How to Start Investing in Commercial Real Estate

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How to Start Investing in Commercial Real Estate
Making the transition from investing in single
family residences to commercial real estate is a
great opportunity to increase your cash flow,
expand your portfolio, and to potentially create
massive wealth for yourself. Having a basic
understanding of how the two markets differ can
help to ensure that you make a great commercial
investment that you can feel good about. Know
What Commercial Real Estate Is Commercial real
estate is used solely for business purposes. In
each case, the square footage of the property
determines the value. Income accrues off of these
properties by collecting rent from one or more
occupying businesses. Just as residential real
estate refers to single family units, townhomes,
and condos (to name a few), there are also
several different types of commercial real estate
that you might want to consider before making an
investment. You can consider retail space, office
space, industrial space, multifamily housing
buildings, warehouses, mixed-use buildings,
medical centers, hotels, farm land, and garages
as good examples of commercial real estate. Take
a deeper look into any commercial real estate
opportunities that hold interest for you and get
clear on what makes them different from one
another. Knowing the nuances of your chosen
market will keep you well- informed as you move
through the investment process. Crunch Your
Numbers Although this may seem obvious,
commercial real estate can come with some
overhead costs you may not have considered.
Running operating expenses on a commercial
property might include repairs maintenance,
janitorial or cleaning services, real estate
taxes, insurance, administrative costs,
utilities, grounds maintenance, et cetera. Get
clear on your potential NOI (net operating
income) on the property. You can determine this
by deducting any operating expenses (mentioned
above) from the gross income you stand to make
off of the rental income. Properties giving a
positive number should be considered for
investment. You will also want to ask if there
are already existing tenants in the space. If
not, how much more rental space do you need? The
amount of time it may take to fill it is another
good question. The answers here may directly
affect the overhead costs. Make Sure You Assess
Your Property What are the needs of the current
market in the area that you are looking to invest
in your commercial real estate property? Is
dropping a strip mall in the middle of a rural
area a great idea? Maybeif there is a demand
for the type of services you may be able to offer
there. Making sure that your space will serve
the needs of your local population is a key
component to ensuring success. If youre not
sure on this, get familiar with the history on
the property. A high business turnover rate
indicates that the location isnt ideal for this
type of property. Assessing your property also
relates to the physical building itself. When
walking through the space, act like a detective.
Look out for damages, leaks, and any other
possible repairs that may need attention in
future. Understanding your potential risks prior
to purchasing can help you to avoid costly
mistakes down the line.
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Analyze Comps A comp is a similar commercial
real estate Baton Rouge property that has sold in
the recent past. Becoming familiar with these
will help determine the current market value of
your potential investment. Remember that the
value of commercial real estate is determined
largely by the square footage of the space
available. Include comps which are within ten
percent of the square footage of your property.
Also research to determine whether or not there
are plans for any future development in the near
areas. This will help you to understand potential
income growth in the future. Source
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-estate/