First time real estate investors interested in California’s commercial market need to show up prepared and willing to be flexible. Entering the world of commercial real estate (CRE) can be exciting, but even to experienced investors, there are challenges and intimidations that can occur at any time. With competitive buyers and shifting market trends, the best way to succeed is to commit to education and market knowledge and to gather expert professionals into a strong network of mentors and investment partners.
At Bell Properties Commercial Real Estate, we love working with first time commercial real estate investors. We appreciate the opportunity to share what we know and to help new investors succeed. Whether it’s finding their first acquisition, successfully renting out a commercial space for the first time or finding a way to diversify their portfolio in a challenging market, when our investors enjoy good results, we know that our work is meaningful.
Talk to us if you’re a first-time investor approaching the California commercial real estate market. We can help you prepare.
Unlike residential real estate, commercial properties involve more complex financing, larger capital commitments, and longer lease terms. That’s a lot of extra effort on behalf of a property owner, and one of the reasons that professional property management is so important.
The extra work, however, leads to substantial rewards. Most investors who are making good choices and surrounding themselves with the right people find that they enjoy steady cash flow, long-term appreciation, and tax advantages.
We see ourselves as professional resources, so we’re here to provide some foundational knowledge and strategic tips for new investors who are ready to navigate this potentially profitable and highly nuanced industry.
Understanding Different Types of Commercial Real Estate
An investor has to know what their investment goals are. For commercial interests, that means understanding and choosing the best property type for their goals and strategies. It’s essential to understand the different categories of commercial properties:
Office buildings. These typically range from small professional buildings to large skyscrapers, depending on the exact market in California and how much an investor is willing to spend on their first acquisition. Office space could include co-working buildings.
Retail properties. A popular investment type for new commercial investors, the retail properties that most buyers look for include strip malls, standalone stores, and shopping centers.
Industrial properties. Tenants in industrial businesses are often looking for warehouses, manufacturing facilities, and distribution centers. This can be a lucrative commercial investment type in specific parts of California.
Special-purpose properties. Many investors find success in commercial spaces that include hotels, self-storage, medical centers, and other types of particular properties in demand from specific industries.
Each asset class has its own market dynamics, tenant expectations, and management requirements. Investors who are not sure which type of property to focus on should contact us at Bell Properties Commercial Real Estate. We can help identify a sector that aligns with specific investment goals, available capital, and an investor’s comfort with risk.
What to Know: Learn the Metrics that Matter
Commercial real estate analysis hinges on a different set of metrics than residential investments do. We always recommend that first-time investors become familiar with these financial indicators:
Net Operating Income (NOI)
NOI is the iIncome calculated after operating expenses but before debt service and taxes. It's a primary indicator of a property’s profitability.
Capitalization Rate (Cap Rate)
Cap rate is something most investors have worked with before. It’s the NOI divided by the property’s purchase price. It helps compare returns across properties.
Cash-on-Cash Return
It’s impossible to track progress without understanding an investment’s cash-on-cash return. This reflects annual cash income divided by the amount of cash invested. It shows the real return on an out-of-pocket investment.
Internal Rate of Return (IRR)
We like to track the internal rate of return for every investment we manage. It’s the projected rate of return accounting for the time value of money.
Debt Service Coverage Ratio (DSCR)
The calculation for debt service coverage ratio is pretty simple: This is the NOI divided by total debt service. A ratio above 1.25 is typically preferred by lenders.
Knowing how to calculate and interpret these figures is crucial to making sound investment decisions. Not sure where to start with these metrics and measurements? Contact us. Bell Properties Commercial Real Estate can help.
Start Small and Scale Strategically with Commercial Investments
One common mistake first-time investors make is overreaching. It might be tempting to chase a large or flashy deal but starting small can be the best way to ensure long-term success and limit risk. While many markets in California commercial real estate are competitive and fast-moving, there’s no hurry. Individual investors are not required to act fast, especially on their first investments. Take the time to build relationships with brokers, lenders, local property managers, and tenants. Spend some time understanding local market behavior.
