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Navigating the Commercial Real Estate Market in Los Angeles: A Comprehensive Guide — Steven Taylor

Steven Taylor Los Angeles Real Estate
Steven Taylor Los Angeles Real Estate

Los Angeles, a thriving hub for commerce, innovation, and cultural diversity, presents a myriad of enticing opportunities for commercial real estate investors. Commercial real estate in Los Angeles is as multifaceted as the city itself, ranging from retail spaces and office buildings to industrial properties and multifamily apartments. However, investing in this high-potential market requires careful strategizing and in-depth knowledge. This article offers comprehensive insights into purchasing commercial real estate in Los Angeles.

Understanding the Los Angeles Commercial Real Estate Market

Investing in the Los Angeles commercial real estate market means becoming a part of one of the world’s largest and most dynamic economies. Los Angeles is home to numerous Fortune 500 companies and budding startups, making it a prime location for office spaces. In addition, the city’s vibrant tourism industry bolsters demand for retail and hospitality properties. Finally, Los Angeles’s vast population and continuous growth make multifamily properties a promising investment.

However, the L.A. market also presents unique challenges. The city is known for its high property prices and competition, as well as complex zoning laws. Understanding the market dynamics and legal landscape is crucial for investors planning to venture into Los Angeles’s commercial real estate scene.

Strategizing Your Investment

Firstly, investors must define their investment strategy. This involves deciding on the property type – office, retail, industrial, multifamily, or a mix. Each type has unique risks, rewards, and management requirements. For instance, multifamily properties often offer a more stable income but may require more hands-on management compared to office buildings.

Next, location is key. Los Angeles is composed of numerous distinct neighborhoods, each with its own economic characteristics and market trends. Downtown L.A., for example, is a bustling business hub with high demand for office spaces. On the other hand, neighborhoods like Hollywood and Beverly Hills offer lucrative opportunities for retail and hospitality investments due to high tourist traffic.

Investors should also consider the potential for property appreciation. Some areas of Los Angeles, such as the Silicon Beach region, are experiencing rapid growth and gentrification, which could lead to significant property value increases.

Understanding Legal and Financial Considerations

Before buying commercial real estate in Los Angeles, investors need to familiarize themselves with local zoning laws and building regulations. Los Angeles’s zoning code dictates what types of businesses can operate in different areas of the city and impacts property value. Consulting with a real estate attorney can help navigate these complex regulations.

Furthermore, financing is a critical component of commercial real estate investment. Most investors rely on commercial real estate loans, which differ significantly from residential mortgages. These loans typically have shorter terms, higher interest rates, and require a substantial down payment.

In Los Angeles, property taxes are also a significant consideration. The tax rate is applied to the assessed value of the property, which may increase annually based on inflation and improvements. Understanding these costs is crucial in calculating the potential return on investment.

Working with Real Estate Professionals

Engaging with experienced real estate professionals can be highly beneficial in the L.A. commercial real estate market. Brokers and agents with local expertise can provide invaluable insights into market trends and identify promising investment opportunities.

Similarly, property managers can handle the day-to-day operations of the property, including rent collection, maintenance, and tenant relations. Their services can be particularly valuable for out-of-town investors or those with multiple properties.

The Importance of Due Diligence

Due diligence is a critical phase in any commercial real estate transaction. It entails thoroughly investigating a property before the final purchase to uncover any potential issues or liabilities that could impact its value or profitability. In Los Angeles, the due diligence process may involve:

  1. Property Inspection: This includes a physical inspection of the building to identify any structural issues or needed repairs. It should also involve an assessment of key systems like plumbing, electrical, HVAC, etc.
  2. Environmental Assessment: Given California’s strict environmental regulations, a Phase I Environmental Site Assessment (ESA) is generally recommended. This assessment identifies potential or existing environmental contamination liabilities.
  3. Title Search: This ensures the property is free from liens or encumbrances that could affect ownership. In Los Angeles, title issues can be particularly complex due to the city’s age and rapid development.
  4. Lease Analysis: If the property is already leased, carefully review the lease agreements to understand the terms and any obligations that will transfer to you as the new property owner. For instance, some leases may require the property owner to undertake certain property improvements or maintenance duties.

