Real estate has become an increasingly popular means of alternative investment. However, residential real estate isn’t the only way to make passive income.
If you’re interested in commercial real estate, here are a few tips for beginners you might want to know.
1. Work With a Management Company
When you’re first starting out, it’s always recommended to work with a commercial property management company. Issues such as tenant retention or managing a heavy workload are just the start of what you can expect.
Making a profit and learning about your investment strategy is where many first-time investors tend to struggle. It requires strategy and business skills you may not have as a beginner. Turn to the experts who have years of experience under their belts.
2. Understand Your Why
The first area where most people go wrong is narrowing down why they want to get into commercial real estate. Of course, we all want to make a profit, but you need to have specific goals in place.
Maybe you want financial freedom for yourself. Maybe you want to expand your portfolio. Some aspire to work with small businesses in their community to make an impact. Before you start investing your money anywhere, sort out what you are hoping to achieve.
3. Understand the Downsides
Just like any other type of investment, commercial real estate can be a gamble. There are downsides to everything including the factor of risk. More money is at stake because more financial backing is required upfront.
It requires a substantial amount of time and you can expect to treat it like a full-time business. While the pros of commercial real estate outweigh the cons, you still want to know what to expect on all fronts of the business.
4. Solidify Your Investment Strategy
There are various ways to go about the initial investment process. Some areas include:
- Retail
- Multi-family housing
- Apartments
- Office buildings
- Industrial warehouses
It’s best not to invest in varying types of real estate because each one has a unique process, set of responsibilities, and ROI (return on investment). Pick one and learn as much as you can. Otherwise, you’ll spread yourself too thin.
5. Have The Financial Backing
For you to invest, you must have some type of financial backing. Don’t expect to receive all the money directly from a loan. You may need to look into a partnership investing option or real estate crowdfunding to get you started.
You’ll still need a downpayment, as well as money for repairs, renovations, furniture, permits, and the first several months of utilities as you start to build your commercial real estate business. If you’re becoming a landlord, for example, you’ll have the initial vacancies to consider.
6. Learn About Different Types of Loans
Applying for a mortgage is significantly different from applying for a commercial real estate loan. Small Business Administration (SBA) loans have two different types you can apply for.
There are also hard money loans, bridge loans, blanket loans, and permanent loans to consider. Speak with a financial advisor who can help you navigate which is best for you.
7. Do Your Research
Beginner property investors should be ready to do the necessary research. There are laws and regulations to abide by for different types of real estate. The market is different based upon location; so a restaurant, for example, might not do so great in an area where an apartment complex might thrive.
You’re investing your valuable time and money here. Do your due diligence as to not find yourself declaring bankruptcy before you even get a chance to get started.
Summary
Commercial real estate investing isn’t for everyone. You have to treat the entirety of your investment as a full-time business. Be ready to put in the work. When in doubt, turn to the professionals and hire help. This will save you time and money in the long run!