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What Is Property Management? – Everything You Need To Know

If you have a rental property on your hands, or you’re thinking about becoming a landlord, you might consider hiring a property management company.

Before you decide to bring on a team of professionals to help you manage your business, it’s important to have a comprehensive understanding of three things:

  • What is property management?
  • What does a property manager do?
  • How much does a property manager cost?

In this guide, we’re going to answer these three questions and give you a few tips for hiring a property manager for the first time.

What is Property Management?

According to Investopedia, property management is “the daily oversight of residential, commercial, or industrial real estate by a third-party contractor.”

Property management companies can be incredibly helpful when it comes to running your business and managing day to day responsibilities that landlords have. Property management companies can take care of everything from collecting rent to repairs, maintenance, move-out cleaning, and more.

Most property management companies will also advertise your available properties, conduct credit and background checks, meet with prospective tenants, give tours of your properties, and draw up leases and other necessary contracts.

Property management companies come in handy in many cases. For example, if you own a handful of rental properties that you don’t have the time or resources to take care of on your own, a property management company can handle as much or as little as you need them to.

Or, if you live in another city or state, you can hire a local property management company to keep an eye on your properties, make sure your tenants are well taken care of, and make sure you receive your rent check on time.

Let’s take a deeper look into more scenarios in which property management can be helpful:

  • You want to be a hands-off landlord

Many landlords want to purchase and rent income properties because they are great investments. They create passive income and can generate generational wealth if done correctly. If you are more interested in the business and financial side of renting out properties, and less on the management side, hiring a property management company can help ensure you get the most out of your investment.

  • Being a landlord is your second job

Becoming a landlord is a great way to earn extra money on top of your 9-to-5. However, if you’re already working 8-hours a day, you might not have the time or energy to care for your properties and tenants. A property management company can do it for you!

  • You have the income

Hiring a property management company isn’t cheap. But if you can set aside 5%-10% of your rental income and still manage to afford your lifestyle, you should consider hiring a property management company. Once you are relieved of most of your landlord responsibilities, you can focus on growing your business, spending more time with your family, or just relaxing!

  • You aren’t interested in being an employer

As a landlord, you always have the option to hire one or two people to help you take care of your properties. Some people will also choose to hire one of their tenants because they are already on the property so often – it makes for a very convenient situation! However, you might not have any interest in dealing with the complexities of being an employer. A property management company can help you avoid the hassle.

  • You participate in an affordable housing program

Managing properties that are involved in affordable housing programs usually involve a lot of paperwork and stipulations. Most property management companies have plenty of experience in dealing with affordable housing programs, so they can easily help landlords get the financial assistance they’re entitled to, help with filing taxes, and getting tenants all set up with their new, affordable homes.

What Does a Property Manager Do?

There are many positions within a property management company, but the property manager is the one who is the most involved. A property manager essentially acts on the landlord’s behalf to make sure properties and tenants are taken care of while generating income.

Specific responsibilities of a property manager include:

  • Supervising and coordinating building maintenance and repairs
  • Performing light cleaning work
  • Resolving tenant concerns
  • Advertising
  • Showing vacant units
  • Collecting and depositing rent
  • Communicating with the property owner
  • Screening tenants (and pets)
  • Applications
  • Handling new leases and lease renewals
  • Lockout services
  • Emergency maintenance
  • Notices of entry
  • Evictions

A property manager is hired to be a landlord’s eyes and ears when they aren’t around. They will ensure that the property is handled professionally, and tenants are well cared for.

As with any great service, property managers don’t come cheap.

How Much Does a Property Manager Cost?

Property management companies charge for the service and convenience they provide landlords. Everything a property manager does helps ensure the success of a rental property and the happiness of the tenants. Although their services typically come at a steep price, providing top-notch service to tenants often means that a landlord can charge higher rent prices. This may be able to offset the cost of hiring a property manager.

Before you can decide if hiring a property manager is the best decision for your business, you must know what fees are associated with property management and why.

  • There are Two Main Property Management Fees

Property management fees are usually set up as a percentage-based fee (based on rent price), a flat fee, or calculated per project.

In addition, property managers charge a leasing fee and a monthly management fee.

Leasing fees are used to covers the costs associated with marketing, showing properties, reviewing applications, screening, processing paperwork, and getting a unit move-in ready. Leasing fees may cost 75%-100% of the first month’s rent.

Monthly management fees are used to cover costs associated with monthly recurring services such as collecting and processing rent checks, inspections, maintenance, and inspections. Monthly maintenance fees are typically 7%-10% of a unit’s rent.

Landlords can pick and choose what they want to use property management companies for. Some will only want leasing services, others will want help with monthly management, and some will want both.

  • Other Property Management Fees

Vacancy fees may be charged after your property is vacant for a certain amount of time. This is because property managers are responsible for the property whether it is vacant or not. So, they will charge a small fee to protect and maintain the property while it’s empty.

On-boarding fees can be charged when you first get set up with a property management company. The price will vary, depending on how many properties you have and the services you need.

Maintenance fees are collected to pay for repairs and property maintenance. The way maintenance fees work will usually be negotiated between a property management company and the landlord. Some companies will charge a little bit more to have a maintenance “bank” and automatically complete repairs that are below a certain threshold. Others will charge a markup for the repair services and keep the difference.

Lease renewal fees may be a flat fee, a portion of one month’s rent, or equivalent to one month’s rent.

Eviction fees are charged based on the amount of time and effort it takes to evict a tenant.

Tips for Hiring a Property Management Company

When looking around for property management companies to hire, make sure you ask about their fee structure and which services are included. Be sure to also look at their testimonials and get references from current tenants. You want to be 100% confident that the company you hire can be trusted with your money and income properties.

Here are a few more things to consider when hiring a property management company:

  • The number of properties they are currently managing. If they have a large portfolio, make sure they have the staff and resources to give proper care to the units you’ll be adding.
  • Their inspection process and how often they are conducted.
  • Their tenant and pet screening process.
  • What you will be paying up-front and monthly.
  • Any additional fees that you might run into.
  • Services they offer besides property management (can they help you buy/sell properties?)
  • How involved you will be in the management process (what kind of situations will require your attention? How easily can you gain access to information you need?)

Final Thoughts

The decision to hire a property management company should not be made quickly or lightly. Take your time and meet with as many property managers as you need before you feel comfortable handing over the keys to your business. If a property management company seems pushy or wants you to make a quick decision, they probably aren’t the best match for you.

Hire Speed Commercial Real Estate for Your Property Management Needs

Speed Commercial Real Estate is the top property management company in Ridgeland Mississippi. We will take care of your properties as if we owned them ourselves! No matter if you are local, a few hours away, or on the other side of the world you can rest assures that your properties are in great hands.

Contact us today to set up a meeting. We look forward to speaking with you!

How To Get A Commercial Real Estate Loan

Have you ever wondered, “How do commercial real estate loans work?”

Commercial real estate loans are very different from traditional real estate loans (like the one you would get to buy a home) and the process can be quite complex. Investing in commercial real estate can be an excellent way to start or grow your business. However, unless you have enough cash on hand to purchase the property outright, you’re going to need a commercial real estate loan.

We’re going to break down everything you need to know about how commercial real estate loans work, what the different types are, and how to qualify for a commercial real estate loan.

Please note that this guide is designed to help you navigate the commercial real estate loan process. It does not constitute as financial advice.

What are Commercial Real Estate Loans?

Commercial real estate loans (also called CRE loans) help business owners secure properties they can use to generate income. CRE loans are similar to residential real estate loans in that both are types of mortgages that are used to purchase real estate. But the two types of loans are more different than they are alike.

CRE loans are specifically designed to finance the purchase or remodel of property that will be used for business purposes. Therefore, to be approved for a CRE loan, the majority of the building you purchase is required to be used for business purposes.

That means you can lease out a portion of the property if you wish. But at least 51% of the property must be used for your business. If you want to lease out 50% or more of your commercial property, you will have to apply for a separate type of loan.

When to Apply for a Commercial Real Estate Loan?

Here are four situations in which a commercial real estate loan would be appropriate:

  1. Buying an office building or suite to operate your business out of
  2. Expanding or relocating a retail store
  3. Investing in a warehouse to store inventory
  4. Purchasing, building or modifying a hotel that you intend to operate

Benefits of Commercial Real Estate Loans

Although the process of obtaining a CRE loan can be complex and expensive, it’s almost always worth it in the end. After securing a CRE loan, you can benefit from:

  • Rental property income
  • Tax benefits
  • Depreciation
  • Sale proceeds
  • Operating expense recovery
  • Parking, vending, and services fees

How do Commercial Real Estate Loans Work?

Commercial real estate loans are funds that are used to purchase an existing property. They can also be used to develop, construct, or renovate land or a building. In most cases, CRE loan applicants will have to be owners of a legal business entity that is registered with the state and local governments.

Here are a few other stipulations and terms for how to qualify for a commercial real estate loan:

Interest rate~3.5%
Down payment15%-35% (certain loans back by the U.S. Small Business Administration may be secured with as little as 10% down)
Loan terms5-10 years, with up to 25-year payoff plans
Debt-to-income requirementMinimum of 1.25
Minimum credit score660
Eligible property typesOffice, retail, industrial, hotels, restaurants, medical, entertainment, and specialty

Loan-to Value Ratio

The Loan-to-Value (LTV) ratio is used by mortgage lenders to determine how much money they can lend to a business owner. The LTV is found by dividing the loan amount by the property’s value.