Post-Purchase Management and Growth

After purchasing a commercial property in Los Angeles, implementing effective property management strategies is crucial to maximize your returns. This can involve finding and retaining reliable tenants, maintaining the property to a high standard, and promptly addressing any issues or disputes that arise.

In addition, consider strategies for growth. This may involve making improvements to the property to increase its value, or raising rents in line with market trends. With the dynamic nature of the Los Angeles market, opportunities for growth are abundant if you keep a keen eye on market trends and tenant demands.

Commercial real estate can also provide tax advantages, including depreciation deductions and potential for capital gains tax reduction or deferral through mechanisms like the 1031 exchange.

Wrapping Up

Investing in commercial real estate in Los Angeles is not a decision to be taken lightly, but the potential rewards are significant. With its diverse economy, vibrant tourism industry, and continuous population growth, Los Angeles offers a variety of opportunities for the savvy investor.

However, succeeding in the L.A. commercial real estate market requires an in-depth understanding of the local market, clear investment strategy, comprehensive due diligence, and effective post-purchase management. By applying these strategies and leveraging the expertise of real estate professionals, investors can unlock the true potential of the Los Angeles commercial real estate market.

Remember, real estate is a long-term investment, and patience often yields the most rewarding results.

Originally published here.

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Steven Taylor Taylor Equities on 3 Different Ways of Investing in Apartment Complexes

Steven Taylor Taylor Equities on 3 Different Ways to Invest in Apartment Complexes
Steven Taylor Taylor Equities on 3 Different Ways of Investing in Apartment Complexes

Investing in multi-family units can be a fantastic way to add to your portfolio and earn passive income.  According to Steven Taylor Taylor Equities, there are many different ways to invest in apartment complexes. The strategy you use will depend on your desired level of involvement, your available capital, and other factors.

Here are 4 different ways of investing in apartment complexes:

1. Purchase units yourself.

The first way of investing in apartment complexes is the most simple – buy the building yourself. This would require extensive upfront capital. For many, this method might sound impossible. You would need to do extensive research and the responsibility of the deal would fall on you alone. In order to purchase multi-family units on your own, you would need to first save the proper amount of funds, and come up with a clear picture of your budget. Research the market and examine different deals. You may choose to take out a loan. This method requires you to later find property management and other decisions in regards to handling the property.

Purchasing on your own requires more work, but also has many benefits. As the sole owner, you get to choose your investment strategy, how you would like to run your property, and when you would like to sell.

2. Purchase with a partner. 

For many new real estate investors, it is easier to purchase for the first time with a partner. If you don’t have all of the funds you need to get started, partnering up with someone you trust can be a great way to pool capital. Another advantage of buying with a partner is that you can learn and grow in your strategy together. Having someone to discuss a deal with can be valuable. 

The negative aspect of purchasing with a partner is that you will not get to make decisions on your own. For this reason, I only recommend going into business with a partner if you are someone who can handle compromise. Before you get in too deep, make sure you are on the same page about your strategy, vision for the building, and what you are hoping to achieve. Document everything, and get anything important in writing. Working with the right partner can be a rewarding experience, but communication is key.

3. Purchase by Syndication

A syndication is a group pool of funds used to purchase a property, usually run by one person (the syndicator). In this case, the syndicator, or general partner, is running the investment. As an investor, or limited partner, you would be joining in to purchase a small stake of the property. Usually, general partners make decisions, run the property, and follow their own strategy. As a limited partner, you are a passive investor. But, you still collect a share of the profit when the property is sold. This option can be a good way to invest in apartment complexes without spending a lot of time or getting extensively involved.

There are many other ways to invest in apartment complexes, but these three options are some of the most common ways to get started. If you’re interested in learning more about how to invest in multi-family real estate, consult a professional or mentor like Steven Taylor Taylor Equities.

