Why Is the First Commercial Deal the Hardest? Advice From Investors

In this article

This is the second blog post of three meant to share answers about commercial investing from the BiggerPockets community. Click here to read the first, “Should You Invest in Commercial Properties? 10 Investors Weigh In.” 

In an attempt to spotlight the opportunities associated with commercial investing, I asked commercial investors on BiggerPockets three commonly asked questions about this type of investing.

The questions are:

1. What made you decide to invest in commercial properties?
2. What was the hardest part about the first commercial deal you completed?
3. What should every first-time commercial investor know to be prepared to speak with a lender?

In this post, we tackle question No. 2.

What Was the Hardest Part About the First Commercial Deal You Completed?

Here’s what investors have to say!

“Getting others to see the vision.”

“Getting others to see the vision for the project and putting their hard-earned money behind it.” — Karen Margrave, Redding, CA, Realtor with 35 years of experience

“Overcoming the belief that everyone should get started with a single-family house. My first investment purchase was a $1 million office building, and I knew I had to get it done in order to prove my business model.” — Danny Randazzo, Charleston, SC, Apartment Syndicator & Commercial Investor with 6 years of experience

“Getting commercial property financing.”

“Getting financing on a vacant, foreclosed, mixed-use building in what was then a bad neighborhood.” — Jim Schneck

“Spent a long time looking for and finding the right lender.” — Aravind M.

“Overcoming a learning curve.”

“The hardest part for me was learning how to be a landlord as I went. I had no experience with commercial real estate and was simultaneously trying to develop my dental practice. It took a lot of dedication and time to learn, network, and really put myself out there to find tenants, negotiate leases, and be ready to manage projects when something broke, build-outs needed to be done, or building improvements were needed.” — Will Kenner, Seattle, WA, Rental Property Investor with 10 years of experience

“Finding a good deal on a property close to downtown was difficult. A vacant 4-office building came on the market and I decided to make it work.” — Bob Langworthy, Brunswick, ME, Accountant & Real Estate Investor with 10 years of experience

“Learning all of the lingo. When you first start in commercial real estate, it can be like learning a new language. I started at a large REIT and had to write down every word and acronym I did not understand during a meeting to Google later.” — Anonymous

“Learning the zoning and ordinances and rules. I bought the land while zoned ag, even though it had a large structure on it. I got the necessary permits to demolish and burn the existing buildings on site. There were also 3 buildings that I dismantled and sold. When I was burning the debris, the neighbor got pissed. The state was worried I was burning asbestos but I had a professional remove it. I am sure glad he documented everything well. Building the new building was uneventful, except for pouring a nice truck dock and a bunch of concrete inside that had to get torn out. The truck dock is beautiful but has never been used. I guess to sum it up, being new was the hardest part about the first deal.” — Anonymous

“Planning upgrades.”

“Just getting into all the units and building out that day 1 punch list. Prior to jumping into a 7-family house, I only house hacked. Trying to get my arms around deferred maintenance on 7 units was tough. I trimmed it down to only focus on the things where I had immediate returns from (heating system, insulation) and health/safety (fire alarm system), then set it up so the tenants can request maintenance from the property manager on the things they wanted fixed. This seems to be working out well and prevented me from spending money fixing something that the tenants find no value in.” — Jonathan Bombaci, Lowell, MA, Real Estate Agent with 1 year of experience

Takeaways & Resources

Takeaway 1: Managing a commercial property can be difficult.

• Recommended Resource: 4 Key Considerations to Successfully Manage Commercial Property

Takeaway 2: Finding financing can take longer than you think.

• Recommended Resource: Talk and start to understand what you need to get a commercial loan. You can start by connecting with top commercial lenders on BiggerPockets.

Takeaway 3: There are so many things you need to learn when you decide to scale into commercial investing.

• Recommended Resource: Network, ask questions, and read posts about commercial investing in the BiggerPockets Forums and on the BiggerPockets Blog. They are free!

If you are currently investing in commercial, what was the hardest part in closing on your first deal?

Share in a comment below!

 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.