CRE lenders typically want to see an LTV of 75%-80%. This could mean that you will have to either purchase an undervalued property or a sufficient down payment (around 25%) before you begin the CRE loan application process.

That being said, not every CRE loan lender uses LTV to determine how much they will lend a business. Some use a debt service coverage ratio (DSCR), which is used to determine a business owner’s ability to pay off their current debt. DSCR is calculated by dividing your business’ annual net operating income by your total debt payments per year. The median DCSR is 1.25.

Personal Guarantee vs. Non-Recourse Loans

When you are approved for a CRE loan, you are allowing the lending company to use your new business property as collateral for the debt. In certain circumstances, lenders might also require a Personal Guarantee.

If your business has not been in operation for long, you may not have the financial track record to prove that you qualify for a CRE loan. If that’s the case, a lender may ask you to guarantee that youwill personally pay back the loan if your business cannot.

Instead of a personal guarantee, lenders may offer a Non-Recourse Loan. In this situation, the lender will require that the property covers the loan funds if your business cannot. Meaning that the lender will reclaim the property and default your loan.

How to Get a Commercial Real Estate Loan

Here is a quick, yet comprehensive, guide to applying for a securing a commercial real estate loan.

  1. Know Your Credit Score

Your credit score is one of the most important factors when it comes to borrowing money. As a registered business, you will have a business credit score that is completely separate from your personal credit score.

While personal credit scores range between 300-850, business credit scores are on a 100-point scale:

  • Very poor: 0-20
  • Poor: 21-40
  • Fair: 41-60
  • Good: 61-80
  • Excellent: 81-100

If you want to obtain a commercial real estate loan with as little money down as possible, you will have to have a nearly perfect business credit score. In addition, scores in the Excellent range will have lower interest rates and better payback terms.

  • Understand Other Requirements

You want to begin the CRE loan application process as prepared as possible. You should come prepared with the following information:

  • Years your business has been in operation*
  • Value of collateral assets
  • Debt-to-income ratio**
  • Annual revenues

*It’s recommended that your business has been operating for at least 2 full years before you apply for a CRE loan.

**Your gross income should exceed your total debts. This will make lenders confident that you have the means to repay your loan.

  • Determine the Type of Commercial Real Estate Loan You need

There are 5 types of CRE loans available to business owners:

  • Permanent Loan: Permanent loans are the most similar to traditional mortgage loans. Typically, business owners can obtain a permanent loan from any commercial lender, but they cannot be used for short-term financing – typical amortization schedules and repayment terms are 5-years or more.
  • SBA Loan: The U.S. Small Business Administration backs some commercial real estate loans for small businesses. These loans are not available for real estate investors.
  • Bridge Loan: Commercial bridge loans are short-term financing solutions that are designed to help “bridge the gap” between current and long-term financing. Finds for bridge loans can typically be secured quickly, but they come with high-interest rates.
  • Line of Credit: A line of credit can be issued to help a business pay for immediate needs. The amount available to a business is pre-approved by the lender and can be used how the business sees fit.
  • Hard Money Loan: A hard money loan is thought of as a “last resort” that can be used for real estate transactions. They rely on collateral, not the financial standing of the business.
  • Owner Financing: Owner financing loans are loans that come from the entity that is selling the piece of commercial real estate a business owner is interested in buying.
  • Choose a Commercial Real Estate Lender

There are thousands of commercial real estate lenders for you to choose from. The best lender for your business will depend on what type of loan you need, how much you need to borrow, and what your future financial plans are.

Here is a list of things to consider when choosing a commercial real estate lender:

  • Available loan options
  • Origination fees
  • Starting interest rates
  • Documentation requirements
  • Time-in-business requirements
  • Prepayment penalties
  • Personal-guarantee requirements
  • Fast-funding or bad-credit options (if you need them)
  • Better Business Bureau ratings and customer complaints

Commercial Real Estate Loan FAQ

Are commercial real estate loans different from mortgages?

Yes. Commercial real estate loans have different requirements, rates, terms, and characteristics than personal loans.

What is the minimum down payment for a commercial real estate loan?

Typically, commercial real estate lenders will ask for at least 25% down. However, you may not be required to put as much down if your business has an excellent credit score.

How long does it take to pay back a commercial real estate loan?

Commercial real estate loans typically have repayment plans that are 5-10 years long. However, amortization plans can last for up to 25-years.

Looking for Your Next Commercial Property to Buy?

Speed Real Estate specializes in property sales and management in Mississippi. Give us a call today to view our available properties and discuss property management options!

A Complete Guide to Commercial Real Estate Auctions

A commercial real estate auction can be an excellent way to obtain your next property. Contrary to popular belief, real estate auctions are not exclusively comprised of dilapidated or foreclosed buildings. While buildings of such nature certainly do go up for auction, most properties at Mississippi Real estate auctions are in good financial standing and are able to pass inspections.

“How do real estate auctions work?” is a question that Speed Commercial Real Estate gets asked often, as we offer auctioneer services to the people of Jackson, Mississippi and beyond.

The Mississippi commercial real estate marketplace is currently seeing excellent selling prices and mortgage rates that are at an all-time low. Now is an excellent time for sellers to capitalize on the current seller’s market and for buyers to capitalize on investment opportunities. And the process is made even easier when done through commercial real estate auctions.

Types of Properties at Real Estate Auctions

Some properties at real estate auctions are there because they have been foreclosed on or the previous owners declared bankruptcy. Auctions are a tool that banks use to turn real estate properties into fast cash, but that is not the only reason they exist.

The majority of commercial properties that go to auction are sold using this method because sellers are looking to take advantage of a system that works quickly and offers a way for buyers to fairly make competing offers. Each bidder knows exactly what kind of offers they are up against and when higher offers are made. This allows buyers to make fast and informed decisions.

Historically, real estate auctions were primarily used to sell agricultural and rural properties, estates, and senior transitions. Today, you will find all types of properties at real estate auctions including commercial, residential, luxury, and farmland.

Benefits of Real Estate Auctions

In addition to the question “how do real estate auctions work?” we are often asked why buyers and sellers opt for this method.

Commercial real estate auctions offer:

  • Transparency – When you put in an offer at a real estate auction, you know exactly where your offer stands in comparison to the others. When you go to put on offer on a property that has been listed, you will likely be told if you are up against other offers, but you won’t have any clue what those offers are.
  • Fair competition – When you participate in real estate auctions, you are on the same playing field as all other bidders. There are no ‘closed door negotiations,’ no one to ask where your financing is coming from, no way to obtain early possession, or any of the other situations that frequently cause prospective buyers to lose out on a property they’re interested in. Everyone that participates in real estate auctions are under the same terms and conditions.
  • More control – Because you know exactly where your bid stands in comparison to other bidders, you can raise your bid or pull out of the auction whenever you want. This can save buyers an extraordinary amount of time – and money.
  • Fair value – Tax assessments, appraisals, the building next door… these are all factors that go into determining the market value of a property when it’s listed on the market. However, the real market value is what people believe is fair and are willing to pay. Auctions allow buyers to essentially set their own prices and only bid as high as they’re willing to pay.

With learning all those benefits of real estate auctions, you’re probably excited to participate in one! Before you place your first bid, it’s important to understand how commercial real estate auctions work.

We are going to cover the terms and conditions of real estate auctions, the different types of auctions, and how the process plays out.

Real Estate Auction Terms and Conditions

Real estate auctioneers will set their own terms and conditions for an auction, and they are likely to be different depending on the auction you’re participating in. If you aren’t familiar with the real estate auction process, you might not understand some of the jargon that is used.

Here are some important terms to know:

  • CASH – If an auction is “CASH” this means that a buyer is not required to have financing in order to purchase a property. Purchases can be made 100% in cash or with financing that was obtained through a lender before the time of the auction.
  • AS-IS – Buyers are responsible for all necessary repairs to properties that are sold at auctions “AS-IS.” This doesn’t necessarily mean that the property in in poor condition, it just means there is no opportunity to negotiate repairs or modifications to the property. Most often, potential buyers will have the chance to preview a property and even have it inspected, so they know exactly what they are spending money on.

Sellers are obligated to let potential buyers know about all known property conditions, and many will provide a disclosure report for full transparency. Auctioneers will typically do everything they can do to make buyers feel confident that they are spending their time and money wisely.

  • 30-DAY CLOSING – Auctioned properties that have “30-DAY CLOSING” give buyers 30-days from the date of sale to the final closing date. If you need to get financing in order to pay for the purchase, you can do it during this time. Make sure you let your lending company know that you are on a schedule and need the funds in 30-days or less.
  • NON-REFUNDABLE EARNEST MONEY – Earnest money is kind of like a down payment. When you put earnest money toward a property at auction, you are saying that you will move forward with a contract, should you make a purchase. The amount of earnest money you put down will either be a flat rate determined by the auctioneer or a percentage of the purchase price. Your earnest money will go toward the final price you pay at the time of closing.