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What Is Commercial Real Estate? – Steven Taylor, Taylor Equities

Apartment Steven Taylor Taylor Equities
Steven Taylor, Taylor Equities – “What Is Commercial Real Estate? “

If you’re interested in buying into the real estate industry, it is important to start with the basics of buying and selling property. This includes topics you may find boring, such as classifications and zoning restrictions. Even if you have no intention of owning a strip mall or office building, you should have a full understanding of the industry, including commercial real estate. 

Commercial Real Estate (CRE) a property type and zoning restriction. There are three basic property types – residential, industrial, and commercial. While there are more than three forms of zoning, most properties in a highly populated area will fall under commercial or residential. Today we are going to focus on commercial real estate as a property type.

Commercial Real Estate is defined as “any property owned to produce income.” Obviously, a lot can fall under that umbrella. Here are a few examples:

  • Convenience stores
  • Apartment complexes
  • Office Buildings
  • Car Washes
  • Malls
  • Restaurants
  • Theatres
  • Gas stations
  • Theme parks
  • Hotels

CRE properties can be broken down into several categories. Here are three common categories to invest in:

Office Property

CRE office properties can include anything from small buildings for professional use by a single tenant to skyscrapers full of offices. These properties are classified by categories A, B, and C.

Class A: These buildings are at the top of the food chain. Class A properties are often new but could include older buildings if they have been renovated extensively. They are generally in great locations and are managed professionally.

Class B: These properties are highly sought out by investors due to their potential for a high ROI. Class B buildings are often older, but able to be renovated and improved. Infrastructure often requires investment, but in general Class B buildings are well-taken care of and well-managed.

Class C: If you invest in Class C, know that the buildings will most likely be older, in a bad location, and need major renovations to infrastructure. These properties often have lower occupancies due to the office space’s lower quality. Class C buildings can remain vacant for longer periods of time and often are used for redevelopment.

Retail and Restaurant Property

Retail and restaurant properties can either be stand-alone buildings or a larger structure encompassing multiple businesses, such as a strip mall or office building. Real estate investors are usually drawn to properties that can encompass many businesses and tenants. These properties often include malls and other large retail centers, because with multiple occupants, there is less risk. Strip centers, community retail centers, power centers, and regional malls are a few types of property you may want to research if you are interested in investing in this category.

Multi-family Units

While many people think of apartments, like those owned by Taylor Equities, as a residential property, any apartment building that is a fourplex or larger can be considered commercial real estate when investing.  Apartment buildings, extensive complexes, condominiums, and even smaller multi-family buildings all fall under the category of commercial real estate. This type of property can offer less stability long-term but is always in demand and offers high returns. Multi-family real estate is personally my favorite type of investment, and a topic worthy of extensive research. Check out my blog for insights into the multi-family real estate market, and to learn why I choose to invest in apartment buildings as part of my commercial real estate strategy. –Steven Taylor, Taylor Equities

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Steven Taylor of Taylor Equities on Understanding Real Estate Investing

Steven Taylor of Taylor Equities with his wife Natalie
Steven Taylor of Taylor Equities with his wife Natalie

While it is technically possible to profit from a deal without thoroughly understanding real estate investing, those stories are often the exception to the rule. If you want to succeed at building wealth through real estate, it is vital that you do your research and build your knowledge of the industry first. Real estate investing can be a very profitable business, but only if you have a solid understanding of the market and do your diligence before purchasing properties.

Steven Taylor of Taylor Equities has compiled a checklist below of a few aspects of real estate that everyone should have a solid understanding of before entering the business. If any of these concepts seem foreign to you, you should consult with a mentor or expert before investing.

Learn how to evaluate potential properties.

The most important aspect of understanding real estate investing is knowing how to evaluate a property you are considering investing in. Before you enter the real estate industry, take the time to study evaluation techniques for acquiring buildings. As you build your investments, it will be important that you only add assets that contribute to the big-picture of your portfolio. There are many resources that can teach you how to inspect properties, research potential areas, consider neighborhoods, and integrate comparative market analyses with your plan. Ultimately, you will want to determine a property’s profit potential before buying in.

