Investing in commercial real estate can be appealing for many reasons including the fact that it allows you to dip into an entirely new pool of customers. However, commercial real estate is much different than its residential counterpart and investors must understand that in order to succeed when making their investments.
The biggest difference in commercial and residential real estate transactions is that the cycle takes much longer for commercial deals to go through. This will require the buyer to remain aware of the market for longer periods of time. Patience will be key to closing the deal as deals can take months or even years rather than just days.
To help with these challenges in the 2018 commercial real estate market, 10 investors shared something they have learned about the commercial side of real estate to help newer investors succeed:
Everything Takes Longer
Remember, when you are working in commercial real estate you are talking in terms of months or even years to close a deal, not days such as in commercial real estate. It takes time. Be patient to get the best investments possible.
Know Your Market
Whatever type of real estate you are buying you must understand that specific market to make the wisest investment possible. This will also help you maximize on the returns you get from your investments and ensure you are putting your money in the right places.
Learn About the Area & Demographics
Learn about the area you are investing in. Learn about how the sort of real estate you want to buy is performing there. If you are wanting to develop land talk to a broker to get them involved and make sure you are navigating the local scene including the authoritative agencies properly.
Know Your Risks by Property Type
The risks of commercial real estate will be very different from those in commercial real estate. Understanding the risks that you take before you invest in a certain type of property is vital. Ensure you are willing to take the risks you are taking before investing.
Avoid Failing Models & Businesses
If you are buying a building that will house any sort of businesses such as grocery stores, bars, or other businesses that are migrating online assume that at some point one of them will default on the payments they owe to you. Be sure you have back up money to cover your expenses for when these situations arise.
Understand City Approval Time-Frames
City approvals can take months if not years. Understanding the time-frame it will take the city to provide building permits or to OK zoning or planning information will help you determine how quickly your project can (realistically) move along.
Understand the Market Trends & Their Impacts on Demand
When you are choosing properties its important to understand the different dynamics involved with the property you are selecting. Consider the long and short-term effects of your investment choices.
Play an Active Role
Always be sure to play an active role in all of your investments. Commercial real estate is not a passive investment. The more active you are in your investments the more likely you are to succeed at what you are investing in.
Find Capital or Hunt for Good Deals
You will either need capital or a good deal to be successful in commercial real estate. If you are worried about high evaluations then you will need to make your priority coming up with a patient source of capital. Having these two things in place will give you the credibility to be the most successful.
Consider CRE Debt Instead
Consider commercial real estate (CRE) debt which can help you get an 8-10% return on your investment. This is always a solid investment as an investor and ensures that you are getting some return on your investment.
This is some solid advice on investing in commercial real estate from some of the experts at Forbes. Educating yourself on and understanding the market will prove to be vital to your success as a commercial real estate investor.
For more information about what you need to become a successful commercial real estate investor, please feel free to contact Goldendale Capital for more information.