Reasons for Investing in Real Estate

Commercial Real Estate Articles November 8, 2003

There is only one valid reason for purchasing commercial real estate, and that is:

To make money!

Real estate borrowers are classified into three groups. Each of them has a method in mind of how they want to make money, some of these borrowers are more desirable than others from the point of view of the lender:

A The owner occupant borrower Utilizes the property to operate an existing business. This is a desirable type of real estate borrower as long as the business that will be located there shows capability to repay the loan via an acceptable debt service coverage from operational cash flow. Operating performance, condition and outlook of the related tenant is very important.

B The investor borrower Will make the money from collecting rent from tenants. Also a desirable borrower as long as the conditions of the loan request are right. A lot of factors involved here.

C The speculator Wants to hold the property for future resale. This is not a desirable borrower mostly because of the quality of the primary source of repayment. The loans are done very rarely.