Real estate auctions can be tricky if you’ve never participated in one. Luckily, you don’t have to go at it alone. Most auction companies allow real estate agents to represent buyers and will write compensation and cooperation rules into their terms and conditions. Speed Commercial Real Estate has 17-years of experience in Mississippi real estate and auctions and will work hard to get your next property at the best possible price.

Types of Real Estate Auctions

While you’re searching for Mississippi real estate auctions, you’ll come across a few different types:

  • Absolute – These auctions don’t have any limiting conditions. The property will go to the highest bidder, no matter how low (or high) the bid is.
  • Reserve – Some sellers will put a bottom dollar amount on the property, which the bidding will start at. Some reserve auctions will also allow the seller to accept or reject the final bid.
  • Live – Live auctions happen in-person with an auctioneer calling out bids that audience members make. This is the type of auction that is typically shown in movies. The room is full of energy, the auctioneer talks quickly, and bids are placed at a rapid rate.
  • Online Only – Some auctions will only be held online, which means you will have to register and place bids through the auctioneer’s website. The website will tell you when you can place bids, when the bidding window stops, and the other bids that you’re up against.
  • Live Stream – Buyers have the option to attend live steam auctions in-person or watch them online and bid through the auctioneer’s website.
  • Sealed Bid – In sealed bid auctions buyers will be asked to place their bids online within a certain timeframe just like with online auctions but competing bids will not be disclosed until the auction ends.

It’s very important for buyers to pay attention to whether an auction is “Absolute” or “Reserve” so there aren’t any surprises when it comes to starting bids. In addition, if you are looking to buy investment property or expand your business in another state, keep an eye out for those “Online Only” and “Live Stream” auctions. You can place bets from anywhere in the world!

The Real Estate Auction Process

The most crucial point in the real estate auction process is when the reserve price is met (if there is one). There will usually be a few bids placed in the first day or two, but once that reserve price is met the property could go at any time. This is when the competition really begins, and strategy is required.

When a buyer wins an auction, the auctioneer will walk them through signing paperwork, the payment process, and the terms of the sale. If everything goes according to plan, the winner will have a new property in their possession in 30-days or less.

It can certainly be frustrating to go through a bidding war on a property that you are highly interested in only to lose out to another seller in the last few moments, but the entire process can often be exciting. Even if you can’t get the property that you had your eye on, you’ve likely to learn things that you can apply to the next commercial real estate auction you participate in.

Mississippi Real Estate Auctions with Speed Commercial Real Estate

You don’t have to go through the real estate auction process alone! Allow one of our professional and experienced real estate agents at Speed Commercial Real Estate to help you at your next Mississippi real estate auction. Let’s get you into your next commercial real estate property FAST!

Still have questions about commercial real estate auctions? Give us a call!

Checklist For Starting Your Own Business

If you’re ready to take the leap into starting your own business, you’re in good company. In Mississippi alone,  nearly 40,000 new businesses have been formed in the first half of 2021. Nationwide, over two million business applications have been filed. 

Business owners who stay organized and take planned steps have the best chance of long-term success. In fact, 71% of fast-growing companies utilize detailed plans. That’s why we put together this short 5-point checklist for starting your own business and making the most out of your new venture’s “honeymoon period.”

1. Set Up Your Finances

Finances are the backbone of any business because they allow your products, services, teams, and ideas to stand tall and grow. 

Decide on a Business Structure

How your business is structured determines your liability, taxes, the paperwork needed to register, and funding. Corporations, limited liability corporations (LLCs), and some partnerships all offer varying degrees of protection from personal liability for business debt, while sole proprietorships don’t separate personal and business financial responsibility. You can learn more about the perks and drawbacks of each type of business here.    

Decide on a Financing Option

There are several options available to secure funding when you’re starting your own business. Depending on which one you choose, you’ll likely need to write a business plan, which can be optimized using business planning software

Most financing options require several financial statements, including a startup budget, costs worksheet, P&L statement, break-even analysis, and a sources and use of funds statement.

Here are seven top ways your new businesses can be financed:

  1. Loans
  2. Investors
  3. Grants
  4. Subsidies
  5. Crowdfunding
  6. Family and Friends
  7. Self-Funded

For those interested in purchasing rather than leasing commercial property, you can take a look at the types of loans available in the commercial space.  

2. Register Your Business

In each state, the Secretary of State (SOS) office has the forms, regulations, and guidance available to ensure that your new company is properly registered. Below are some of the key highlights to check off your registration list.

Pick a Business Name

The SOS office can typically tell you whether any of the names you’re considering are already in use in your state. This is especially useful to know when dealing with your competitors.

Register Your Domain Name Online

While your favorite business name may be available in your state, it may already be connected with a popular website. You can do a quick google search to find out. Then, do a domain search to choose a web address.

Register with Federal, State, and Local Agencies

Besides being the source of your business registration forms, the SOS office is also where you typically file the required paperwork to register your business. Some cities, counties, and municipalities may also require separate registration. At the federal level, you can file to register your business tax ID, trademarks, patents, and certain types of corporate status.

Register with the IRS and State Offices

To open a bank account, file taxes, pay staff, obtain permits, and various other operational functions, you’ll need your federal tax ID. Certain states require a separate tax ID as well.

Open a Business Bank or Credit Union Account

There is a slew of benefits to creating a separate bank or credit union account when starting your own business. These include an emergency line of credit, access to secure merchant services so you can accept credit cards, and establishing a favorable credit history for your company.

A woman smiling while shaking hands with a person across a table while three more people sit around the table smiling.
Business owners who stay organized and take planned steps have the best chance of long-term success.

3. Choose a Business Location

Perception is reality. That’s why your physical locale affects all aspects of your operation, from branding and visibility to attracting the right talent and growing your customer base. In fact, deciding where to locate your new business is one of a handful of decisions that can have the largest impact on your success.

Take a look at our top five “to-do list” items for choosing an ideal locale.

Get to Know the Zoning Requirements

The type of space you need may be available in some parts of a city or region, but not others. That’s why it’s important to ask yourself, “How will my business be zoned?” While many businesses are zoned commercially, others are considered multifamily, office, industrial, or mixed residential and commercial. Within the commercial designation, there may be several subcategories, such as is the case in Jackson, Mississippi.

Knowing where you can legally locate your business is a necessary first step. Then, compile a list of properties that catch your eye and make your shortlist of desirable buildings.

Decide if You’ll Lease, Buy, or Design and Build

Most businesses lease or even purchase the commercial real estate where their company resides. However, if your business happens to be Commercial Real Estate (CRE) investing (or if you’d like to expand outside your traditional business parameters) designing may be the best option.

Whatever your decision, it will affect where you locate your business. For instance, if no land is available in the Central Business District (CBD), those interested in designing and building a space there may need to consider other options, such as a redesign of an existing space or choosing a different locale. Likewise, business owners interested in leasing a building with LEEDEnergy Star, or other environmental certifications might look outside any “Old Town” sections of the city. Landlords in those areas could have a difficult time meeting both green and preservation standards.

Consider Your Customer Base

Here’s where the market research from your business plan comes into play. Who is your ideal customer and what demographic are you targeting? Restaurants, for instance, would do well to locate within walking distance of residential or business hubs. Corporate offices may be more tailored to upper-level management and HR activity, and therefore can be located away from pedestrian traffic lanes.

Align with Your Budget

Your business plan financial statements let you know which location options best match your available finances. In many cities, more popular neighborhoods like the CBD may bring in lots of traffic, but they also tend to cost more. If your finances are relatively strong, this can be a great space for starting your own business and quickly growing it. Even if you have limited funding, finding a real estate agent with a reputation for locating needle-in-the-haystack deals could land you in your ideal spot. In the meantime, consider the locales that match your current budget. Set yourself up for success early on.

Check out the Neighborhood

“Farming” the neighborhood allows you to check it out firsthand to find out the market value of properties, and also if there are any nearby competitors. Depending on the type of company you’re starting, you can also ask around about the neighborhood’s reputation for drawing in business. Ask about any regulations that may add or detract from the value of the property.

4. Apply for Operating Permits and Licenses

Once you know the location where you’ll be setting up shop, your next step is obtaining any necessary federal, state, city, or industry-specific operating permits and licenses. Some of these require passing certain testing and certifications, especially at the federal level. Others charge fees, require proof of registration, and focus on product and service quality standards.

Here are a few examples of common permits and licenses:

5. Consider Your Building Needs

Here’s where the big picture really meets the minute details. Taking time to dig deep into your building criteria ensures that when the ink is dry on your contract, you’ve covered all your bases, your needs are met, and you can relax into comfortably doing business.

12 Top Space Needs to Consider

  1. What spaces and equipment do the day-to-day activities require? For instance, some examples include technology build-outs, worker break rooms, retail space, warehouse space, back-up generators, drive-through lanes, AC units, showrooms, elevators, offices, and delivery zones.  
  2. How much space in square feet do you need for each activity? This can be dependent on the number of employees, customers, products, and equipment that will occupy each area.
  3. How much parking will you need? If there’s no parking lot on-site, check to see if one is nearby or if there is a parking garage within walking distance.
  4. What are your storage needs?
  5. What amenities will be offered and how will this impact your building needs? For instance, do you want tall windows to let the light in, meeting rooms for employee/client conferences, or an on-site cafeteria?
  6. Do you need traditional or flex space? The latter can be quickly (and legally) converted to serve different activities as your business changes and grows.
  7. Are you willing and able to share space in order to save on costs?
  8. What are your electric power needs? Determine the number of outlets and their power capacity, and compare this against your equipment’s power requirements.
  9. What are your communications technology needs? Ask whether the space is wired for high-volume internet if this is one of your needs.
  10. Can the building be altered? Examples include adding ventilation and soundproofing.
  11. Should your building be green-friendly?
  12. What is your building budget?

