Commercial Real Estate 101: 5 Tips for First-Time Investors
The 2020 pandemic is changing the landscape of the commercial real estate market. Retail stores are shuttering in droves and building owners are trying to figure out how to stay afloat.
Meanwhile, smart real estate investors are circling like sharks, waiting to profit off of the incredible commercial deals. Do you want to be among them?
As a beginner, you’ve got to understand commercial real estate 101 before you can play with the big dogs. That’s why we’ve compiled this guide to conquering your first commercial property investment.
Ready to learn how to get started on your commercial real estate investing journey? Then you better check out these five tips.
- Determine Your Ideal Commercial Investment Property
Do you want to invest in multi-family, industrial, or retail properties? Do you know the difference? If not, figuring it out is the first step on your real estate investing journey.
Industrial properties tend to be the highest performing commercial real estate asset across the board. Multi-family tends to perform lower than hotel and office properties. But multi-family also tends to be more stable.
- Do Your Due Diligence
The internet is an excellent source of information when researching potential real estate markets. Use property listing resources, tax assessment records, and legal document histories to get started.
You should also have a good enough understanding of your market to know when to buy and when to sell. For example, check out this buying and selling guide from botellosenser.com.
- Diversify Your Portfolio
It’s a mistake to only invest in a few properties or a collection of properties in a single location. Being too myopic with your investing strategy can cause you to miss out on growth in nearby markets.
This also means diversifying the types of real estate investments you’re making. Don’t put all your eggs into outright real estate ownership. Spread them out across REITs, real estate bonds, and other commercial real estate investment vehicles.
- Have a Capital Reserve Fund
As with any reward, there’s a lot of risks involved in owning real estate. Unexpected issues can arise when increasing rents, renovating, or building on your investment property. Make sure you have a capital reserve fund to account for these uncertainties.
A capital reserve fund is money you put aside as part of your initial investment. For commercial investments, experts recommend a 3–5% of total rental income. This protects you from unexpected costs now and long-term improvements in the future.
- Hire a Property Management Firm
You may need a property management firm as your portfolio starts to grow. These professionals take care of the day-to-day operations at your investment property.
You can choose how involved or uninvolved of a management firm you want. Of course, the more capabilities you need from a property manager, the higher fees you’ll pay.
Get More Commercial Real Estate 101 Advice
Becoming a property investor isn’t out of reach as long as you follow our commercial real estate 101 tips. We’ve only scratched the surface, though, so keep looking out for more advice like this.
Where can you find more articles like this one? You’ve come to the right place. Keep checking back every day for more real estate investing tips!