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A lot of investors seem to think that to make commercial real estate deals they need to have at least a million dollars in their bank accounts, wear expensive suits and be the head of a large corporation. All these preconcevied notions are false. I think the perception persists because when people imagine “commercial real estate” they think of a 40-story bank building or the Sears Tower. While these definitely qualify as commercial real estate, so do less pricey yet still very profitable propertues like an apartment building, a strip mall or a self-storage facility.
Simply put, pretty much anyone can enjoy the benefits of commercial real estate. The routines for doing so, however, are a little different than investing in residential real estate. There are a few matters the beginner shouldn’t underestimate when constructing commercial real estate deals.
First, you should focus on making deals with plenty profit so any errors or miscalculations can be deflected and you can still make money. This sounds obvious, but many new real estate investors are so frenzied to do a deal, any deal, that they don’t make sure there’s enough net profit to cover unforeseen miscalculations that come up. For example, what would happen if you decide to invest in an apartment building that requires near 100% occupancy in order to have any net profits and and you have to evict a handful of tenants? Now you have to clamber to find more renters while your new deal hemorrhages yourr profits. These are not deal you want to make! There are far too many good deals out there to settle for ordinary.
Indeed, you’ll need to discover if you have a great deal or not. How do you separate the good deals from the terrible? Elementary research is required here. When you’re evaluating, you can do this with pre-contract due diligence without dropping any cash. Really! What you’re doing is only accumulating the required facts and the best part is you don’t have to do it all yourself. There are a great number of free references out there for the data you require, easily available, that have done a lot of the difficult work for you. Exploiting them can quickly help you decide if a specific deal is worth going after or not.
You also have to babysit the deals you find. Just because your original evaluation looks great doesn’t mean that you won’t find problems when you do your later due diligence. You have to know when to engage a deal and know when to cancel it and walk away. This step is difficult for many new investors, as they find it hard to walk away from all that hard work they’ve done up to this point. But it’s much better to walk away now than to get burned later.
These are just several of the things you shouldn’t forget when you determine to invest in commercial real estate. There are many more. There other underlying differences between commercial and residential real estate investing. The fledgling investor should spend time learning about his or her local market. Most Importantly, take advantage of all the resources that are open to you. As the market continues to change, make sure you can adapt and change with it.
