Lease options are definitely my students and my own most profitable and least risky investing strategy. But when you’ve been a real estate investor as long as I have, you become very familiar with other highly profitable sectors. Commercial property investing has an almost limitless number of niche possibilities. Commercial investing can be more complex than single-family homes but it can also be more profitable.
One thing that I want to point out right away is that the lease options investing strategies I share in my books and courses are also applicable for commercial investing. Readers who want to transition their lease option skills from single-family homes to commercial properties can do so by understanding the lease options and applying them to commercial property investing.
About Commercial Property Investing
Commercial property investing involves everything from retail space, to offices, warehouses, multifamily apartments, medical facilities, manufacturing space, hotels, and much much more. I can’t cover all of these in this one article. But many investors graduate from single-family homes to multifamily apartments as a natural transition within the residential niche.
If you’ve been to a major city in the last eight years, you couldn’t help but notice the skylines are dotted with construction cranes. Many of these are building new high-rise buildings to fill the insatiable demand for apartments. But you don’t need to build a 50-story apartment building to cash in on constantly climbing rents.
Anything with five or more units is considered a commercial rental building. But of course, you can start with duplexes, triplexes, and quads that are not considered commercial. These smaller properties are typically privately owned by the average landlord. There are lease option deals (between landlords) on these types of properties that easily fall within the capability and capacity of smaller investors wanting to step up to multi-family rental units. One thing to be aware of is these multiunit lease options won’t often be sandwich lease options because you don’t resell apartment units to a family. Your goal will be to take ownership or to make it a cooperative lease option to another investor. There really are countless ways to put together real estate deals using lease options.
Monthly rents vary considerably in different cities but the national average for a two-bedroom apartment was $1,809 in 2019. Besides high rents, there are other outstanding financial reasons why apartment buildings are extremely attractive for commercial property investing. Four additional wealth-building factors are:
- Leverage – controlling and collecting rents on a high value property with little investment of your own.
- Appreciation – in addition to rents constantly going up, the building value steadily increases over time.
- Amortization – having the rental income pay off the mortgage until you own the building outright.
- Paid off mortgage – the rent income dramatically multiplies your bank account once the loan is repaid.
The facts go on and on to make the case that apartment building ownership is a good investment. Filling people’s basic housing needs is always a good investment strategy. The downside is almost nonexistent. When home purchase affordability is out of reach, apartment vacancies go down. When apartment vacancies go down, rents go up.
The Senior Housing Continuum
People always need somewhere to live and with more than 73 million baby boomers now in their retirement years, senior housing has a lot to offer for commercial property investing. An important consideration when catering to this community is that they are transitioning into their golden years. For most, it is a phased approach.
Beyond the Shuffle Board. Senior communities are moving away from simply keeping older people occupied. Today’s high rent senior communities feature life enrichment activities that boomers are demanding. One of the trends is that many boomers are first choosing semi-retirement because the average boomer is about $500,000 short for the retirement lifestyle that they wanted. The bottom line is that many senior housing facilities are gravitating towards accommodating part time working seniors. Another change is offering lifetime education and self-improvement services. Baby boomers are tech-savvy, this means semi-retired and life-enriching senior communities need to include modern technology.
Continuing Care Retirement Communities. This is a major phase along the transition continuum. The old retirement and nursing home concepts are fading into the past. Today’s concept for retirement housing is Continuing Care Retirement Communities (CCRC). These are facilities designed around allowing the elderly to progress from an active lifestyle to an assisted living lifestyle, to a full nursing home environment without having to relocate in their later years.
These communities are designed so that seniors continue living independently while progressing into assisted living when their needs change. Eventually, they can move into skilled nursing care accommodations when required (all within the same independent community they are familiar with and have friends in). What today’s seniors are looking for are senior housing options that include independence, choice, and social networking. As time passes and their health demands, they want access to progressive care within the same community. Being close to outside medical facilities is a big bonus.
No Loss of Freedom. The CCRC model offers a combination of single-family housing and apartments. Often, newly retired or semi-retired people first move into a smaller single-family home and take care of all of their own needs while still having the security of on-campus assistance if needed.
As times and requirements change, they move into easier to maintain housing arrangements providing needed services – apartments within the retirement community they already know. The appeal of the senior housing continuum appeals to baby boomers entering their retirement phase as well as their adult children looking to assist them. Commercial real estate investors need to stay tuned in to this new market that 73 million baby boomers are now defining.
Micro niches within the senior housing niche. This is why commercial property investing offers almost countless options. Some retirement communities include spacious amenities like golf courses, tennis courts, and walking trails. The space requirements mean these will be located in the suburbs. On the other hand, some are full service, last stop facilities. One example is a large high rise in Seattle that was originally a children’s hospital. Today, it has been converted into a combined 93-unit assisted living and memory care (dementia) property. This one is in the heart of the city with extensive full-service medical facilities nearby. The possibilities with commercial property investing are endless.
Real estate investing is all about finding creative solutions that work for you and others. What you need to do now is TAKE ACTION!
By Wendy Patton
For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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