Commercial real estate investing is preferred most by pros because it can lead to sizeable returns through long-term tenant agreements. However, it is not always a bed of roses and investing in a very beautiful property could be the worst real estate investment decision you ever make.
Commercial real estate investing is all about the terms, the deal, the return on investment, as well as the ability to assess a property’s value accurately. If you want to be successful in the world of commercial real estate investing, here are 10 tips to guide you:
- Identify the Ideal Location
Identifying the right location for commercial real estate investing is very critical. Take time to learn everything you can about the area that surrounds the commercial property you want to invest in. You should speak to other commercial real estate owners in the area to have a better understanding before you invest your hard-earned money. Scour through recent issues of local newspapers to identify any recent commercial buildings for sale Cincinnati that may either make or break the investment opportunity.
- Gain the Right Market and Sector Knowledge
If you have personal knowledge about a specific sector of the commercial real estate market, it is best to stay within this sector. If you don’t have sufficient knowledge about a particular sector, first gain the necessary knowledge before you invest in it. For instance, if you don’t know anything about the hospitality industry, you should avoid investing in a hotel even if you are just the landlord. Similarly, you shouldn’t invest in an industrial park if you don’t know how best to use the property to maximize your cash flow.
- Invest, Don’t Accumulate
It can be tempting to think about commercial real estate investing as just accumulating as much property as possible. After all, the idea of investing in commercial real estate is to generate a profit or income. However, if you just buy properties that don’t generate any income, you will just be acquiring property and not investing, which is not the mindset of a pro. So, keep the rule of investing before accumulating in mind when browsing through market listings.
- Identify Motivated Sellers
It takes some practice to identify sellers of commercial properties that are motivated, but it definitely pays off in the end. A motivated seller is more likely to strike a deal that favors you, potentially even selling under the current market rate. However, you should be cautious if you find a seller who’s a bit too motivated. Fortunately, you can avoid desperate sellers who might be aware of property flaws such as structural issues by requesting professional inspections and doing proper research.
- Understand that Commercial Real Estate Investing Uses Different Formulas
Besides sector knowledge, it is important to learn new profit and loss formula before you put your hard-earned money in a commercial property. In commercial real estate, you should understand commercial specific formulas such as the loan to value ratios, net operating income, cap rates, among others. The formulas used in commercial real estate investing are not difficult, but it is important to fully understand what each one of them means and how they are likely to affect profitability.
- Prepare for Down Payments
For commercial real estate, you will most likely be required to make a down payment of not less than 30 percent. It is thus important to be prepared financially for the investment by ensuring that the down payment required is readily available or at least have a loan approval ready. In the competitive world of commercial real estate investing, having the cash readily available when making your offer is always a great idea since it helps you conclude the transaction quicker.
- Focus on One Type of Investment at a Time
It is very important to only focus on one type of investment i.e. offices, apartments, land, retail, etc. especially when you are starting out as a pro commercial real estate investor. It is important to solely focus on one type of investment because every deal requires your undivided attention if you want to be successful. It is always better to be a master of one instead of an average over many. After all, you don’t want average-performing properties.
- Be Patient
In commercial real estate investing, patience is a virtue. You should not simply invest in whatever is currently on the market simply because you have the money. You should first determine what you would like to invest in based on your research and market knowledge. Next, you should establish a network of professionals who are involved in the type of investment that you would like to make. Finally, you should wait for the ideal property to come along based on the formulas mentioned above.
- Minimize Your Risks
When investing in commercial real estate, it is always important to understand that the best deals usually have easy exit strategies. Having an easy exit strategy means that you can easily walk away if the situation demands it. Inspections and appraisals can also expose the risk associated with a particular investment, making you aware of any potential issues and potentially helping you identify properties that may prove to be more trouble than they are worth later on.
- Seek Professional Help
Professional assistance is a requirement in commercial real estate investment irrespective of what your personal expertise might be. If you are a pro in commercial real estate investing, it is easy to assume that your strategies are always right, but it is important to review and combine different strategies to make your business a success. If you simply rely on your own gut feeling, you might easily find yourself paying a hefty price for it.
Commercial real estate investing offers diversity and security and provides a great opportunity to build wealth. It is considered one of the most beneficial real estate types and many millionaires have been successful and made fortunes by investing in commercial real estate.