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Real estate has always been known as the safest of investments.

In fact, real estate investment completed after proper research into and evaluation of the property (to determine actual and future value), can lead to tremendous profit.
This is one reason many people choose real estate investment as their full time job.

Discussions about real estate tend to focus on residential real estate; commercial real estate, except to seasoned investors, typically seems to take a back seat.
However, commercial real estate is also a great option for investing in real estate.

Commercial real estate includes a large variety of property types.
To a majority of people, commercial real estate is only office complexes or factories or industrial units.
However, that is not all of commercial real estate. There is far more to commercial real estate.
Strip malls, health care centers, retail units and warehouse are all good examples of commercial real estate as is vacant land.
Even residential properties like apartments (or any property that consists of more than four residential units) are considered commercial real estate. In fact, such commercial real estate is very much in demand.

So, is commercial real estate really profitable?
Absolutely, in fact if it were not profitable I would not be writing about commercial real estate at all!!
However, with commercial real estate recognizing the opportunity is a bit more difficult when compared to residential real estate.
But commercial real estate profits can be huge (in fact, much bigger than you might realize from a residential real estate transaction of the same size).

There are many reasons to delve into commercial real estate investment.
For example you might purchase to resell after a certain appreciation level has occurred or to generate a substantial income by leasing the property out to retailers or other business types or both.

In fact, commercial real estate development is treated as a preliminary
indicator of the impending growth of the residential real estate market.
Therefore, once you recognize the probability of significant commercial growth within a region (whatever the reason i.e. municipal tax concessions), you should begin to evaluate the potential for appreciation in commercial real estate prices and implement your investment strategy quickly.

Regarding commercial real estate investment strategies it is important that you identify and set investment goals (i.e. immediate income through rental vs later investment income through resale) and that you know what you can afford and how you will effect the purchase.

It would be wise to determine your goals then meet with your banker (or financier(s)) prior to viewing and selecting your commercial real estate.

Also remain open minded and understand that should the right (perfect)
opportunity present itself, your investment strategy might need to be revisited and altered, sometimes considerably.
For example: If you find that commercial real estate, (i.e. land) is available in big chunks which are too expensive for you to buy alone but represents tremendous opportunity, you could look at forming a small investor group (i.e. with friends or family) and buy it together (then split the profits later).

Or in another case (i.e. when a retail boom is expected in a region), though your commercial real estate investment strategy was devised around purchasing vacant land, you might find it more profitable to buy a property such as a strip mall or small plaza that you can lease to retailers or a property that you can convert into a warehouse for the purpose of renting to small businesses.

So in a nutshell, commercial real estate presents a veritable plethora of
investing opportunities, you just need to recognize them and go for it.

Equipment Financing/Leasing

One avenue is equipment financing/leasing. Equipment lessors help small and medium size businesses obtain equipment financing and equipment leasing when it is not available to them through their local community bank.

The goal for a distributor of wholesale produce is to find a leasing company that can help with all of their financing needs. Some financiers look at companies with good credit while some look at companies with bad credit. Some financiers look strictly at companies with very high revenue (10 million or more). Other financiers focus on small ticket transaction with equipment costs below $100,000.

Financiers can finance equipment costing as low as 1000.00 and up to 1 million. Businesses should look for competitive lease rates and shop for equipment lines of credit, sale-leasebacks & credit application programs. Take the opportunity to get a lease quote the next time you’re in the market.

Merchant Cash Advance

It is not very typical of wholesale distributors of produce to accept debit or credit from their merchants even though it is an option. However, their merchants need money to buy the produce. Merchants can do merchant cash advances to buy your produce, which will increase your sales.

Factoring/Accounts Receivable Financing & Purchase Order Financing

One thing is certain when it comes to factoring or purchase order financing for wholesale distributors of produce: The simpler the transaction is the better because PACA comes into play. Each individual deal is looked at on a case-by-case basis.

Is PACA a Problem? Answer: The process has to be unraveled to the grower.

Factors and P.O. financers do not lend on inventory. Let’s assume that a distributor of produce is selling to a couple local supermarkets. The accounts receivable usually turns very quickly because produce is a perishable item. However, it depends on where the produce distributor is actually sourcing. If the sourcing is done with a larger distributor there probably won’t be an issue for accounts receivable financing and/or purchase order financing. However, if the sourcing is done through the growers directly, the financing has to be done more carefully.

An even better scenario is when a value-add is involved. Example: Somebody is buying green, red and yellow bell peppers from a variety of growers. They’re packaging these items up and then selling them as packaged items. Sometimes that value added process of packaging it, bulking it and then selling it will be enough for the factor or P.O. financer to look at favorably. The distributor has provided enough value-add or altered the product enough where PACA does not necessarily apply.

Another example might be a distributor of produce taking the product and cutting it up and then packaging it and then distributing it. There could be potential here because the distributor could be selling the product to large supermarket chains – so in other words the debtors could very well be very good. How they source the product will have an impact and what they do with the product after they source it will have an impact. This is the part that the factor or P.O. financer will never know until they look at the deal and this is why individual cases are touch and go.

What can be done under a purchase order program?

P.O. financers like to finance finished goods being dropped shipped to an end customer. They are better at providing financing when there is a single customer and a single supplier.

Let’s say a produce distributor has a bunch of orders and sometimes there are problems financing the product. The P.O. Financer will want someone who has a big order (at least $50,000.00 or more) from a major supermarket. The P.O. financer will want to hear something like this from the produce distributor: ” I buy all the product I need from one grower all at once that I can have hauled over to the supermarket and I don’t ever touch the product. I am not going to take it into my warehouse and I am not going to do anything to it like wash it or package it. The only thing I do is to obtain the order from the supermarket and I place the order with my grower and my grower drop ships it over to the supermarket. ”

This is the ideal scenario for a P.O. financer. There is one supplier and one buyer and the distributor never touches the inventory. It is an automatic deal killer (for P.O. financing and not factoring) when the distributor touches the inventory. The P.O. financer will have paid the grower for the goods so the P.O. financer knows for sure the grower got paid and then the invoice is created. When this happens the P.O. financer might do the factoring as well or there might be another lender in place (either another factor or an asset-based lender). P.O. financing always comes with an exit strategy and it is always another lender or the company that did the P.O. financing who can then come in and factor the receivables.

The exit strategy is simple: When the goods are delivered the invoice is created and then someone has to pay back the purchase order facility. It is a little easier when the same company does the P.O. financing and the factoring because an inter-creditor agreement does not have to be made.

Sometimes P.O. financing can’t be done but factoring can be.

Let’s say the distributor buys from different growers and is carrying a bunch of different products. The distributor is going to warehouse it and deliver it based on the need for their clients. This would be ineligible for P.O. financing but not for factoring (P.O. Finance companies never want to finance goods that are going to be placed into their warehouse to build up inventory). The factor will consider that the distributor is buying the goods from different growers. Factors know that if growers don’t get paid it is like a mechanics lien for a contractor. A lien can be put on the receivable all the way up to the end buyer so anyone caught in the middle does not have any rights or claims.

The idea is to make sure that the suppliers are being paid because PACA was created to protect the farmers/growers in the United States. Further, if the supplier is not the end grower then the financer will not have any way to know if the end grower gets paid.

Example: A fresh fruit distributor is buying a big inventory. Some of the inventory is converted into fruit cups/cocktails. They’re cutting up and packaging the fruit as fruit juice and family packs and selling the product to a large supermarket. In other words they have almost altered the product completely. Factoring can be considered for this type of scenario. The product has been altered but it is still fresh fruit and the distributor has provided a value-add.