The Deep Dive into Commercial Real Estate Investing

Confessions of a "wanna be" commercial real estate investor

by Julie Broad     

Everyday I look at commercial real estate transactions in Vancouver, Calgary and Toronto. In the middle of my daily grind at work, I see the frantic pace of the the real estate markets, I understand how capitalization rates are calculated and what an IRR (Internal Rate of Return) is, and I know how to calculate the residual value of a piece of land. But when I started to get involved in some deals my parents were working on (like the one pictured here - their Retail/Office Building in Medicine Hat, AB), I quickly realized that I have barely scratched the surface of what is involved in a commercial real estate transaction.

The sheer number of documents involved would sink a small ship. The list of things you need to have or need to pay for in order to qualify for a mortgage is long. Only a few of the items include inspections, environmental surveys, lender commitments, and leases.

Despite the daunting nature of things involved in a purchase, I am fascinated by commercial real estate investing. I admire people who have started with little and made a lot. I am intrigued by the vision that some developers have to buy in areas that I won't even walk through. And, most of all, the financial proposition it offers is appealing. Let's face it, $500,000 is not buying much in terms of residential real estate now. In Vancouver $500,000 may get you a decent townhouse which you might be able to rent out for $2400/month. Once you are done paying your mortgage, strata (condo fees), maintenance and possibly a property manager, you are lucky if that investment doesn't cost you more than $1000/month. So when you start looking at commercial real estate where you can buy a property for $1,000,000 and have it generate $10,000/month in lease revenue then the numbers start to look appealing.

But, before you list your house for sale and start shopping the commercial listings, let Dave take you through our personal pro/con list of commercial versus residential real estate investments.

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