Starting Your Own Business? Contact a Commercial Real Estate Agent

Once your checklist is complete, you’re ready to connect with a professionally trained commercial real estate agent to transition from “brand new” to a brick-and-mortar business. A Tenant and Sales Representative from Speed Commercial Real Estate can guide you through the various costs and considerations associated with a CRE lease for your new business. Additionally, we offer real estate guidance for those interested in purchasing.

Contact us today to get started on one of the most important steps of your entrepreneurial adventure.      

What is Tenant Representation?

For some, finding the commercial real estate (CRE) that best fits their space needs, location, price point, and amenity wishlist may seem daunting. Others throw themselves into this process head first, excited about the prospect of discovering a new space for their business endeavors, and then sealing the deal. Whichever group you’re in, having tenant representation on your side to guide you through property comparisons, needs assessments, and detailed lease negotiations is not only invaluable – it’s been shown to save lessees thousands of dollars.

What is Tenant Representation?

When CRE landlords lease space, they hire a leasing group (brokerage firm) to represent their best interests. These include marketing, negotiating, and securing a lessee under contract. This is done to ensure that landlords’ costs are covered and that they profit from lease agreements.

Tenant representation, on the other hand, is about representing the tenant who is looking for office, warehouse, manufacturing, or other commercial space. Tenant representatives serve tenants for free. This may seem too good to be true, but in reality, the process is set up to protect the tenant. Here’s how it works: the listing brokerage firm signs a contract with the property landlord. If no tenant representative is hired by a tenant, that listing broker gets the entire negotiated commission fee when a lease is signed.

However, when a tenant representative is present, the commission is split with them. In other words, your landlord pays for you to be represented by an industry professional.

That’s just the tip of the iceberg when it comes to the benefits of hiring a tenant representative.

Benefits of Tenant Representation

Works for You – and Only You

Tenant representatives are solely there to protect your interests. They help you avoid leases that work great for your landlord but leave you stuck with a less-than-ideal contract.

If you decide to go it alone, landlord representatives are incentivized to negotiate a lease that benefits their boss but may include terms that are bad for you. These may include hidden fees, above-market pricing, and space specifications that don’t fully align with your business needs.

Your tenant representative, on the other hand, only has you and your business in mind. This means that they work with you to get the best lease terms, options, and space to meet your needs. For instance, if you’re considering bringing warehousing in-house, your tenant representative may recommend a multi-functional flex space so that your space needs are met for the entire duration of the lease, even if you haven’t made a final decision on the matter prior to signing the contract.

A hand holding a pen against the date field of a lease agreement on a clipboard.
Everyone’s financial plans and situations are different, and that’s why it’s important to get expert guidance that’s personalized to you.

Negotiates to Save You Thousands

Saving just a dime per square foot on a 5,000 square foot facility puts over $10,000 in your company’s pocket for a two-year lease. Direct savings like this can be the outcome of your tenant representative’s market research. This gives you valuable leverage in the form of alternative leasing options. They can be brought to the negotiation table to get you the best deal.

Just as importantly, your tenant representative understands all the hidden costs of leases, such as:

  • Overage Fees if building operating expenses exceed the projected building budget
  • Load Factor Fees for areas that don’t actually meet the criteria for rentable square footage
  • Excess Administration Fees that are often tacked on to Common Area Maintenance (CAM) fees

Tenant representation informs you of all your lease obligations so you don’t have any surprise expenses. Whether you’re new to leasing or are interested in relocating, expanding, renewing, or taking advantage of your current lease options, having an advocate negotiating on your behalf is invaluable.

Provides Expert Space Needs Analysis

More than any other area, tenants miss the mark when assessing their actual space needs. They do tend to consider the desired environment and locale of the commercial space they’re seeking. However, they fail to apply deep analytics of business processes, staffing, clients, and future plans. A tenant representative will use interviews, company data, and software tools to look at:

  • How your company functions
  • Expansion or contraction plans
  • Your workforce
  • Your customers
  • Space criteria you have
  • Your location criteria

This space needs analysis provides a much more sound strategy for moving forward in finding an ideal property for your business and negotiating the best lease agreement.

Researches Multiple Space Options

The creative space where you build and grow your products, services, sales, and systems is an integral part of what keeps your customers coming back for more. Tenant representatives understand this dynamic, and they are always on the lookout for exceptional leasing opportunities for you.

Another key part of their job is to find multiple properties that meet your business needs. They then perform side-by-side comparisons using market analytics to help rule out spaces that aren’t ideal, such as those that are above market value. Providing you with similar options is also a key way to optimize negotiations in your favor.  

Offers Industry Expertise

Perhaps the most valuable skill tenant representatives offer is their industry knowledge. Navigating the world of leasing types, options, amenities, space configurations, costs, hidden fees, terms, and market trends can be overwhelming. Here are a few ways a tenant representative helps give you peace of mind during this process.

Guidance on Lease Types

Rent is one of the biggest expenses many businesses face each month. Managing this recurring financial obligation can be helped along by the right type of lease. For instance, while a full-service lease provides the most tenant protection by bundling all costs into one payment, it also offers the least flexibility. There’s no way to save on items like utility bills by cutting back on usage. A percentage lease, on the other hand, offers a more flexible option. It allows tenants to pay a lower base rent plus a percentage of sales. This makes it an attractive choice for those in financial recovery.

Everyone’s financial plans and situations are different. That’s why it’s important to get expert guidance that’s personalized to you.

Guidance on Lease Options

Just like with lease types, there are various lease options that can be written into your lease. They address different elements for which a lessee may require flexibility due to the unpredictable nature of business. Some of these include the options to:

  • Renew
  • Extend
  • Expand or contract
  • Purchase
  • Terminate

The space needs analysis that your tenant representative performs is a great tool to guide you through the options you’d like to include in your commercial lease.

Guidance on Local CRE Trends

Trends in regional CRE can have a big impact on the price you pay for properties. For example, tenants looking for office space who are willing to sublease will do particularly well due to the large number of corporate lessees looking to unload space that was previously occupied by staff who are now working remotely. Tenant representatives keep on top of these market patterns. They use them to connect you with properties that meet your space needs while giving you the most bang for your buck.

3 Things to Look for in a Tenant Representative

1. Local Experience in Property Design, Sales, and Marketing

The more involved your tenant representative’s brokerage firm is in the design, sales, and marketing of commercial property in your community, the better they can guide you to CRE that best fits your space needs. Experienced local tenant representatives are able to quickly and accurately analyze and compare the needs assessment they perform for you against available local properties because of their insider expertise.

In other words, they are familiar with the properties that are on the leasing market.

Pro Tip: Ensure that you are well represented. Ask to see the sales and design portfolio of your prospective tenant representative’s brokerage firm.

2. Proven Negotiation Skills

While local market connections and expertise are important, the bottom line happens at the negotiating table. Ask about the latest deals your tenant representative has closed, and how many of those were in the type of commercial space that you’re interested in. You can also have a discussion about the various points of focus that will be discussed during negotiations so you get a better feel about what to expect.

Pro-Tip: Find out your prospective tenant representative’s relationship with local landlords; good relationships can be a negotiation plus.

3. Employment of Market Analysis Tools

A skilled negotiator’s best friend is market analysis. It provides them with the detailed information needed to successfully advocate for you. Your tenant representative decides what information to input into analysis software, but the tools themselves fine-tune these inputs and create outputs that allow for side-by-side property comparisons utilizing the most up-to-date prices, upgrades, features, and lease inclusions.   

Pro-Tip: Ask what market research tools a tenant representative employs.

Whether you’re leasing your first property or are interested in moving into a space that better suits your needs, Speed Commercial Real Estate offers advanced market analytics, expert space needs assessments, and 17 years of experience in the Mississippi commercial real estate market. Contact us today to work with one of our local tenant representation professionals who will support, guide, and advocate for you through every step of the commercial leasing process.

How to Invest in Commercial Real Estate

Commercial real estate investments are among the investments with a high ROI. People who invest in commercial real estate have financial and psychological rewards as many of them see their investments as a fulfillment of their dreams. 

Commercial real estate includes all properties constructed or used for business purposes. The properties may be owner-occupied, meaning the owners operate their businesses on the properties. Some owners opt to lease the property to tenants to run their businesses on the property. 

These properties range in size, from small neighborhood stores to city skylines. They include all the income-producing properties and those with the potential to generate income.

However, deciding to invest in commercial real estate comes with its fair share of challenges, especially for beginners. In this guide, we will take through how to invest in commercial real estate. Let us begin by discussing the types of real estate investments you could consider.

