When it comes to commercial real estate, many people get intrigued by the idea of investing in property. Of course, the reality is always slightly harder than the fantasy, but the only way to know whether you want to go down the path of commercial real estate investment for sure is to follow it up and see what happens.
As with any large investment, doing your homework is a crucial part of the process. We may as well say this now, too: do NOT partner up with someone in your life that is almost certainly going to mess things up. Whether they’re lazy, flaky, untrustworthy, or just someone that makes excuses or wants to make money quick, you’re better off going alone if you’re going to be lackadaisical about who influences the return on your money. A bad business partnership has sunk more than one real estate prospect and friendship.
It’s not just learning about this field that is important– you have to do market research too. When it comes to properties, you must determine if they are a good investment before proceeding. Commercial real estate is valued in a different way over residential properties and is related to square footage. Multi-family dwellings usually generate more income. However, residential leases are shorter than commercial property leases and can create more cash flow, so there are benefits to both types of real estate investment.
You’ll also want to pick a location wisely. Sometimes the advice is to find the poorest-quality home on the nicest block; this means restoring it will raise its appraised value and could give you a greater ultimate return. However, picking a location that is not desirable or in demand may be a difficult rental situation and an even tougher sell, so contemplate your options and the advantages and disadvantages before proceeding. You can also look at similar homes in the area or go to open houses and the neighborhood to get a feel for the value and mood of the area.
You will also want to look at comparable properties and choose ones where the square footage is not above 10% up or down the property you’re comparing it to. Also, understand that investing in real estate is going to involve a considerable amount of math and attention to detail. If you dislike math, beware: this field requires quite a bit of it. You’ve got to figure out what you will pay for a property, your cash flow, the Net Operating Income (all revenue and costs from a property before taxes), Cap Rate(capitalization rate with estimated future profits, and Cash On Cash (a metric with rate of return on transaction for investors).
There’s a ton to get done when it comes to learning about the real estate world. There’s a lot of market research to be done and a lot of learning in general. If you can find someone who has experience in the market and has time to educate you a little, having a guide or mentor can be extremely helpful. Getting started is easy; it’s the process of investing that can be difficult. But if you stick with it and are smart and determined, you should do just fine. Thanks for reading, and good luck!