Commercial real estate can be a great way to generate income and accumulate wealth, especially if you already have knowledge and experience in this area. But what if you’re just getting started? How can you start investing in commercial real estate if you have no prior familiarity?
Understand the Basics of Commercial Real Estate
There are many different approaches and strategies you can use in the context of investing in commercial real estate. However, most real estate investors in the commercial space make money in two ways.
First, you find tenants and collect rent. You own the building. You find people who want to use the building. Those people move in and pay you an agreed-upon amount to use the building, usually exceeding whatever your expenses are. In this way, you can generate consistent monthly income, typically generating a profit in the process.
Second, you benefit from property appreciation. In a thriving, growing area, values of commercial real estate typically increase with each passing year. Simply holding the property and keeping it in good condition is enough to help you grow your net worth.
There’s a lot more to learn about commercial real estate investing than this. Before you even think about making your first investment, you should understand basic profitability equations, the risks associated with real estate investing, the dynamics of good versus bad commercial real estate investments, and the role that location plays in your eventual profitability.
Work With a Commercial Real Estate Broker
A commercial real estate broker is a company dedicated to helping real estate investors and landlords with their commercial real estate goals. They often help investors buy and sell properties, find tenants, collect rent, and even deal with certain management aspects.
Commercial real estate brokers are staffed with some of the most knowledgeable experts in the industry, and they can help you with almost any conceivable commercial real estate problem.
When you’re ready to start looking for your first commercial real estate investment, find a broker you trust and communicate your goals with them. They can give you professional advice for almost any commercial real estate question or dilemma – and connect you with the resources you need to be successful.
Invest in REITs
A real estate investment trust (REIT) is a type of financial product that makes it easy for people to invest in the real estate market without actually investing in physical real estate. You can buy and sell shares of REITs like you would with stocks, gaining ownership in a collective trust that buys, rents, and sells commercial real estate.
This is an option for people who don’t like the idea of owning and managing their own, physical property but who still want to be exposed to the real estate market. There are some pros and cons associated with it, but it’s a valuable addition to many portfolios.
Start Connecting
Networking is indispensable in the world of commercial real estate, since it potentially gives you access to more deals, better deals, and people who can help you with almost any conceivable commercial real estate problem.
These are some of the best people to network with:
· Fellow investors. Meeting up with other investors is a great way to learn from people more experienced than you. It’s also an opportunity to build connections you can use for buying or selling real estate in the future.
· Agents. Real estate agents help you find deals and make those deals unfold much more smoothly.
· Lawyers. Sooner or later, you’ll need a real estate lawyer to navigate a complex problem or help you file new paperwork.
· Property managers. It’s also a good idea to find property managers with experience in commercial real estate who can teach you or help you with management issues.
· Contractors and experts. Having a large network of contractors and experts means you’ll always have someone to call if something goes wrong with your property.
Save Capital
You can take out a loan for your commercial real estate purchases, but you’ll still need money for the down payment and initial expenses. Depending on where you’re shopping and what types of properties you’re looking for, you may need a lot of capital. That means you’ll need a strategy for accumulating that capital.
If you’re already an avid investor, you probably don’t need advice in this area. Otherwise, you should focus on finding ways to increase your income, decrease your expenses, and temporarily place your savings in investments that reliably pay off; given enough time, you should be able to snowball your wealth to the point where you can make your first commercial real estate purchase.
Write Your Business Plan
Writing a business plan isn’t strictly necessary to invest in commercial real estate, but it can be inordinately helpful. It’s an opportunity to explore the strengths and weaknesses of your approach, your competition, and your road to ultimate profitability. This is especially important if you plan on building a commercial real estate empire.
Starting to invest in commercial real estate can be intimidating, especially if you have no prior real estate investing experience. But this is a field that literally anyone can learn, as long as they’re willing to spend the time and effort necessary to master the fundamentals.
And if you’re willing to work with a commercial real estate broker, it’s even more accessible to you.
