whether business seems to be booming in that location. Booming business might indicate that tenants will stay put. Finally, taking a look at the seller's cash flow statements is highly prudent.

Seek legal help

Whether you are considering investing in residential or commercial real estate, you should contact a California law firm experienced in handling real estate transactions. An attorney can assist you in both negotiating real estate purchases as well as during the closing. If you are purchasing commercial realty subject to leases, an attorney can review those leases prior to your purchase in order to help you avoid any unpleasant surprises.

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