How to Use Hagerstown Commercial Real Estate to Build Passive Income

commercial real estate investing

Commercial real estate investing in Hagerstown has never been bigger, or more lucrative.

There are many reasons why choosing Hagerstown, MD, over some other city is a no-brainer, but let’s look at the facts:

  • Hagerstown is about an hour and a half’s drive away from Baltimore and Washington, DC
  • Hagerstown is intersected by three national highways and has its own regional airport
  • Hagerstown is in the top ten of Maryland’s largest counties and the city ranks second in the largest population size in Western Maryland
  • Hagerstown is within a day’s drive of two-thirds of the country’s population
  • Washington County has more than 3,000 businesses which employ almost 60,000 workers
  • Hagerstown is filled with historic landmarks, affordable living, fine dining, and is growing at a fast pace.

At this point, the city of Hagerstown is almost one of those “best kept secrets,” because it has everything you’d want and not a lot of people know about it just yet. Heavy emphasis on “yet.”

Every day, more commercial real estate properties are being built in Frederick. More townhouses and apartment complexes, more restaurants, more shopping facilities, more, more, more.

If you’ve thought to yourself that you wanted to look into investing in commercial real estate to build passive income, you don’t have to look any further than Hagerstown, MD.

Let’s take a look at some of the information you might need to help make your decision easier for commercial real estate investing in Frederick.

What Makes It a Good Investment?

Income

Of course, the reason why you decide to invest in the first place is income. Investing in commercial real estate property could be considered a little better for you than investing in stocks. Stocks pay may pay dividends, but commercial real estate provides a steady cash distribution.

This is really important since it gives you the opportunity to sit back wait out things such as recessions – since you’re not relying on the sale of your property for income – and gives you greater security in covering problems that might come up along the way.

With most stocks, the only way to collect any income is to sell the stock. With commercial real estate, you’re able to collect income thanks to the cash-flow of the property, regardless of whether you decide to sell the property. In addition, commercial real estate has traditionally had the most consistent returns of any form of investment.

Capital Appreciation

Property values, for the most part, are going to increase over time. In Hagerstown, with the growth of the city and the amount of people looking for places to live or places to start a business, the property value will only increase as time goes on.

Because of the increase in property value, you really don’t have to worry about inflation, which also happens over time. When inflation hits, rents always go up to cover the inflation.

If the rents double, then the value of the property doubles – it’s that simple. Inflation also drives up the cost to build new properties, so the values of existing real estate go up to match those new values.

Leverage

This is one of the most important reasons that real estate has proven to be such an outstanding investment type over time. Most commercial real estate is not purchased totally with cash, but rather with 20 to 30 percent cash down, and the rest is paid with a mortgage.

If you’re able to buy a property – especially here in Hagerstown – without having to pay for all of it at once, it allows you to build wealthy quickly. You might wonder why banks are so willing to make loans on commercial real estate and not other asset types. Well, one of the big reasons is the outstanding performance of commercial real estate for decades upon decades.

Banks overall are just more comfortable with commercial real estate values. It also helps that the values are rational, thanks to stable rents, while stocks fluctuate so much, there is absolutely no certainty.

In short, leverage allows investors to create bigger gains than any other type of investment.

Security

Most commercial real estate is based on pretty basic needs, such as shelter (apartments and mobile home parks), basic services (retail and office), and storage (self-storage and industrial warehouse). With stocks, you have complex business models, whereas with commercial real estate, the strong and perpetual demand provide a much lower investment risk. In short, stock will always come and go, but people will always need shelter, and owning land will always be more valuable.

Diversity

Most commercial properties have multiple tenants. This gives the owner some portfolio balance and diversity – they are not 100 percent reliant on just one tenant’s rent. For example, if you have a 100-space mobile home park – and one tenant leaves – the impact on the property’s finances is minimal. However, with a stock or bond, you are 100 percent tied to one business, and if it fails or does poorly, your investment in this one stock is ruined.

Now you understand why commercial real estate investing is a sound choice, while doing so in Hagerstown makes it even wiser.

Let’s say you’ve decided you want to invest and Hagerstown commercial real estate seems like the smart choice (which it is, by the way). What are your options? What strategies are there for someone who does want to invest? Here, you’ll read about the four main strategies of commercial real estate investing. Granted, this isn’t all of the ways you might invest, but it is four of the main – and recommended – types of commercial real estate investment.

commercial real estate investing

Four Main strategies of Commercial Real Estate Investing

Core

We’ll start off with what is considered to be the “safest” form of real estate investing, core. Core investing includes the buying and holding of stable assets characterized by their high quality, low vacancies, and/or strong markets or relative location. Class A office buildings in Hagerstown are perfect for this type of investing.