Types of Commercial Real Estate Investments

Multifamily

This investment is popular with investors transitioning from residential real estate investments. They range in size from small properties with two tenants to those with hundreds of units. They include:

  • Garden Apartments

These are usually a collection of apartments spread out within one property and sharing amenities and a yard. They are common in suburbs, with about three to four-story walk-ups housing about 50-200 units.

  • Mid-Rise Apartments

These have about 4-11 stories with 30-200 units. You are likely to find them closer to the urban centers and may have elevators and garage parking.

  • High-Rise Apartments

These investments are common around the Central Business District of large towns and market centers. They offer amenities such as garage parking and elevators and may house hundreds of units.

  • Senior/Assisted Living Properties

These are the properties built to provide housing for the aging and senior citizens. They offer more support to tenants than other multifamily properties. Tenants are likely to get in-house or on-call medical care, meal service, and housekeeping.

Office

Offices may be among the most capital-intensive commercial real estate investments, but they also have one of the highest ROIs. They include:

  • Central Business District (CBD)

You are likely to find them housing the largest organizations such as banks, supermarkets, and telecommunication companies. Most organizations prefer them due to their convenience in location. Clients can find and walk to them easily. They vary from mid to high-rise apartments with controlled parking and building naming rights.

  • Commercially Zoned Homes

These are usually stand-alone properties. They are popular with law firms, medical practitioners, and accounting firms. Commercially zoned homes allow them to escape from the frequent interruptions associated with apartment-like office spaces. 

  • Medical Offices

These are among the most stable and valuable office spaces designed to meet the needs of the medical field. The properties require special amenities like wider elevators, more plumbing, and standby generators. The leases are usually longer, taking between 7-10 years. They vary in size, housing any medical-related business. These range from a local dentist, optician, to a large hospital and surgery center. 

  • Suburban Offices

Suburban offices are usually mid-rise buildings scattered on a shared property with common amenities. They are not amenity-heavy. Some may offer serviced parking.

Industrial

An industrial warehouse with a large overhang awning over the door at sunset.
Commercial real estate includes all properties constructed or used for business purposes.
  • Warehouses

These are the largest industrial properties. They may house regional distributors. When designing them, you have to make room for trucks that require space for entering and exiting these properties.

  • Manufacturing 

Manufacturing zones are usually isolated. They use heavy, noisy machinery, chemicals, and are heavy on power consumption. You have to customize them to fit the needs of the tenants. They also have long leases that may run for 7-15 years.

  • Showroom

Some showrooms double up as distribution centers for manufacturers. They require more visibility and should therefore be located in visible spaces with high human traffic.

  • Storage Spaces

Some tenants may require temperature-controlled storage spaces. Business owners use them to store merchandise for a short time as they look for space to set up shop. They are also popular with families that use them to keep their mementos. The storage units could be indoors or outdoors, depending on the nature of materials the tenants want to keep there. 

Retail

Retail properties vary from neighborhood shopping centers that house several retail shops to pharmacies and restaurants that may occupy stand-alone properties. Regional malls and power centers also fall under this category.

Hospitality

Hospitality properties include full-service, limited service, budget, and extended stay hotels. Some, like VRBO and Airbnb, offer short-term rentals.

Now that you know the options from which you can choose when you invest in commercial real estate, let us explore the steps you need to take to undertake your investment.

Steps to Take in Order to Invest in Commercial Real Estate

Study the Industry

You will rely on professionals to guide you in most of your investments. However, you should also be knowledgeable in the commercial real estate industry. Take time to search the internet and talk to professionals in commercial real estate investment. Learn as much as you can so that you can think and act like an insider when you begin your investment.

Some commercial real estate terminologies that will guide you include Net Operating Income (NOI). This refers to the balance left when you deduct expenses from your gross income on a commercial property. Understand the cap rate of the property you intend to invest in. This is the net present value and future cash flow of income-producing properties.

Develop Your Investment Plan

Your plan will be guided by the amount of money you are willing to invest. Assess your financial strength and find out how much loan you can qualify for if that is the source of your funds.  

At this stage, determine if you are investing individually or collaborating with other people. 

This is also a perfect time to decide if you want to purchase a ready property or construct from the ground. 

Your plan should also include the professionals you will be working with, which will depend on the kind of property you want to invest in. 

Decide Which Kind of Commercial Real Estate Investment You Want to Make

This is where you decide the type of investment you want, the size, and the location. At this stage, you also determine if you will make a one-off investment or spread it within a period, especially if you decide to construct from the ground.

Carry Out Neighborhood “Farming

Neighborhood farming entails visiting the neighborhood to determine the market value of similar properties in the area. In this visit, you may identify the commercial property you want to invest in and negotiate a deal. Ensure you do due diligence on the property to ensure you are getting a clean deal.

Be open-minded when searching for a property. Use the internet and classified ads to help you find properties on sale. Or, hire bird dogs to identify valuable commercial properties for you.

Hire an Agent

Whether you hire professionals like Speed Commercial Real Estate when searching for a property or after you have identified it, ensure you are in charge of the purchasing or construction process. Do some background checks on the agent to know the type of clients they have dealt with before. Also, find out how long they have been in operation and the kind of deals they have handled. 

When interviewing the agent, be open about what you want when you invest in commercial real estate. Meet with a number of them and eliminate them to remain with the one who will be the best fit. Asking around also helps in identifying the commercial real estate investment agents.

Working with an agent may help you identify the right property faster. It’s perfect for those who want their buying process to remain confidential and private. An agent may negotiate a better deal for you, especially if you are new in the commercial real estate investment game.

Understand the Underlying Risks of Choosing to Invest in Commercial Real Estate

Your risk profile will determine the best strategy to use so that you can avert losses. However, you must know that every investment in commercial real estate comes with risks.

Remain Focused

You are likely to get advice from different players. You will also learn about the latest trends, and all these may confuse you if you are not focused on your plan. 

Additionally, you may consider making some adjustments if they add value to your investment. However, do not leave too much room for that. Discuss any adjustments with the professionals with whom you are working.

Avoid Making Emotional Decisions

Commercial real estate investment is a rational decision. Avoid letting your emotions interfere with the process. If you are not sure about something along the way, take time to think through it and discuss it with other stakeholders.

Invest in Commercial Real Estate with Excellent Support

Are you looking for a reliable and affordable commercial real estate agent? Get in touch with Speed Commercial Real Estate for CRE investment opportunities. 

At Speed Commercial Real Estate, we have firsthand knowledge of the level of care our clients need when they invest in commercial real estate. We work closely with several associates and advisers to give you the best commercial real estate investment advice.  With our experience, we guarantee you the best services and guidance to ensure your commercial real estate investment is a success. 

7 Trends Influencing Commercial Real Estate in 2021

Savvy real estate investors are constantly gathering and analyzing market trends to make wise business predictions. Trend analysis provides data-based evidence to help inform your strategic decisions for a competitive edge and prosperity in the commercial real estate market.

Most businesses experienced a rough time through 2020 as COVID-19 disrupted almost all sectors of the economy. The pandemic has a significant influence on today’s commercial real estate market. However, some of the changes we are seeing began several years back.

We’ll look at the latest trends in commercial real estate and suggest some investment opportunities you can seize.

7 Trends Influencing Commercial Real Estate in 2021

If you’re looking to invest in commercial real estate this year, below are some vital things to know.

Interest Rates are Low in 2021

The Federal Reserve will maintain low short-term interest rates throughout 2021. According to officials, interest rates will remain near zero until at least 2023. At least for now, no major bank has expressed an intention to hike interest rates in the United States.

This deliberate action will hasten the country’s economic recovery and encourage commercial borrowers to continue investing. Consider borrowing at this time to purchase commercial real estate to enjoy low annual percentage rates.

Distressed Property Sales and Rent

Most people thought that 2021 would be better economically than 2020, but the year hasn’t been promising for everyone. If you look at history, you’ll realize that recovery from a recession takes time.

As such, borrowers, especially those in the hardest-hit groups, will have a hard time getting back to business. For instance, the hotel industry will remain unattractive for the best part of the year as people continue social distancing. It will reduce the demand for such business premises.

Additionally, the lowest social-economic groups will struggle to recover, forcing some of them to close down. Large retailers like Walmart will have better chances of survival than small shops and local restaurants.

This disparity has spilled over to the commercial real estate market. Currently, there are many vacant mom-and-pop shops, leading to a downward trend in rent prices.

Plenty of Cheap Office Space

COVID-19 contributed to an influx of teleworkers as companies encouraged employees to work from home. A 2020 survey by Gartner revealed that a whopping 74 percent of CFOs were planning to shift some workers to remote work permanently.

Further, employees seem to be happier and more engaged since they started working from home. According to a recent study, 70 percent of workers reported more job satisfaction when working remotely.

With employees opting to work from home, there has been an increase in unutilized office spaces in many organizations. CoStar Group found that corporates added a record 42 million square feet of office space in the commercial real estate market within the second and third quarters of 2020.

Many corporate tenants are subletting their unused office spaces to reduce wastage. Consequently, office spaces have become readily available and relatively cheaper than in the past. It may not be the best time for investors to engage in the business.

Homeowners Want the Suburbs

COVID-19 has also accelerated the real estate market in the suburbs. One reason is the adoption of remote workforces by many organizations.