Understand the many ways in which you can profit.

Before investing in real estate, you should be aware of the different types of cash flow that come with real estate investing. The most common way to profit from a real estate investment is known as flipping – owners fix up investment properties and then sell them at a higher price. But, there other factors to consider when looking at cash-flow, such as your annual income, taxes, tenants, and vacancies. To understand real estate investing, you must understand the plethora of ways that your cash flow could be affected.

Be aware of the reality of leverage.

For many new investors, purchasing a property without a down payment can sound very appealing. But, this real estate investment strategy can come with many risks. When an investor doesn’t have enough capital available to purchase a property outright, they may borrow money to acquire the asset. In some instances, investors can utilize financing as leverage in order to purchase a unit or building. It is extremely important that investors have a solid understanding of the risks that come with using leverage before taking on any debt.

Understand the many types of mortgages available.

To have a full understanding of real estate investing, you must understand the many different types of mortgages available. By taking the time to research the variety of mortgages on the market and the pro’s and con’s of each, you can secure your investment from the beginning. Take the time to shop for the best mortgage with the interest rates that will benefit you the most. Always be careful with mortgage deals that sound too good to be true – if there is zero down, and adjustable rate, or a deal that just sounds unrealistic, take a second look. There should never be a rush to invest in real estate. Take your time, and consider all of your options carefully.

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Steven Taylor of Taylor Equities – The role of a Real Estate Private Equity Firm

Steven Taylor Taylor Equities
Steven Taylor of Taylor Equities

According to Steven Taylor of Taylor, Equities a real estate private equity firm raises capital from investors. These investors are called Limited Partners. They then use the capital to obtain and develop real estate properties.  The firm can also be involved in operating, improving, and reselling the properties in order to see a return. Firms use an active management strategy and take a diversified approach to owning properties.

There are many different types of outside investors or Limited Partners. A few examples are insurance firms, high-net-worth individuals, pension funds, family offices, and endowments.

Real estate private equity firms most commonly focus on commercial properties such as offices, retail, industrial, multifamily, and other properties, although it is possible for a REPE firm to purchase residential buildings.

Who can participate in private equity real estate?

If you’re interested in getting involved in private equity, there are a few things to consider. Your ability to take part in investing in private equity real estate will be determined by the amount of money you have available to invest. A traditional private-equity fund requires partners to invest a minimum of $250,000. In general, firm managers prefer institutions and individuals who can contribute above $25 million in a long-term investment collective in combination with other investors. 

Individuals who are interested in getting involved in real estate private equity should examine their options of firms, and further their options of funds within that firm.

How do you examine a private equity fund’s investment structure?

To take part in most private equity funds, you must pay a number of fees for management and performance. Many REPE funds include annual fees in order to pay for legal services, data costs, firm salaries, deal sourcing, research, marketing, and other variable and fixed costs. If you are considering getting involved in private equity real estate, it is essential that you understand these fees before investing.

Most REPE managers also collect “carry.” A “carry” is a fee based on performance that is typically 20% of excess gross profits of the fund. 

Individuals should also examine what would happen in the case that they fail to meet a capital call. In some cases, a fund may force and individual or institution to default and forfeit their ownership shares.

What types of strategy does private equity real estate employ?

In PERE, there are a few main strategy types:

  1. Core PERE strategy: Core strategy is generally the most conservative strategy. This method sometimes only includes properties that offer low risk and therefore lower potential returns. These types of properties usually exist in popular and high traffic locations. Core strategy may focus on high-value properties that don’t require much development or upkeep.
  2. Core-plus strategy: Core plus strategy requires more of a gamble, but can also offer a higher ROI than a core method strategy. These properties usually require more modest amounts of upgrades and improvements.
  3. Value added strategy: Value added is a moderate risk method with a medium-to-high-return. This approach is more focused on property development and working the market. Managers often purchase properties, redevelopment them for improvement, and then resell at the right time with added value.
  4. Opportunistic strategy: An opportunistic strategy returns the highest amount but assumes the most risk. Managers usually purchase properties that involve undeveloped land, or properties that are in markets with low traffic that typically don’t perform well. – Steven Taylor, Taylor Equities
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Steven Taylor of Taylor Equities – Red Flags to Look Out for When Buying Commercial Real Estate

