Investing in Commercial Real estate can provide you with an opportunity for passive income and financial freedom that most people can only dream about. In addition to the income, investors also have the opportunity to increase their net worth from the appreciation of the property and additional tax benefits. However, as with most things in life, there is ALWAYS two sides of the coin. In order to succeed in any endeavor you have to have focus.
Here are the three things that you need to focus on before getting started in Commercial Real Estate…
1.) Focus on a Specific Property Type. Most commercial real estate investors specialize in a particular type of property i.e. Apartment Buildings, Retail Shopping Centers, Office Buildings, Self-Storage, etc. If you talk to any successful commercial real estate investor, they will generally tell you what types of properties they like to invest in, as well as, the price range and locations in which they generally invest. I rarely, if ever, have come across a commercial real estate investor who invests in all property types. You might find a real estate investment firm that specializes in acquiring multiple property types, but you better believe that they have multiple Acquisition/Asset Managers that specialize in a particular property type.
Rarely do you see a Jack-of-All-Trades in commercial real estate investing, therefore, you need to focus on what your specialty will be.
2.) Focus on a Specific Location. Initially, you will probably want to focus on a particular part of town. Every neighborhood is different and will demand different rents and capitalization rates. By focusing on one area, you will be able to become an expert in that sub-market much faster and you will be able to filter the good deals from the bad ones. You will know when a broker’s proforma’s are unrealistic (they generally are!) and you will be able to compare properties based on all of the knowledge and details you have acquired in your chosen farm area.
3.) Focus on a Strategy. Once you find a good deal, you need to know how you are going to acquire it. If you have access to capital and you plan on going the tradition financing route, then you need to have commercial lenders already in place. You need to know their policies and procedures so that once a property is under contract you can get the ball rolling with your lender immediately. If you do not have the funds to acquire property, then you need to be focusing on ways to raise the capital or partnering up with another investor, or you need to know what creative financing technique you are going to focus on. If you are financing creatively and you do not have any cash, you will probably need to do a Master lease option, or try to get the seller to hold the financing.
By focusing on these three things you will be able to filter through the deals that will not work for you. It doesn’t necessarily mean that they are bad deals, however, they may not be right for you. You will save yourself alot of time and frustration by simply directing your focus towards a particular property type in a particular part of town, that you will acquire in a particular manner.
Hopefully, this article was helpful and provided you with more clarity on what you need to focus on in order to move forward with investing in commercial real estate. If you have any questions, we can carry the conversation over into the comments below so please let me know your thoughts and comment below.
Comments are always welcomed and encouraged! Let me know your thoughts below in the comment section and feel free to retweet this post on Twitter or share on Facebook.
Photo: Kreatively Kristin
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Article Author: Khary ReynoldsKhary has written 11 articles for us.
Visit Khary's Website: http://www.SophisticatedInvestorBlog.com
Khary Reynolds is the author of The Sophisticated Investor Blog where he shares commercial real estate investment strategies and offers a FREE Report on How to Profit from Real Estate Syndication.
Joshua Dorkin
{ 3 comments… read them below or add one }
When to invest is the next item on my list. I keep hearing how commercial is going to be a train wreck in the next two years. Any thooughts?
Will,
I think the commercial real estate market will get worse in the next few years, however, now is a good time to invest. No one can time the market and know one can tell the future. If this is something that you truly want to pursue, there are plenty of good deals available now, you just have to educated yourself, analyze the deals, and make a move. There will never be a perfect time.
It seems apparent that commercial apartment buildings offer much better ROI (Retirement income) that SFR’s or duplexes. Do you have comments on this?