Having the right perspective, and plenty of patience, are necessary traits for investing in commercial real estate.
Choosing to invest in commercial properties over residential ones is a big choice in more than one way. You need to be willing to spend a lot of time and effort upfront in researching, developing the right relationships and identifying the right type of investment. But the profits far exceed those of residential properties.
Commercial real estate consists of things like malls, hotels, retail stores, business complexes, medical centers, etc. People buy these or build these with the intent of renting them out or selling them of to other investors for profit. The demand for these spaces is much higher than the demand for residential homes.
Here are 10 guidelines for investing in commercial real estate.
- Think Big. Buy an apartment building with ten units instead of five. The more units the cheaper they are and the amount of work really doesn’t increase.
- Take your time. You have to be patient if you want to invest in commercial properties. They take more time to buy, renovate and resell then homes.
- Don’t choose apartments by default. People tend to steer towards residential properties because that is what they are comfortable with. However, you really should take the time to research all the different types of properties available and pick one that interests you and then make that your niche.
- Learn new formulas. Commercial real estate buying is not the same as residential buying and therefore the formulas aren’t transferrable. Learn “Net Operating Income” and “Cap Rates.”
- Find good financing in advance. Commercial loans typically need more money up front, but there is no liability if the deal falls through.