One of the most sought-after zip codes in the country, Pacific Palisades is known for its picturesque views, exclusive shopping destinations, and attractive beaches. The Los Angeles County enclave has a timeless appeal. In addition to homebuyers, investors in commercial properties are seeking ways to profit in Pacific Palisades and throughout Greater Los Angeles.
Buying commercial property can be challenging and rewarding, especially in Greater Los Angeles, which consistently ranks among the nation’s best locations for commercial real estate. Dozens of billion-dollar companies have headquarters in this city. The market is highly competitive, growing, and can pay excellent dividends. If you are new to commercial properties, you’re in the right place. Here are the Beachrock Group’s must-have tips for buying commercial real estate.
What properties constitute commercial real estate?
“Commercial real estate” is an umbrella term covering several types of properties mainly used for business purposes. When you research commercial real estate, you’ll usually encounter the same few types of real estate. There are residential developments (apartment complexes, hotels), business developments (offices, retail storefronts), low-maintenance facilities (warehouses, self-storage facilities), and vacant lots.
Each has its own advantages and rules of thumb. For example, in an apartment complex, more tenants usually lead to more profit. Self-storage facilities are gaining popularity and require virtually no maintenance. Prevailing trends like remote work, world travel, and e-commerce are worth your consideration.
As you narrow down your preferred type of commercial real estate, your agent can break them down further into subcategories. For instance, if you’re a business owner looking for offices, there are three types of classification. Class A offices are typically newer or renovated in city centers; Class B offices are older builds requiring minor upgrades; and Class C offices may entail more financial outlay, high vacancy rates, and unconventional layouts.
How to get into commercial real estate
Commercial real estate purchases are a mix of logistics and more high-minded concerns. As an investor in commercial real estate, you should budget adequately and know your exit strategy. The pragmatics of your purchase comprises steps like scouting locations and negotiating the best possible deal. You can streamline all these processes by working with an expert commercial real estate agent.
Set clear goals
For most commercial investors, the main goal is to make a substantial profit. There are many ways to achieve that end. If you intend to operate a chain of restaurants, your strategy will be different from investors leasing units in an apartment complex. You might pursue commercial real estate to diversify your assets and position yourself for tax deductions.
Consider also your long-term goals — particularly, what is your exit strategy? With your partners (if applicable), set a timeframe for when and how you will eventually sell your commercial real estate. The three most common exit strategies are:
- Sell outright (investor to investor, the most common and straightforward strategy)
- 1031 exchange (sell one property and use the proceeds to buy another property)
- Leaseback (sell the property but lease it back from the new owner)
In addition to your financial advisor, your commercial real estate agent should have a say in your long-term planning.
Optimize your finances
Your real estate agent, accountant, and financial planner can all contribute to your working knowledge of commercial real estate. As you prepare to invest, ensure you have the funds required for your down payment. You can decide to pay cash or use equity from another property. Like a home purchase, a commercial real estate purchase comprises detailed financial and legal documents. Beyond those complexities, you also should ensure your commercial real estate is zoned properly for your intended use (if not, add the additional costs to your budget).
Ask your agent whether a triple net lease makes sense. Triple net leases (also referred to as NNNs) put your tenant in charge of most or all property expenses (including insurance, taxes, and maintenance, on top of rent and utilities). When you sign a triple net lease, you are responsible for fewer logistics as a property owner.
Work with an expert commercial real estate agent
At this stage in your process, your greatest leverage is an experienced commercial real estate agent. Your agent’s commercial real estate license guarantees they have the fundamental training to complete one such transaction. Beyond that, the best and most active agents can access more properties than you’ll find online. Your agent will compare properties using metrics like population growth, zoning restrictions, nearby parking, and much more. Their professional network should include contractors necessary for your purchase.
Choose the best location
Once you know what kind of property to invest in, the next step is finding suitable properties. Los Angeles comprises over 80 distinct communities, and property values vary depending on location. Where you choose to invest can make or break your investment, so your business plan should address how your location will contribute. An expert agent can compare different locales based on how commercial real estate has fared there recently. Generally speaking, high-growth and high-traffic areas are best.
Risk vs. reward
Broadly speaking, commercial real estate offers a higher potential return than single-family properties. The buildings are usually larger, more valuable, and more profitable, especially if you’re accommodating businesses. These properties come with longer leases and may unlock tax benefits related to property value and upkeep. Your agent can analyze your prospects based on metrics like average rent, occupancy, and inventory.
When investing, account for high interest rates and other macroeconomic concerns. Greater Los Angeles is a promising investment place to invest in many cases. The city is a nexus of progress, the site of the autonomous car revolution, and an excellent place to buy and rent commercial real estate. Communities on the outskirts of the city, including Pacific Palisades, figure to become more profitable in the long term.
Execute your purchase like a pro
Commercial real estate has high financial stakes, so your agent must be an excellent negotiator. They will know when to force the issue and when to back off. Even after you agree on a purchase, you must navigate a lengthy and involved process. In contrast with residential property sales, commercial real estate transactions often take months to close. Working with the best commercial real estate agent can make all the difference in the endgame of your purchase.
The bottom line on buying commercial property
Investing in commercial real estate requires a substantial financial outlay, so it’s vital that you take the right approach. Commercial real estate is a long game where patience is at a premium. Every step of buying commercial real estate will be much easier with an expert real estate agent, such as those at the Beachrock Group
. They offer buyers access to off-market opportunities
and know the city inside and out. Send a message
today and see how the agents at Beachrock Group can serve you.