First of all, there’s absolutely nothing wrong with investing in residences; however, don’t let any past residential experience limit you to just that segment. Although you may be comfortable in the residential sector, there are many other types of commercial real estate to consider. Additional options include office buildings, industrial properties, parking lots, and land to name a few.
It is always a great idea to weigh the pros and cons of purchasing, owning, and managing these various property types, and then choose your niche based on what suits you best. Will an apartment building, office complex, tract of land, or parking lot help you reach your goal? At this stage, it is crucial to think outside your comfort zone. Make your decision based on financial numbers.
You’re going to need to be prepared to spend a great amount of time when you start investing in commercial real estate. If it’s taking longer to get your first deal done, don’t get discouraged. It just means the right situation hasn’t come your way yet. The best deals come to investors that simply stick with it no matter what. It takes time to screen for deals and make offers. Much like anything else there is a learning curve that will get far easier over time. Good things come to those who wait.
It’s very important to build relationships with other investors when you’re getting started as a commercial real estate investor. Many commercial properties cost millions of dollars, and you may simply not be able to afford it on your own. Your best choice may be to partner with other like-minded individuals. Join your local real estate investor clubs and go to all meetings and events that you can. Network with as many people as possible and keep mind and eyes open. You never know who your next business partners will be.
Always, always, always have your financing lined up in advance. Commercial loans are structured differently than residential mortgages. Downpayment percentages are typically higher so you need to be prepared well in advance to submit an offer. There are many positive aspects to a commercial loan as opposed to a residential mortgage. Oftentimes commercial loans do not require personal liability. If the deal ends up going south, it won’t negatively impact your personal credit. In addition, commercial lenders don’t care if you borrow the downpayment from someone else. The money doesn’t need to come directly from you, or doesn’t need to sit in your personal bank account for ninety days.
Lastly, be prepared to lose your due diligence money. Once your offer is accepted, you will have a certain amount of time to perform an appraisal, property inspection, and any other inspection or test that is required by law. Although this is the same process that takes place with any residential property, these tasks cost a lot more money when it comes to commercial real estate. You may end up spending $5,000 plus only to discover that the property is not worth purchasing. Don’t be discouraged. The money you spend in due diligence could save you hundreds of thousands of dollars of problems.
If you stick to this guideline, this is certainly not a guarantee of success. There’s no magic formula to investing in commercial real estate. It takes a lot of hard work, plenty of persistence, and little bit of luck. Having said that, the more knowledge you have will greatly increase your chances of making it work.
Written by GilverBook Team