Commercial Real Estate Investment Tips
July 23, 2012
Tips & Trends
From Rory S. Coakley on some of the latest real estate news and happenings.
Commercial real estate is one of the most profitable investments on the market today, but initially it can be a big risk. However, there are some guidelines to follow that can make the process much easier.
- Think big. Whether you’re buying a five or a 10 unit apartment building, you’re going to need commercial financing. So why settle with five when the more units you buy, the cheaper they are per unit? Don’t be scared of thinking big.
- Take your time. Don’t get impatient or rush into any bad decisions because commercial real estate investment deals take longer than single-family homes do. They take longer to purchase, renovate and sell. Commercial real estate should be looked at as your retirement or long-term plan, not as something where you can make quick cash.
- Think past apartment complexes. Most real estate investors are comfortable purchasing residential properties, so when they start looking into commercial real estate, residential apartment complexes are the first place they go. Remember that there are other commercial properties out there that can be incredibly profitable as well, including office buildings, mobile home parks, industrial parks and buildings, plots of land and more.
- Be ready to invest a lot of time initially. As we’ve said, buying commercial real estate takes a lot of time, and it’s a quite different from buying residential homes. It’s going to take a while to figure out how to screen deals and make successful offers. Like anything else, it gets easier with time, and the process will start going faster.
- Learn the new formulas for buying. When buying commercial real estate, there are new formulas you’ll have to get used to, such as Net Operating Income and Cap Rates. It’s important to find out what is considered “good” in your area and get familiar with them when you’re planning to make an offer.
- Make the right connections. Any time you’re investing in real estate, you need to build strong working relationships with other investors and private lenders—it’s even more important for a commercial real estate investment. Purchasing properties that cost a million dollars or more is out of reach for most people individually, but when you work with private lenders and other investors, it makes properties much more attainable. In addition, many commercial properties are sold before they’re even listed, which is why it’s important to know as many people as possible.
- Secure good financing in advance. Commercial real estate loans are very different from residential loans, but not necessarily in a bad way. The down payments for a commercial loan are generally a higher percentage than single-family homes, but there is normally no personal liability if the deal doesn’t go through, and they are more lenient about borrowing the down payment from someone else. Before you start making offers, ask around for recommendations about the best lenders in the area for commercial properties.
- Be prepared to spend a lot of money before the deal. After you make an offer, there will be a time period where you can get appraisals, property inspections, and other tests and inspections that are required by the law. However, these inspections and tests cost a lot more than those for single-family homes and smaller deals—you could spend between $5,000 and $10,000 on a deal, only to have the tests and inspections prove you don’t want to buy the property.
- Have partners. Partners and private lenders can be your pathway to success in the commercial real estate investment industry since the deals can be over a million dollars. A good partner can provide the cash or credit needed to purchase a commercial property, and they can be compensated by paying interest or a percentage of the profit from the property.
- Know where to get your questions answered. Associate with knowledgeable and experienced commercial investors and property managers who can answer questions that come up when looking at properties. Know who you can look to for answers when you need them, such as a trusted real estate company like Coakley.
These guidelines don’t insure commercial real estate investment success, but they’re the first steps in the right direction. If you’re thinking about making a commercial real estate investment, contact Coakley Realty today.
If you would like to suggest a topic for inclusion in one of our future email newsletters, contact us today! We look forward to hearing from you.
Rory S. Coakley
Coakley Realty, Inc.
20 Courthouse Square, Suite 107
Rockville, MD 20850
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