Steven Taylor of Taylor Equities Commercial Property picture

All real estate investment comes with risk, but commercial real estate in particular requires that liquid assets be readily available. As an investor, it is essential that you are careful about the properties you invest in – you don’t want all of your capital tied up in a building with a high risk of failure. If you are diligent about research and observant in your showings, you can pick up on red flags that could keep you from getting involved in a bad deal.

But how do you know when a commercial property is a major risk? If you look out for these warning signs, you can avoid signing a deal for a property that won’t serve your goals.

Red Flags to Look Out for When Buying Commercial Real Estate

The neighborhood is going down hill

It can sometimes be difficult to tell the difference between an area that is on it’s way up and one that is going downhill. Low value can be an opportunity to get in before prices skyrocket. But this only works if the surrounding area is growing steadily, experiencing job growth, and bringing in new people.

If a neighborhood is on the decline, with businesses closing and residents moving out, think twice. The best way to assess the status of an area is to spend time in the neighborhood and talk to local business owners and residents directly. While the goal is to acquire a commercial property in a booming area, accidentally purchasing a building in a declining part of town can be a major loss.

The property needs major repairs to be usable

It is common for real estate investors to purchase properties that need fixing up or redevelopment. There is a difference between adding value to a property by improving its appearance or conditions and needing a complete overhaul. Some repairs will be more expensive than you imagined and could take your deal south. Take the time to research what repairs or improvements will cost you before you purchase a money pit.

            Here are just a few signs I look out for:

  1. Low ceilings: Many users of commercial spaces require high ceilings for their business to function. It is essential that you ensure your ceilings fits the needs of those you are hoping to rent it to, without major construction.
  2. Damaged roof: Repairing the roof of a commercial building is much more costly than a single-family home. Be on the look-out for leaks or damage.
  3. Cracks and settling: Walk through the interior and exterior of a commercial property to check for cracks or signs of settling in the walls or floor. If you find a large crack, it could be a flag for a larger issue.
  4. Environmental contamination: If you are purchasing a property in an industrial area, there is always a chance that you will find contamination. Environmental contamination can affect your property and cost you. Watch out for chemicals and items that are stored improperly and may be damaging to the living conditions.

The numbers don’t add up

You can’t always accept the value the seller tells you to be the truth. Evaluating a commercial property requires a lot of research and appraisal beyond the physical conditions. Assess financial projections. You don’t want to purchase a commercial property where rental vacancies are projected to increase in the coming years. Look at any documents such as loss/profit statements that you can get your hands on. Never trust the seller’s estimates.

As with any investment, purchasing commercial real estate is a gamble. While risk is always going to be part of buying a property, the goal is to acquire a profitable building. If you know what red flags to look out for when buying a commercial property, you can save significant energy, time, and money. – Steven Taylor of Taylor Equities

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3 Uncertain Conditions that Impact a Landlord and Apartment Building Investments

Landlord Steven Taylor, Taylor Equities Apartment Photo
Landlord Steven Taylor, Taylor Equities Apartment Photo

Multi-family properties can be a great investment. But, if you’re considering being a landlord and investing in an apartment building, it is essential to first evaluate the local market. Some influences are fixed, but multi-family real estate is affected by many changing circumstances. These factors can evolve over time. Responsible investors need to be aware of the changing conditions that can impact their properties. Before buying an apartment building, build and understanding of the uncertain factors that can affect your investments.

Shifting Demographics

A changing population can significantly affect your investment. If you are a landlord, depending on income from renters, an increase or decrease in a population can easily influence your success. Age, income level, race, and gender can all be relevant factors to the profit of your investment. If an area is growing, the demand will grow as well and you are likely to see higher occupancy rates. If a circumstance or trend causes the population to migrate away from your building’s area, your property could sit vacantly. It is notably important to consider the factors that affect an area’s demographics before investing in a property.

