The 1% and 2% Rules in Commercial Real Estate
In the cutthroat realm of commercial real estate, making the correct acquisition or lease can be a game-changer. This holds true for both business entrepreneurs and investors. However, how can you swiftly judge if a property merits your investment and time? Introducing the 1% and 2% rules for commercial real estate. These are two powerful tools to help you decide in the competitive Phoenix market.
For example, people looking for higher returns may prefer properties that follow the 1% rule. In contrast, those who want a safer option might focus on properties that meet the 2% rule.
To better understand how these rules apply to the Phoenix’s commercial real estate market, let’s delve deeper into specific examples.
How the 1% Rule for Commercial Real Estate Applies in Phoenix
This rule is traditionally used by real estate investors, but it can also be applied by business entrepreneurs to assess the potential costs of occupying a commercial space.
From an investor’s view, the 1% rule is a basic guide to see if a commercial property might be a good investment. This rule makes sure that rental income covers important costs. These costs include mortgage payments, property taxes, insurance, maintenance, and management fees.
Imagine you’ve found a commercial space in Phoenix listed at $2 million. Applying the 1% rule, you’d expect at least $20,000 in monthly rental income.
But what if this property is in a rapidly developing area? How does that affect your research? Rowe and Associates can help you weigh these factors and determine if this is a sound investment.
When an entrepreneur is thinking about leasing or buying a property in Phoenix, the 1% rule can be a valuable guide too. This rule shows if the property is a good financial choice.
On the flip side, let’s say you own a tech startup looking to lease a commercial space in Phoenix. You find a property listed at $1 million, which would ideally require $10,000 in monthly rent to meet the 1% rule.
However, the property owner demands a rent of $12,000. Assessing the figures, purchasing the property might prove to be a more sensible decision in the long run. Should you have the necessary finances, it could lead to cost savings over time. Additionally, it can provide you with an ownership interest in the property.
In contrast, if the rent were $8,000, leasing might be the wiser choice, allowing you to allocate funds toward growth initiatives like hiring staff or investing in technology.
Ready to find out more about a specific commercial property in Phoenix? Let Rowe and Associates help you unlock your growth potential. Our experienced business property realtors and brokers have guided hundreds of clients to successful property acquisitions and leases, lowering stress and doing what we can to help maximize your ROI. Contact us today to learn more.
Why the 2% Rule Matters for Phoenix’s Savvy Investors and Entrepreneurs?
While the 1% rule provides a useful starting point, some investors prefer to take a more conservative approach by using the 2% rule. This guideline suggests that a property should generate 2% of its purchase price in monthly rental income.
As an investor seeking a property that meets the 2% rule, you might find it challenging in Phoenix’s competitive market. You come across a mixed-use property listed for $1.5 million. You determine it has the potential to generate $35,000 in monthly rental income, which falls short of the $30,000 needed to meet the 2% threshold.
With Rowe and Associates’ help, you can look at similar properties in popular areas. They can also help you negotiate terms that enhance this investment property. This way, you can find the best opportunities for your portfolio.
For business entrepreneurs in Phoenix, the 2% rule is a practical tool to quickly assess the financial impact of purchasing or leasing a commercial property. This rule is especially valuable for businesses that need their location to positively contribute to their overall financial health. Following the 2% rule usually means a property provides a better margin of safety. This is important for new businesses that may have changing revenues in their early stages.
Investors and business entrepreneurs often find it hard to find properties that meet the 2% rule. This is especially true in competitive or high-demand areas. If you want to find commercial real estate opportunities with better safety and profit, Rowe and Associates can help. They can help you find the best commercial properties in Phoenix, Arizona, that follow the 2% rule.
Harness the Power of the 1% and 2% Rules for Commercial Real Estate
In summary, the 1% and 2% rules are helpful tools for investors and business entrepreneurs. They can use these rules to better understand Phoenix’s commercial real estate market. The 1% rule is a basic guideline to check if a property can cover its costs. The 2% rule suggests a safer approach with a bigger safety margin.
However, these rules should be just one part of your overall purchasing or leasing strategy. To make a good decision, you should think about several factors. These include the property’s condition, its location, market trends, and financing terms.
By combining the 1% and 2% rules with a comprehensive property evaluation, you can increase your chances of making successful and profitable real estate decisions.
Contact Rowe and Associates to Unlock Your Commercial Property Goals
Don’t let uncertainty stand in your way. Whether you’re a seasoned investor or an entrepreneur looking for your next location, Rowe and Associates is your trusted partner in navigating Phoenix’s vibrant market.
To leverage the 1% and 2% rules and unlock new opportunities, contact Sam Rowe and his associates for an unique concierge approach to meet your commercial real estate goals. Call (480) 933-0004 or email [email protected] today.