Getting started with commercial real estate can be daunting. There is no perfect how-to guide on investing, but expert investors have given their advice over time. Nothing is guaranteed in real estate, but these are some tips that will give you a better chance at success.
Focus Your Investments
It may sound great to invest in every kind of property you can get your hands on, but focusing your investment strategy to one type of property can be a huge advantage. Think of it this way: finding tenants for an apartment is completely different than leasing your office building out to several companies. The needs and wants are different, how you sell both groups is different, and the terms of your contract will likely be drastically different, too. Although you may want to eventually own several different types of properties, focusing on one to begin will allow you to become an expert, and will make a future transition less daunting.
Know the Differences
Commercial properties and residential properties are valued in entirely different ways. Commercial real estate is valued by its usable square footage, while residential properties are not, according to Investopedia. If you’ve invested heavily in residential real estate, look into other differences that set commercial properties apart. Lease terms are a huge area of difference, which may come as a surprise to someone who is used to residential leases. Do your homework before applying for loans. Being educated will save you pain down the line.
Ask Yourself a Ton of Questions
42 Floors has a great list of questions you should ask yourself before jumping into a CRE investment. Questions involving location, risk, and your commitment to work are all extremely important. Understanding what you hope to get out of a property, as well as how much you’re willing to put in, will help you gauge whether or not you are ready to handle a property of this magnitude.
Commercial leases often take much longer than residential leases to fill. Although you may have a beautiful office in a prime location, businesses have one thing on their mind when it comes to leasing: money. Is the lease going to cost them more than they can afford? Do they need lots of space, or can they manage in a smaller, more affordable office? Are they in a centralized location to do their kind of business? Corporations place an enormous emphasis on their gains and losses, so if your building will lose more money than they can afford, they will not sign.
Likewise, you should take this time to renovate your office space to make it both practical and appealing. It most likely will take longer to fix up an office building than a residential home, so factoring in this time is also important. NuWire makes a good point, that commercial real estate is not for those looking for quick income, but is great for people who want to invest for long-term success.
If you’re just starting out in commercial investing, don’t be discouraged. It’s an exciting and oft-profitable market, and there are tons of tips around the internet on how to get started with investing. It may seem out of your reach, but you can make it happen.