Traditionally, workers chose condos near their office buildings in cities to avoid long commutes. With the flexibility of working from home, employees are leaving smaller city dwellings for more spacious homes in the suburbs.

Pandemic-related lockdowns have also contributed to the rising demand for suburban homes. Families are finding downtown apartments congested and unsafe since they are spending most of their time indoors. They want more space and affordable amenities for their loved ones.

Besides being relatively larger and cheaper, suburban homes offer more outdoor space. Homeowners have also lost interest in some city attractions like malls and restaurants because they are either closed or running at partial capacity. 

Affordable Housing Still a Concern

Millions of Americans can’t afford safe housing. According to the latest census data, the United States had about 580,466 homeless people in 2020. While homelessness was steadily declining since 2007, the numbers started rising again from 2019.

The condition may have worsened due to the coronavirus pandemic. According to the National Apartment Association, owners of smaller and Class C apartments have reported increasing delinquencies in their properties over the COVID-19 period.

Overall, many low-income earners are in dire need of better housing. You can consider investing in affordable dwellings for the community.

Endless Commercial Real Estate Opportunities in Sustainable Building

Many nations consider sustainability integral in propelling the planet toward green recovery sustainable wealth. According to the IEA’s report on world energy investment, the world injected $240 billion into energy efficiency efforts in transport, buildings, and industry sectors in 2019.

Sustainable building will intensify in 2021 and the years to come. Experts predict that the United States green building market will reach $99.8 billion by 2023.

Socially responsible investors can consider venturing into the green building market. If you don’t know where to start, try the education sector. It owns 17.2% of green buildings in the country.

SMEs to Present Commercial Real Estate Investment Opportunities

While some organizations are busy cementing work-at-home formulas, others want their employees back to the office the moment it’s safe. Examples are businesses that thrive on in-house operations. 

The government is also keen to see small and medium-sized businesses back on their feet. The House passed the American Rescue Plan in March 2021, a coronavirus relief law that will benefit small businesses with $1.9 trillion. 

Some SMEs might utilize the stimulus to expand their business premises. Industrial sectors like life sciences, warehouse operations, and network infrastructure have been doing well despite the pandemic.

If you’re a commercial real estate investor, stay hawk-eyed on businesses that might need new buildings and grab the opportunity. Consider leasing office space toward the end of the year or work with a real estate investment trust (REIT) for long-term gains.

New Commercial Real Estate Business Ideas

The economic disruption witnessed in 2020 introduced innovative real estate solutions that caught many by surprise. Let’s highlight a few business opportunities that real estate investors can implement this year.

Commercial PropTech

Also known as PropTech, property technology focuses on digital innovations that ease asset management and increase efficiency in properties. As a real estate investor, you can use PropTech to research, purchase, sell, and manage real estate.

A warmly lit dining room with four chairs around a wooden table and a digital overlay smart home concept with a house icon surrounded by home automation icons
There are near endless applications of property technology.

You can also upgrade buildings to make them more marketable and comfortable for users. For instance, a smart thermostat can learn your room temperature preferences and adjust the heat automatically when you arrive in the office.

On the other hand, smart locks allow you to lock your building and walk around without a key. You don’t need to worry about losing your keys.

If you rent vacation homes, keyless locks allow smooth check-in for guests. Give your clients a unique code to unlock doors and change it as soon as they check out.

Explore the latest property technology and adopt what makes your life easier.

Last-Mile Distribution Outlets

Last-mile distribution hubs existed before, but they became more popular than ever amid the COVID-19 due to increased online shopping. 

Essentially, these are the last stop points for goods before merchants can ship them to the buyers’ homes and offices. The buildings are usually in strategic areas in populous cities like Jackson for a broader customer reach.

Many merchants, including large-scale retailers, are converting their stores into last-mile distribution centers. You can acquire brick-and-mortar stores and retrofit them to become last-mile product distribution hubs.

Ghost Kitchens

If you haven’t heard about ghost kitchens, these are catering kitchens designed to fulfill food delivery orders. They are a new concept that commercial real estate investors can implement this year. How do they work?

A catering team rents a kitchen space from a landlord, preferably in a densely populated area. They list their brand on an online platform and start getting orders. From there, they prepare meals and deliver them to customers.

Micro-Unit Apartments

A micro-unit is a small suite, usually a single room unit designed to provide the bare essentials of an apartment. They often come with a living-cum-bedroom area, a kitchenette, and a small bathroom.

The houses are ideal for low-income individuals looking for a safe dwelling. Due to the compact size, micro-units are cheaper for tenants than ordinary, single-family units. The owner can also charge a relatively high price per square foot.

You can develop micro-units as single-room apartments or convenient guest rooms for businesses such as restaurants.

Multi-Family Conversions

Another real estate trend an investor can consider is the fabrication of business buildings into multi-family rental complexes. It has become increasingly accepted due to the rising construction costs.

Target large properties like hotels, factories, malls, and office buildings that have closed down. The advantage of such facilities is that they are often in strategic areas for homes. Additionally, you can modify them at a considerably lower cost than erecting a new construction.

Find Commercial Real Estate Help in Jackson, MS

Are you a commercial real estate investor in Jackson, MS looking for help with property acquisition, sale, and management?

Speed Commercial Real Estate is a seasoned property sales and management company that has served Jackson, MS area for over 17 years. We can devise a well-thought-out marketing and leasing plan for your property to maximize profits and give you an edge over competitors.

Contact us for commercial real estate help tailored to your needs.

The Current State of the Commercial Real Estate Market: Everything CRE Investors Need To Know

We can all agree on one thing: 2020 was a wild year by any standards. 

The global pandemic brought the world order to its knees, and the US economy suffered its biggest recession since the Great Depression in 1929. Some would even say that without psychic powers, it would have been impossible to predict the events that unfolded in the past 12 months.

Yet, the commercial real estate market stood its ground. 

Who could’ve guessed that a killer pandemic, record unemployment rates, and statewide lockdowns would pave the way for a housing boom in mid-March 2021? And with over 37 million Americans fully vaccinated so far, there’s finally light at the end of the tunnel.

As a CRE investor, we know you’re asking: “Was my previous investment a mistake?” “Is now a good time to put my hard-earned money in real estate?” These are all valid questions, and we’ll try to answer them all below. 

This article will take a closer look at the current 2021 CRE market and how you can capitalize on it to drive ROI.

Numbers Don’t Lie

  • A total of 5.64 million homes were sold in 2020, up 5.6% in 2019 and the most since 1929. (Pr Newswire)
  • The typical US home was worth $266,104 in December 2020, up by $20 587 (or 8.4%) from a year ago. (Zillow)
  • Sales rose 22.2% over 12 months leading up to December 2020. (National Association of Realtors)

If anything, these statistics show that the CRE market is very much enjoying a purple patch. There’s a good reason for CRE investors to remain optimistic as the 2021 investment year continues to takes shape. 

Will Real Estate Prices Continue Rising?

Yes. Many experts predict another strong housing market in 2021, with home prices set to rise by a whopping 5.7%. 

Expect increased housing demand from three sets of people:

  • Existing homeowners who need more space to accommodate parents working from home
  • Buyers who delayed purchasing new homes because of the uncertainty brought about by COVID-19
  • The urban population who continue to choose to rent over homeownership

As prices keep hiking month-after-month, it goes to show the sheer resilience of the US housing market. 

Despite highly controversial elections, lingering economic uncertainty, and the aggravated spread of COVID-19, buyers are rushing to secure the few houses listed for sale. This, of course, is good news for a savvy CRE investor like you.

Is Now a Good Time to Invest in Real Estate?

In case you didn’t know, we’re right in the middle of a sellers’ market. This is essentially a market offering more demand than supply and where inventory is low. So, this means buyers will have no option but to accept high-priced homes as there aren’t many houses to choose from.

This sort of market often leads to multiple buyers bidding on a single home. So, that’s great for sellers, but not necessarily buyers since they’ll need to dig deeper into their pockets to get what they want.

Back to our question, “Is it a good time to invest in a sellers’ market?” Going by Realtor.com predictions, it will not be a buyers’ market anytime soon. But that doesn’t necessarily mean you cannot buy. It does, however, mean looking for that “juicy” deal won’t be a walk in the park. It’ll take more time and effort than ever before.

One thing to remember is that real estate varies from city to city, state to state, and even county to county. So, take your time to weigh up your options before pulling the trigger. Below are hacks you can use to thrive in the ongoing sellers-friendly market:

Don’t be tied down by boundaries

To find the best investment deals, you might need to get out of your comfort zone and explore markets outside your locality. 

While Mississippi is ideally a sellers’ market, that doesn’t mean every city shows the same numbers. Now is the time to be bold and chart new markets that might prove profitable down the road. If, for instance, you ply your trade in Saltillo, you can try your luck in Jackson (where the Zillo Home Value Index is actually $52,434 and the highest in the entire state).

With that in mind, investing in new markets means that you’ll need to be extra-vigilant in researching projected rental income and local competition to ensure viability and longevity.

Dive deeper into the numbers

Savvy CRE investors know it all comes down to the hard figures. In the current investment climate, where margins are super tight, ROI is extremely vital. 

