Investing in Commercial Real Estate without Making Mistakes
Many real estate investors first become involved in commercial real
estate by purchasing single family homes because they are what is
familiar. Regardless of whether you are considering investing in a
single family home or something larger, there are a few tips to keep in
mind in order to avoid some of the more common mistakes.
First, keep in mind that you need to have a fair amount of patience when
dealing with commercial real estate investing. On average a
commercial real estate investment is going to take longer to finalize
than the purchase of a single family home would. Not only does it take
longer for the purchase process to conclude, but you will also likely
spend more time on renovating your project and selling it. Considering
the fact that the profits on a commercial project are higher than that
of a single family residence this is not necessarily a disadvantage, but
it does mean you should be prepared to take your time and try not to
rush ahead into decisions that might not be that well thought out.
Also, consider whether apartments are really the best choice for you if
you are going to invest in commercial real estate. While there is
nothing really wrong with the idea of investing in apartments, they
should not automatically be your default option without at least
considering other commercial property options such as industrial, office
buildings, land, mobile home parks, etc.
It is not uncommon to use certain formulas when investing in real
estate, such as always purchasing at a certain percentage of the
after-repaired value, less any estimate repairs. While such formulas may
apply well to purchasing and reselling single family residences, be
prepared for the fact that you may need to use different formulas when
investing in commercial real estate. Two of the most common formulas
that you will likely encounter and need to become accustomed to are Cap
Rates and Net Operating Income. Make sure you keep these in mind for
your particular area and are familiar with them as you make any purchase
offers.
Relationships are always important any time you are working with private
lenders and investors, but as you become involved in commercial real
estate investing those relationships become even more important. The
more money that is involved in a commercial real estate deal, the more
important it becomes for you to carefully get to know your partners and
work with them a deeper and closer level. In addition, in many instances
commercial properties are often sold without ever being listed on the
open market, meaning the broader your network, the more likely it is
that you will be able to find suitable deals.
Financing is another important consideration in any real estate
investment, particularly in terms of commercial real estate investing. A
commercial loan is dramatically different from a residential loan. You
may be surprised to find there are advantages associated with a
commercial loan that cannot be received through a residential loan, such
as the fact that there are often no worries regarding personal liability
if the deal does not work out. In addition, the rules for commercial
loans are often not as strict regarding where you can obtain the money
for the down payment. Be sure to take your time and shop around for
lenders in order to find the best deals.
Do not make the mistake of overlooking important elements and safeguards
such as obtaining a property inspection, appraisal and other inspections
or tests simply because you are in a hurry to close the deal. While
these elements do involve money and time, they can help to protect you
and your investment.
Consider using partners to help you take the most advantage of all of
the resources that are available to you. Few people today have the
ability to invest millions of dollars on their own without some
assistance from a partner. This makes taking the time to locate partners
or private lenders for your commercial real estate projects even more
important. Through a partner you can tap into necessary resources such
as credit and/or cash that is needed to purchase investment properties
while providing compensation in the form of a percentage of the cash
flow, interest or proceeds from the profit when you sell the property.
Finally, make sure you know where to turn to have difficult questions
that you may run into throughout the process answered. While there is
much to know about commercial real estate investment being able to
receive reliable advice fast can help you to avoid many potential
mistakes.
|