Fluctuating Job Markets

The economic conditions of an area play a large role in decision making for multifamily investing. The health of the economy in an area will impact the demand for rental properties. If new jobs are created in a region, people will consequentially move to the area to fill those positions. Many new employees would often rather rent from a convenient and local multi-family property than buy their own home and commute to work.

A downturn in the economy can also affect a landlord’s apartment housing investment. When unemployment rises, homeowners often look for more affordable places to live, and many switch to renting an apartment. When the job market fluctuates, your investment could as well.

Landlord Changes in Access

It may seem obvious, but it is essential to pay close attention to the geographic location of your investment. In an era of climate change, our world is ever-changing, and the physical location is playing a more significant role than ever in housing choices. Renters want to live in a location with good weather, safe conditions, and access to the things they need. Before becoming a landlord and investing, look at the history of properties in the area. Have they been affected by any natural disasters? Do they experience an influx of population during certain seasons? Is the area becoming more or less convenient? Locations all have their strengths and weaknesses that will affect your real estate investment. Don’t skimp on the research. When purchasing a multi-family building, consider all the factors to make sure you are in the right place.

Steven Taylor, Taylor Equities properties

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4 Factors to Keep in Mind When Investing in Apartment Complexes

Apartment Steven Taylor Taylor Equities
Apartment Steven Taylor Taylor Equities

When considering investing in anything, according to Steven Taylor of Taylor Equities , the question you should always ask is: Why is this a good deal? A good deal isn’t just about numbers – a good deal has a compelling story and makes sense. Is the property mismanaged? Stressed? Under foreclosure? The facts should tell a story that explains why the property has value. Developing the instinct to recognize a good deal takes time, but with research, study, and experience you can learn to find the right investments.

Here are four factors to keep in mind when investing in apartment complexes.

1. Cash Flow

The probability of cash flow is a crucial factor to consider. It is important to evaluate how the property will generate cash flow in comparison to other potential properties. To start, ask yourself these questions:

  • What is the strength of the rental market in the area?
  • What type of market you are buying into (For example, C class buildings often have higher rates of tenant turnover. They can also call for more maintenance and repairs.)
  • Financing (How much money are you putting down? What is the interest rate? What type of loan?)

2. Equity

The next thing to consider is if the apartment complex you are purchasing holds equity. If the property doesn’t have equity, can you create it?  Equity in a property can take many forms. A few to look for are:

  • Discounted listing price
  • Foreclosure
  • Upside potential (Fixer-upper)
  • Poor management
  • Opportunity for rezoning

While there are ways to create equity, you are better off buying into it. Be on the lookout for motivated sellers who want out of their property – they are often willing to give up the building’s equity for less.

3. Appreciation

Purchasing in the right location and during the right time will result in profit and appreciation. But, evaluating timing can be tricky. The real estate cycle is often very uncertain. Therefore, if you purchase an apartment complex without the certainty of cash flow or equity, with the goal of short-term appreciation, you will be taking on a risky investment.

Often, aiming for moderate or long-term appreciation will be a safer bet. Study neighborhood and city trends over the long term to choose areas that hold their value and grow at a steady rate.

4. Risk

Those investing in apartment complexes often neglect to consider risk. Regardless of the amount of research you do, risk will always be a factor. Even if you have considered all the factors, you presumptions can be incorrect.

Have a backup plan for risk. If you are buying a building for appreciation, and the apartment complex does not appreciate, can you instead gain positive cash flow through renting units? If you have vacancies in some of your units, will you be able to balance the negative cash flow?  When investing in apartment complexes, you should expect a positive outcome, but always be prepared for your plan to take a turn. Real estate investment in a risky business, and if you want to play the game, you have to be ready to pivot when things go wrong. But, when things go right, investing in apartment complexes can be an exciting and rewarding endeavor. Steven Taylor Taylor Equities