Thoroughly assess the average home prices in your locality, current rental market conditions, and job growth potential. Once you’ve got all these figured out, enter into a deal, knowing what margins you need to meet to hit your ROI ceiling. 

Preparedness is the name of the game.

It’s common knowledge that in the real estate realm, hard numbers almost always trump emotions. In the existing CRE climate, you have to react swiftly. Else, you’ll be left chasing shadows and counting losses. 

Know your budget and do your research, so when an investment presents itself, you’re ready to pounce. Even the slightest hesitation could see you losing out on highly-profitable deals. 

Now is not the time for unrealistic offers and low-ball tactics. Make sensible offers that fit within your ROI and budget requirements. If the deal is sedentary or if the figures don’t add up, be quick to move on. Better opportunities await.

Seek out the help of real estate professionals

Even for long-serving CRE investors, navigating the waters of the ongoing sellers’ market can be tricky. And at a time when the market is experiencing cut-throat competition, it can be all the more daunting to remain profitable.

With deals flying off the market quicker than ever, you need a competitive advantage. What better way to get the upper hand than with a real estate expert? Enlist the assistance of an experienced commercial real estate professional to help you locate, negotiate, and close any deal on your radar!

Where Should You Focus? CRE Sectors to Keep an Eye on Right Now

Sharp-witted investors like you are constantly looking to reassess the sectors in which they channel their money.

After all, if grass is greener in a different sector, wouldn’t you want to know?

So far this year, we’ve already seen some positive shift towards three sectors in particular. These include:

Retail

Subsections of retail are performing pretty well, not just in Jackson but in the larger Mississippi area. 

Neighborhood retail continues to stand strong, despite the advent of online shopping and prolonged shutdowns. This is because it provides the day-to-day conveniences of nearby residents.

While it’s true that neighborhood retail properties will continue to experience a drop in prices in the coming months, you can use this drop to your advantage by strategizing on one key thing: how safe it is. 

Given that most retail centers were shut down at the height of the pandemic, you can expect that potential tenants today will look for neighborhood retail areas that are large enough to provide social distancing markers, physical barriers, HVAC systems, outdoor spaces, and air filtration. 

If your neighborhood retail can provide such, rest assured that your investment will return in the next year or so.

Class B & Class C Office Space

While Class A office space tries to pick itself up from the repercussions of COVID 19, Class B and Class C are performing extremely well.

Micro-office units and coworking space (although controversial) continue to grow in popularity as more and more entrepreneurs launch online businesses and seek a physical location where they can work without distraction.

Modern office interior with daylight and city view. 3D Rendering

For starters, you can purchase a Class C office space and spruce it up, transforming it into a Class B office space. By updating its aesthetics and providing better management and security, the value of your space can instantly soar.

Again, office space continues to be an important show of status, pandemic or not. We as the Mississippi society simply don’t take businesses without physical locations as seriously as those that do. That might change in the long run, but for now, it remains an undisputed fact.

Industrial Property

Let’s face it, someone has got to fulfill all of the logistics, warehousing, and distribution for all the online shopping going on at the moment. Industrial real estate continues to fill that void superbly well.

Now more than ever, customers are craving same-day and next-day shipping. This means online retailers have no option but to rent warehouses or distribution centers within close proximity to their customers. They also need to have more stock on-hand, which potentially increases their renting needs.

This presents you with the perfect investment opportunity.

An important thing to remember with industrial real estate investing is that you should never put your eggs in one basket. 

Buying or leasing industrial property means that you’ll have your hands full with plenty of different options, so use this to your advantage. 

Final Thoughts

As CRE investors, sellers, and buyers continue to wade the murky waters of a pandemic-ridden world, one thing is clear—we’re right in the middle of a sellers’ market, where inventory remains low, and demand is at an all-time high. Only those CRE investors who are bold, proactive, and meticulous enough in their ventures will succeed in the current conditions.

Here at Speed Commercial Real Estate, we would like to encourage you to take advantage of eager contractors and cheap commercial property prices to take the next leap in your CRE journey. If you’d like to learn more about Mississippi’s commercial real estate opportunities, feel free to contact us today!

Commercial Real Estate Terminology

If it’s your first time entering the commercial real estate market, you’ve likely been confused by a number of terms that you’ve heard. Like any profession, the commercial real estate world has its own set of lingo. You’ll need to understand it if you’re going to get the best deal. This is true whether you’re looking to acquire a new space or lease out one that you already own. In this post, we’ll cover the commercial real estate terminology that you need in order to make informed decisions. Use these terms to have meaningful conversations with commercial real estate professionals.

Commercial Real Estate Terminology

This first set of terms will include all of the most common words and phrases you’ll hear when discussing or researching commercial real estate investments. We’ve broken them down into logical groupings to make it easier to read. You can also find what you are looking for quickly if you are here for a specific term. 

Financial Terms

Some of the most confusing parts of real estate terminology are those related to finances. Although several of these terms are familiar to anyone who runs a business, there are some that are unique to real estate.

Net Operating Income

This is a simple valuation metric for a property. It consists of the property’s income minus its expenses. When counting expenses, mortgage payments and other debt service fees are not included. It is a metric purely of property expenses, so the NOI of a property does not change when the underlying loan does.

Capitalization Rate 

The NOI metric makes it easy to determine how well a property is doing independently of factors that will change when ownership does, but it doesn’t provide a full picture. By dividing the NOI by the market value of the property, the capitalization rate gives a better picture of what a potential investment is worth. You may also see this term abbreviated as cap rate.

Cash Flow 

Sometimes, you want to know exactly how much money a property is generating. While the NOI metric we’ve discussed so far leaves out mortgage and debt expenses, cash flow adds those expenses into the equation. NOI is used to remove the previous owner’s loan information from the equation, and cash flow is used to account for that of the new owner.

Cash On Cash Return / ROI 

Once you have your cash flow figured out, you can use it to calculate how quickly you’ll get your investment back. Your cash on cash return, or return on investment (ROI), is the cash flow of the property divided by the total cash you’ve invested. The cash invested includes the down payment and any additional fees that were paid.  

Cash Out Refinance 

By increasing the NOI on a property, investors can refinance the property at its new, higher value. Doing so allows them to pull out the original down payment, so they can pay off investors while still retaining ownership of the property. This is a common technique in the commercial real estate market. 

Debt Service Coverage Ratio 

This is also called the debt coverage ratio or debt to income ratio. This is a metric used by banks to determine how much money you will have leftover after you’ve paid them. It is calculated by dividing your NOI by your annual debt. A DSCR of 1.0 would mean every penny of your income is going to cover your debt. To ensure that a loan is lendable, banks like to see a DSCR of 1.2 or higher. This lets them know that you will be able to easily afford your payments and not just be skating by month to month.

Building Classes

As you search for your commercial property, you’ll come across buildings rated by class. These rating will let you know what kind of condition the building is in.

  • Class A — These are top-of-the-line buildings. They are newer construction in high-value areas of town. You can be assured that a Class A building will be in pristine condition, but the price will be high.
  • Class B — These buildings are a little older and may need some minor upkeep. But, they are sound properties that you can expect to be in passable condition.
  • Class C — These buildings are fixer-uppers. They can be expected to be older buildings that need work done to restore them to their former glory. 

Types of Lease

Learning the terms and conditions of a lease is an important part of understanding commercial real estate terminology. It will help you be able to compare the options available to you. 

close-up-of-commercial-real-estate-agent-passing-keys-to-client-who-is-holding-lease-agreement

Full-Service Lease 

With a full-service lease, the tenant will pay the landlord a single fee and the landlord will pay for everything else. This includes taxes, utilities, repairs, insurance, and other expenses.

Triple Net Lease 

The various net leases shift some financial burden to the tenant. Under a triple net lease, tenants must pay taxes, insurance, and maintenance. The other types are grouped together under modified gross lease below.

Modified Gross Lease 

This is an umbrella term for double net leases, single net leases, or any other type of lease where clients and landlords split responsibility for payment. With double net leases, landlords pay for maintenance, and single net leases are when landlords pay for everything except taxes.

Ground Lease

This is a leasing arrangement where the tenant owns the building, but leases the land that it is on. Because of the unique situation these leases present, they often have very long terms and options to renew.

Other Real Estate Terminology: Lease Terms

Understanding your leasing options will require more than just knowing what the type of lease is. The terms below explain what you are expected to pay and what you’ll be getting in exchange for that payment. 

Base Rent

As seen above, some leases require additional fees to be paid by the tenant. The base rent is the amount you’ll be paying solely for rent. Any taxes, insurance, or maintenance fees that may be applicable are not included in this figure. 

Usable Square Footage 

This is often used in relation to office space. This figure tells you exactly how much space will be exclusively for you. Lobbies and other common areas are shared commercial space that you’ll technically have access to. However, they aren’t very useful in knowing what you can do with a space. The usable square footage figure excludes those areas.

Per-square-foot Rent 

When looking at properties of varying size, comparing base prices is a lot like comparing apples and oranges. Divide the rent by the square footage. This way, you’ll have a more accurate picture of how the different properties compare in price. This figure is almost always provided for you, so you won’t need to do the math yourself.