Core investors, for the most part, tend to favor yield appreciation and view real estate as a safe place invest. Core investing is an alternative to investing in bonds, plus you have the benefit of physically owning something. The average targeted internal rate of return (IRR) is below 10 percent.

Core-plus

As its name implies, core-plus investments are similar to core, but with a little extra juice. Investors looking to pursue a core-plus strategy seek out assets that are still fundamentally sound and appealing, but offer an opportunity to add value to enhance returns. Of course, these investments have some higher degree of risk (such as upcoming lease expirations) or value-add opportunities (such as mild renovation).

This approach is the least common of the four, with only 25 percent of private equity real estate investors planning to pursue this investment strategy in the next 12 months.

Value-added

Value-added strategies are higher up the risk-return chain, approaching medium-to-high for both. These investments typically include properties that have significant execution risk to add the necessary value to drive enhanced returns – such as major renovation for flipping, repositioning, or lease-up to stabilization.

Value-added investors typically seek to hold an asset for 5-7 years – enough time to execute their strategy – and understand much of their return will come from appreciation over yield. Said differently, they are okay waiting for the bigger check at time of sale. The whole strategy is predicated on the idea that you can add some value initially to see outsized returns (10-15 percent IRR) upon disposition.

Leasing is often considered a critical part of a value-added strategy. Effective brokerage teams will be able to market effectively, attract strong tenants, and negotiate competitive deals to boost the value at time of disposition.

This approach is expected to be the most popular this year, with 55 percent of private equity real estate investors looking to pursue value-added investments. Investors are probably drawn to the strategy because it is a way to escape the extremely competitive prices for prime assets in gateway markets.

Opportunistic

The highest risk-reward investment strategy is the opportunistic approach. Investors pursuing this strategy, much like day trading, typically seek out properties that need a significant amount of work – either because of renovation needs, low vacancy, or relative strength of the market. New development is often included in this category as well. Because so much work needs to go into righting the asset, it can yield the highest returns, but also entails the greatest level of risk. The typical asset is held for 3 years, with the goal of achieving a 15+ percent IRR.

Around 45 percent of private equity real estate investors are using this strategy this year.

Now that you know about different strategies and reasons to invest in commercial real estate, it’s time to talk about creating your own personal strategy. You can’t just up and decide, “Well, guess I’ll buy that commercial building over there.” There’s still a lot to do.

Creating Your Own Personal Strategy

If you want to build significant wealth investing in commercial real estate, it’s going to require that you take the time to think things through. Understand that real estate is generally a “get rich slow” kind of business, and one that requires planning, patience, and persistence.

Without a strategy to guide you, the results will likely not be at all what you desired. What does such a strategy look like? It’s simpler than you might think.

First, get your personal financial house in order. Orient your financial affairs to serve your purpose of building wealth.

Next, form your criteria for property type, size, and location. There are a lot of properties here in Hagerstown, and each requires a different set of skills and offer varying levels of return. It is much better to fit the property to your strengths, rather than trying to make you fit the property.

Again, the commercial real estate landscape in Hagerstown is growing so you have to keep a few things in mind:

  • How much can I afford?
  • What type of property will best suit my investment needs?
  • Will I need to do a lot of work to it, or is it best if I just purchase something and rent it as-is?
  • What neighborhoods should I look at when looking at property?
  • How long do I want to keep this property?

Once you’ve identified a potential deal, learn how to accurately value a property based on its condition, your return requirements, and your borrowing power. Understand why “What is it worth?” is the wrong question, and how to answer the right question: “What is it worth to me?”

Make sure you learn how to structure deals and make offers too good to refuse. Act decisively, then be prepared not only to reap the profits, but keep them. Tax planning and asset protection is a key component of building wealth.

Bring Clarity into This Decision

Investing in commercial real estate, not only in Hagerstown, but anywhere, is a big step. This is something you need to fully understand in order to make sure you’re not in over your head.

The property in Hagerstown is ready for you, but what really helps is having someone in your corner who can help you not only find the right property, but walk with you through all the steps of buying it.

At Blackwolf Commercial, we have worked with so many people, just like you, who are ready to invest in commercial real estate in Hagerstown. We’ve helped them find properties, steered them away from what we thought were properties too risky for them, and helped them understand all of the aspects of commercial real estate investing. Our experts have done this time and time again, and we can do it for you, too. We know Hagerstown is an amazing area full of potential, and we’re ready to help you find your perfect investment.

If you’re ready to take the next step, reach out and contact us today. We’ll sit down with you and talk over your strategy and help guide you to a great investment.