Knowing The Tricks To Commercial Real Estate Investing
Real estate investing can be a very profitable venture
. In fact, it is said that real estate is one of the best ways for folks in the middle class to become millionaires. When deciding to become a property investor, there are two markets you can go into, the residential or commercial real estate market.
Both markets have advantages and disadvantages. With residential real estate, the deals are fairly simple and straight forward. You are generally buying single family homes, condos, or townhomes. In either of these three types of purchases, all you really need to know from an investor's standpoint is if the property can generate a positive monthly cash flow.
To make this determination, all you need to do is calculate the projected monthly expenses (based on monthly mortgage payment, taxes, insurance, property management fees, and average monthly maintenance/repairs) versus the amount of rent you can reasonably expect based on what other similar properties in the area are going for. Sure, there are other factors like tax deductions for interest, property tax, depreciation, etc. but those will likely work in your favor, so they are nothing to really be concerned with when entering into the deal.
So if the numbers make sense, and you can be approved for the financing, then residential real estate is relatively easy to get into and profit from. But the downside is that each property usually only generates a small amount of positive cash flow each month (unless you can afford to buy them without financing). This means you need to accumulate several properties before your monthly income adds up to a significant amount.
Commercial real estate investing is an entirely different proposition. With commercial property, there are many 'moving parts' that need to fall into place. And if you want to be successful with it, you need to know how to navigate them. On the flip side, if you do know what you're doing, buying commercial investment property can be very profitable in a relatively short period of time.
For those looking to take the plunge into commercial real estate, here are a few things to keep in mind. First, make sure you are dealing with a real estate broker that knows what they're doing. This is not the type of deal you want to put into the hands of a rookie. When buying commercial property, make sure your realtor has several years of experience and knows the 'ins and outs' of the business. This will save you countless headaches in the long run.
Another thing to keep in mind is the type of property you want to get into. For those just starting out, commercial office space is one of the better investments to get into. With office space, you don't have as many government compliance issues and other challenges to deal with as you would with industrial property or even retail space. The main thing to know with office space rentals is if you have a strong likelihood of getting most of the units rented. This will of course depend largely on location and condition of the units.
Finally, financing can be a big concern when buying commercial office space or any other kind of business property. Unless you're independently wealthy, you will mostly likely need to finance well into the seven figures. These types of loans are harder to come by and often require multiple financing sources. To accomplish this, you will need to forge relationships with some folks that are willing to invest in your venture. It also helps to have a top commercial realtor with contacts in the financing world. Between the two, you stand a much better chance to land the funding you need.
by: Jason Lom
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