People to Know

Being able to use this real estate terminology doesn’t mean a lot if you aren’t talking to the right person. There are a number of professionals involved in the commercial real estate business. This list will help you figure out which ones you need to be talking to for your specific goal. 

Property Manager 

Landlords rarely handle the day-to-day operations of managing their properties themselves, especially if they own many properties. A property manager is someone who is paid by the landlord to handle those responsibilities. In addition to the day-to-day operations and maintenance duties, property managers will find renters for vacant space and ensure that prices are competitive with the market.

Real Estate Agent 

A real estate agent is a real estate sales professional that has passed the certification in their state to use the title. Each state has different requirements before someone can use the title of real estate agent, but real estate agents in all states are licensed professionals.

Leasing Agent 

When a property owner decides that they want to lease out their property, they need a real estate professional to help them through the process. This is the job of the leasing agent. They help determine an optimal price for your property, work on your behalf to collect rent and provide customer service, and facilitate sales by posting listings and giving tours.

Real Estate Broker 

If a real estate agent wants to take the next step in their career, they can pursue further training and become a real estate broker. Again, each state’s requirements are different, but real estate brokers have a more in-depth knowledge of the real estate business than agents do. The extra training includes topics such as real-estate law, insurance, and ethics. You may hear the terms principal broker, managing broker, and associate broker. These terms represent a broker’s rank at their brokerage, in descending order. 

Tenant Broker

Just as a listing agent helps people seeking to lease out their properties, a tenant broker helps people looking for properties to lease. They will be able to explain the current real estate market, help you find properties that match your needs, and negotiate the best deals for you.

Real Estate Terminology is Easier with Professionals

Even when you know the common commercial real estate terminology, dealing with real estate can be confusing. The complexity of commercial real estate makes it even more confusing. Whether you are using your new property as an investment or as your next headquarters, getting the right deal can make a big impact on how successful you are. If you need advice for your next real estate deal, we invite you to contact a representative from Speed Commercial Real Estate today. 

Top 5 Mississippi Commercial Real Estate Trends in 2021

Mississippi is expected to be a commercial real estate investor’s best friend in 2021 because the state has managed to “buck”  the national trend and attract buyers to invest in the area’s affordable real estate, particularly in the Jackson area. This is in large part due to attractively low interest rates, which have dipped to levels rarely seen since the 2008 financial crisis. This is helping shape some very lucrative commercial real estate trends for 2021. Take a look at the top 5 investment strategies to yield an optimal ROI for the upcoming year. 

1. Warehouse Space

In a typical year, stores house a lot of inventory, yet 2020 was anything but typical. Social distancing has completely altered the market landscape, and now people are buying online in droves. In fact, e-commerce sales rose 30% during the first half of the year as compared to the same period in 2019. This shift in how consumers spend their dollars is helping drive businesses to move inventory from retail shopping complexes to warehouse storage spaces in order to quickly ship to homes and businesses without breaking health distancing guidelines. 

While we predict some decline in online sales during 2021 as social distancing restrictions begin to lift, there are still millions of people who are limiting their in-person retail shopping while COVID-19 treatments are being developed and delivered. This means that the main focus in 2021 will continue to be at-home web purchases until treatments become widely available and the growing number of cases begins to decline.

warehouse-space-with-large-brick-loading-area

This is why warehouse space is already in such high demand across the country, especially for essential businesses such as groceries and distribution conglomerates. The Jackson, Mississippi market is an ideal locale for investors looking to take advantage of the latest commercial real estate trends because of our large commercial warehouse inventory that helps keep prices highly competitive. We also have a centralized location for optimized regional distribution that’s highly attractive to potential lessees.

2.  Manufacturing Space

Similar to the warehousing sector, commercial manufacturing space is expected to be a prime investment strategy as production needs increase due to the large volume of online purchases. People are spending much less on activities such as travel, and much more on health and wellness products, food, and home goods like furniture and kitchen appliances.  Online auto sales have also been a large contributor to the growth of e-commerce in 2020, and this is expected to continue into a new wave of growth.

In Mississippi, the greater Jackson community is home to nearly 500 manufacturers, and the city and state have set in place marketing incentives aimed at attracting additional auto, food, furniture, and other producers to the region. These incentives include wages that allow for both high profit margins and a good standard of living for employees due to the area’s competitive cost-of-living. Mississippi also offers same-day driving access to over 50% of the country and a sophisticated distribution network.

The best news? Completed industrial space is expected to increase by 29% in 2021, making it the perfect time to invest in manufacturing property in the state.  

3. Flex Space

Flex Space is perhaps the biggest of the commercial real estate trends sweeping the 2021 market. According to JLL, it could account for one third of commercial real estate portfolios by 2030.  Many businesses have transitioned their teams to at-home roles due to COVD-19 social distancing restrictions. Because of this, leaders are now beginning to understand the cost-saving benefits of moving out of traditional office leases and into shared spaces that reduce company overhead. 

With Flex Space, businesses share square footage with other companies in order to save money on the lease, as well as to reduce property tax, insurance, and repair costs for single, double, and triple net leases. The terms for this type of lease are typically shorter than traditional office agreements, and shared amenities include WiFi, meeting rooms, lounge, kitchen, and warehouse space. The spaces themselves are multi-functional, and may incorporate an office, warehouse, manufacturing space, research center, and retail store. 

Likewise, multi-functional businesses that weren’t considered essential during 2020, such as salons and personal services, are expected to make a comeback in 2021 as social distancing restrictions are lifted.  In addition, those in emerging industries such as cannabis providers often find sharing space with fellow tradespeople appealing because it allows them to pool their resources while providing a sense of community. The newly formed Mississippi Cannabis Trade Association is one such example of a group of community advocates leading the way in forming a more cooperative way of doing business that allows for higher profit margins and greater ROI for investors.

Any properties with flexible space are seen as ideal for leaders in such organizations, as they allow for a quick redesign to accommodate shifting business needs, and provide the opportunity for cooperative environments that help cut costs for those in the launch or recovery phase of production.

4. Modifiable Restaurant Space

Because full-service restaurant operators took such a hit due to the social distancing shutdowns, many restaurant spaces with kitchens, check-out counters, display cases, and full-service dining rooms are sitting empty. Entrepreneurial-minded food industry professionals are expected to make their move by re-imagining these spaces as carry-out havens, with plenty of parking spaces for the now booming curbside crowd, and drive-thrus that take advantage of the double-digit increase in these types of visits, even as dining rooms began to reopen.

The added benefit of modifiable space is that, once restrictions lift, restaurant managers can again provide customers with a full-service dining experience. Jackson is already known as a culinary mecca,  with a well-deserved reputation for sumptuous Southern fare that will continue to attract visitors and locals alike to its charming restaurant scene in 2021. This will help make the area’s restaurant space one of the most exciting commercial real estate trends of 2021 for investors willing to include modification clauses in their leases.

Your best bet for success? Offer flexible percentage leases that allow restaurateurs to pay you a percentage of their sales each month as the economy recovers.

5. Small Office Space

Different from Flex Space, small office space allows one company or group a high degree of privacy and quiet, while still providing a professional environment for conducting business. Many professionals who have been juggling multiple responsibilities at home, including home-schooling, additional cooking due to restaurant shutdowns, and transitioning to a home office, are eager to move back into a dedicated space of their own that allows them to put maximum focus on their clients and workload.  

Combine this with the fact that employers are now more willing to allow staff members to work from anywhere in the country, and you’ve got a recipe for investing success when it comes to small office space. Many of these business leaders are seeking a centralized place for regional staff members to work in order to increase productivity and create the kind of face-to-face collaborations that breed innovation.

Three regions in Mississippi are considered especially attractive to new residents, including Jackson, Memphis, and the Gulf Coast. Each had sizable population increases due to the advantageous cost of living in these regions. Focusing on properties in these parts of the state is a great strategy for discerning investors looking to take advantage of commercial real estate trends. 

Top 3 Tips to Take Advantage of 2021’s Top Commercial Real Estate Trends

1. Offer short-term leases. Many people are still recovering from the economic downturn, and short term leases allow for re-entry into the market while also protecting everyone’s bottom line. In other words, it lowers your risk for long-term losses. Because it’s also an attractive option for the thousands of business owners who are in economic recovery, you shouldn’t have any issues extending the lease once it expires, or finding another short-term lessee for your property if the original lessee’s financial situation changes.

2. Allow for subleases. This helps ensure that you’ll continue to collect funds outlined in your agreement, even if the initial lessee can no longer pay the whole amount themselves. More importantly, if your lessee finds they need a larger space to expand, they’ll be more likely to look to you for a better option if they know that you’ve included a sublease clause that ensures they won’t be financially tied to two spaces.

3. Be sure to find a reputable real estate agent. Having a savvy marketing plan in place that takes into account local industry trends in order to attract just the right clients to your space is vital. An established agent will also provide you with a well-organized portfolio of up-to-date repairs, service contracts, and warranties for any building or space you invest in. This allows you to provide lessees with attractive options such as a triple net contract to help save them money on monthly rent costs, while also mitigating their risk of costly repairs to the property. 

Speed has over 17 years of experience serving commercial real estate investors in the Jackson area and beyond. Contact us today for assistance in securing, developing, marketing, and managing the best properties to optimize your profits.