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Commercial Real Estate Values are Down
Real estate prices on U.S. commercial properties dropped 4 percent in June, according to data released by Moody's Investors Service Thursday. The decline followed two months of price increases, illustrating that "performance remains choppy" in the commercial r. e. sector, the New York-based ratings agency said. In the first half of 2010 the index has risen in three months and fallen in the other three. This makes now the best time for the real estate investor to invest distressed in commercial real property.
Prices are Down but they have "Bottomed Out" Already
I learned the secret to successful investing. Do not tell any one, but here it is. To be a successful real estate investor in commercial property, stocks, bonds, commodities or anything; you must buy low and sell high. The prices are low. The Moody's Commercial Property Price Indices (CPPI) is now 41.4 percent below the peak that was recorded in October 2007, after the June price drop. But commercial property values have bounced back from this cycle's trough. That is; they are no longer at the bottom. Moody's says the June reading is 4.2 percent above the recession low that occurred in October 2009. With values 41% lower than they were about 3 years ago while rents have not gone down, this makes now the time to invest in commercial income producing property.
Invest in Distressed Commercial Income Producing R. E. for Substantial Income and Appreciation
If buyers and sellers are in fact coming to terms on pricing, the commercial sector can expect transaction volumes to rise steadily and prices to stabilize in the months to come. Moody's latest report also includes quarter-to-quarter price comparisons for each of the four general property types. In the second quarter, prices for apartment and office properties (income producing properties) increased by 4 percent and 3.9 percent, respectively. Retail and industrial properties (non income producing), though, weren't as fortunate. Retail prices dropped 10.9 percent, while industrial prices declined 2.9 percent. More proof for the investor that this is the time to invest in commercial income producing properties. Distressed properties are lower in value with greater appreciation and and cash flow because the amount financed would be lower yet rents are not.
Financing is Available
The real key to purchasing distressed income producing commercial real estate is availability of financing. Even though the markets and underwriting is tighter, with many lenders leaving markets of even leaving the business completely, there is many sources available to finance income producing commercial r.e. Programs are even available for down payment assistance. But a buyer must secure financing and understand his financing options before they negotiate with the sellers. The financing options are the key to success of the deal and often can not be added to a previously negotiated deal. Talk to your lender first to understand how you can put the deal together, before you negotiate a deal that does not work with the financing.
About this Author
Commercial Real Estate Investing is an opportunity whose time has come. Louis Jeffries has been a mortgage banker for over 20 years helping real estate investors achieve their real estate investing goals. Learn more about commercial real estate investing, down payment assistance for commercial properties, conventional and creative financing options. Go to http://fbcfunding.com for more information.
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