When an investor works slowly and steadily, it’s a lot easier to prove their track record and share their success stories when it’s time to attract future investors or financing.
Choose the Right Market
California is a big state with a lot of real estate markets. So, it’s important to remember that reliable old real estate adage: location, location, location. This is especially wise when it comes to commercial real estate. Choosing a market with strong fundamentals will make the difference in what a new investor can accomplish right away. We suggest seeking a commercial market that offers:
Population growth
Job creation and diverse employment base
Business-friendly environment
Low vacancy rates and strong rental demand
Something to remember: emerging secondary and tertiary markets can offer better cap rates and growth potential than expensive, saturated primary markets.
Building a Team of Trusted Advisors
Commercial real estate is a team sport. Investors do better with a core group of professionals to navigate the first deals successfully. At Bell Properties Commercial Real Estate, we recommend a dream team that starts with:
Commercial real estate broker. Preferably someone who specializes in the specific asset class and market that interests an investor.
Attorney. To review leases, contracts, and conduct due diligence.
Accountant. To help with tax strategies and financial planning.
Property manager. For help in negotiating leases, attracting and retaining tenants, and taking care of maintenance and repairs.
Mortgage broker or lender. To help structure financing.
Contractors and inspectors. For renovations and maintenance issues.
Assembling a competent team can prevent costly mistakes and accelerate your learning curve. As property managers in California, we can help commercial investors coordinate all of these relationships and needs.
Consider the Intricacies of Commercial Real Estate Financing
Financing for commercial properties differs significantly from residential loans. For investors new to commercial investments, it’s important to understand how properties are financed. Here’s a glimpse of what to expect:
LTV (Loan-to-Value) ratios are often lower (65%-80%)
Interest rates tend to be higher
Amortization periods are usually shorter (20-25 years)
Many loans come with balloon payments or adjustable rates
Non-recourse loans (where lenders can’t come after personal assets) are common, especially for institutional properties
Investors who need help can contact us, and we will help explore different types of loans such as SBA 504, CMBS (Commercial Mortgage-Backed Securities), or local bank financing. Understand how leverage affects your risk and return profile.
Understand Lease Structures
Commercial leases in California come in different forms, and knowing the differences allows for accurate cash flow projections. Here’s what common commercial leases tend to look like:
Gross Lease. Landlord pays most expenses, a situation common in office spaces.
Net Lease. Tenant pays some or all property expenses.
Single Net (N) – Tenant pays property taxes.
Double Net (NN) – Tenant pays taxes and insurance.
Triple Net (NNN) – Tenant pays taxes, insurance, and maintenance.
NNN leases are popular with investors seeking passive income. However, each lease type comes with pros and cons, depending on your investment goals. Let’s talk about what the best lease agreement will be for various property types.
Prepare for Commercial Property Management
Managing a commercial property involves more than collecting rent. Smart investors work with property management teams like ours. We spend our time:
Ensuring timely maintenance and repairs
Communicating with tenants
Handling lease renewals and terminations
Managing capital expenditures
Being new to commercial investments, investors are wise to hire a professional property manager. Our expertise can protect your investment and keep tenants satisfied.
Plan for Long Term Success
Commercial real estate requires a commitment. While investors are likely to see significant returns, it typically requires a longer hold period (5–10 years or more) to realize its full potential. Here's what we believe smart long-term planning will include:
Exit strategies (sell, refinance, 1031 exchange)
Contingency reserves for vacancy or unexpected repairs
Tenant retention plans to reduce turnover
Reinvestment plans for profits or capital gains
Market monitoring to anticipate economic shifts
Having a clear vision for investment timelines and desired outcomes is essential for staying focused and making rational decisions.
By understanding the basics, putting together a reliable team, and approaching each investment with diligence and a long-term mindset, first-time investors can lay the foundation for a thriving commercial real estate portfolio.
Let’s talk about the best path forward. Contact our knowledgeable and experienced team of commercial property managers at Bell Properties Commercial Real Estate.
