Looking to invest in small commercial - where do I start?

Question

Greetings! Currently only investing in stocks and mutual funds but eager to learn more about investing in small commercial properties. I would like to own a property that I can pass down to my family for long-term income. What advice do you have for 1st time RE investors to learn more?

Jai Reddy · Answer

Yes, start local. When you say commercial, what space? Shopping centers, single-tenant buildings, apartment complexes, office, warehouse, etc. One aspect I've seen in the buying/selling of commercial properties - they are all overpriced. Unlike residential SFHs, the current owners are all in it for the return on investment and are looking to maximize their exit. So, negotiate hard, but bring the ability to Close on a deal to the table (have financing lined up, etc.)

As for metrics, begin to calculate the Cap Rate of the property. What you pay for the property should be based on actual cap rate, and not pro-forma cap rate.

Ronald Rohde · Answer

How much capital do you have? Don't over extend yourself with debt right now (or ever)

Marc Rice · Answer

You should identify a market, find a good investor friendly agent in that market, and then start analyzing deals and interviewing property managers. Commercial is a bit different and usually more risky having to personally guarantee the notes. But it can be easier to manage than residential

Bryan Mitchell · Answer

If you’re risk adverse and want to maximize the learning opportunity, you may want to Start local, start small.

Account Closed · Answer

Become proficient about lending. Commercial is a very different animal from residential lending which is dictated by consumer protection laws. My preference is a small town lender or credit union.

John M. · Answer

The first thing you need to ask yourself is how risk adverse are you? If you are conservative and don't want any hassle then buy a NNN corporate leased property.

Bryan Mitchell · Answer

@Andrew Del Monte, start locally unless there’s nothing available that meets your criteria. There’s some peace of mind knowing that you can occasionally do some things yourself if you want to. Costs for rentals can quickly deplete any CF you have and the less dollars per door, the more risk you assume. I think a lot people dismiss that amount of time it takes to manage your assets even if you have a property management company which I do. If you have a demanding job (60+Hours) several states away, you’re going to struggle. Now the struggle is real, but necessary part of growth. Yes, most things can be done virtually, but there’s something to be said about having boots on the ground to identify opportunities or remedy a dilemma. Id recommend that if you invest far out of your area and will rarely visit the property more than 2-3 a year and will never to the work yourself, please be realistic when estimating your maintenance costs.

Drew Cheezum · Answer

@Andrew Del Monte I agree with the others that starting small (residential rather than commercial) is probably the best first project. Multi-families (2-4 units) or single family rentals are great for new investors and easier to acquire/manage than a commercial property.

I don't agree that you need to start locally though. Depending on what market you live in, it may not make sense financially to invest locally (if you live in California for instance). Starting in hot but affordable markets is easy, even for out of state investors. I invest in and work with a lot of people ewho invest in Columbus, OH and have had a lot of success

Looking to invest in small commercial - where do I start?

Looking to invest in small commercial - where do I start?

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