Most investors never look past residential real estate. That might be the most expensive mistake they make.
In episode 408 of The Build Up, Candace and Melissa sit down with Kathy Kuo, a commercial real estate broker, investor, and entrepreneur based in Las Vegas. Kathy has spent over a decade closing deals across every major asset class, from office and industrial to retail, multifamily, and hospitality. Here is what she wants investors to understand about commercial real estate, 1031 exchanges, and getting started the right way.
Why Commercial Real Estate Deserves a Closer Look
Commercial real estate covers a wide range of asset types: office, retail, industrial, land, multifamily with five or more units, and hospitality. Because the category is so broad, investors can match their strategy to their goals in a way that residential simply does not allow.
Kathy frames it around two primary objectives:
• Cash flow: Multi-tenant office or retail properties that generate steady, predictable income. This path works well for investors who want to replace or supplement their earned income over time.
• Equity growth: Value-add plays with vacancy or deferred maintenance, where capital improvements drive appreciation. This is better suited to high-income earners who want to maximize depreciation benefits and are not dependent on immediate cash flow.
The right approach depends on an investor’s risk tolerance, tax situation, and how much capital they are deploying. There is no one-size-fits-all answer, but understanding the distinction is essential before evaluating any deal.
The Office Market: Where the Opportunities Are Hiding
National office vacancy sits around 20 percent, a figure that can make investors nervous. Kathy’s advice: ignore the macro headline and go micro. The office market varies dramatically by city, neighborhood, and product type.
In dense urban markets like New York and San Francisco, the most promising play is conversion to residential multifamily. Older Class A product in less desirable locations is becoming obsolete, and repositioning is the path forward.
In suburban Sun Belt markets, the picture is very different. Kathy points to Las Vegas, where suburban office near desirable neighborhoods is running near full occupancy. Commute culture does not exist there the way it does in gateway cities, and tenants want to be close to home.
The biggest opportunity Kathy sees right now is medical office. Several forces are converging:
• Baby boomers relocating to tax-friendly states, driving demand for healthcare services
• Growth in med spas, wellness clinics, and aesthetic medicine
• Expansion of biohacking and holistic health, including IV therapy, peptides, and GLP-1 clinics
Older office product with existing plumbing is uniquely positioned for this conversion. A group of Las Vegas brokers who syndicated exactly this type of deal a few years ago saw roughly a 68 percent return in under a year.
How to Use a 1031 Exchange Without Making Costly Mistakes
A 1031 exchange allows investors to defer capital gains taxes by rolling proceeds from one investment property into another. Kathy’s family has completed over a dozen of them, and she has worked with many clients through the process. She flags two mistakes she sees repeatedly.
Waiting too long to start the search.
Once you close on the property you are selling, you have 45 days to identify a replacement property. That window is hard-set by the IRS. There is no flexibility. Kathy recommends starting the search before you close escrow to give yourself the maximum runway. Too many investors begin the process with 15 to 30 days left on the clock.
Letting the proceeds touch your personal account.
This is a disqualifying error. Funds from the sale must flow directly to a Qualified Intermediary (QI), not to the investor. Kathy has seen first-time investors lose their exchange eligibility entirely because neither they nor their agent understood this requirement.
If you know you might do a 1031, start educating yourself early, line up a QI before closing, and work with a broker who has real experience in investment properties.
Practical Steps for Getting Started in Real Estate Investing
For investors who are not yet in the game, Kathy offers two starting points.
1. House hack your first property. Residential financing allows you to get in with as little as three to five percent down on a primary residence. Buy a property with multiple bedrooms or units, live in one, and rent out the others. The rental income offsets your mortgage, and you begin building equity and experience at the same time. Kathy did this through her twenties.
2. Look outside your home market. If you are in New York, Los Angeles, or another high-cost city, your first investment property probably should not be there. Many investors in gateway cities are building portfolios in Texas, Florida, Las Vegas, and other markets where entry points are lower and cap rates are stronger. The numbers have to work, and in many expensive cities, they simply do not on day one.
To Wrap Up
Commercial real estate is more accessible than most people think, but it rewards investors who do their homework. Understand your goals before you evaluate a deal. Think micro, not macro, when you assess a market. Use tools like 1031 exchanges correctly and proactively. And if you are just getting started, a house hack or an out-of-market investment can be a lower-barrier entry point than you expect.
Listen to the full episode of The Build Up for more from Kathy Kuo, including her take on wealth beyond the deal and the mindset that drove her career from day one.
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