Commercial real estate has long created a high-income potential with a relatively consistent income stream. These assets typically include longer leases leading to less turnover and with more properties, the risk of vacancies lowers. Another benefit is that the cash flow creates a relatively consistent stream of income with the ability to scale quickly. Often, building taxes, property insurance, and maintenance costs are covered in the tenants’ leases which means more money in your pocket (see NNN lease explained). And, because many people think investing in commercial real estate is difficult, complicated, or that the market is just too saturated, this opens up a great opportunity for you.
5 Main Types of Commercial Real Estate
When considering investing in commercial real estate, there are five main types that you should consider.
Office – There are office spaces that range from single-tenant buildings to skyscrapers.
Retail – Retail covers banks, restaurants, shops, and malls of various sizes.
Industrial- From warehouses to large manufacturing sites, these are properties that often meet demands like needed height requirements and dock availability.
Multi-family– From apartments to high-rise condominiums, commercial multi family homes include buildings with four or more units.
Special Purpose– These are buildings designed for specific purposes like car washes, hotels, storage facilities, airports, and amusement parks.
How to Invest
If you think you are ready to jump into commercial real estate investing, then here are a few tips to get started.
- First, mind your due diligence and research the area, understand the seller and learn the full terms of the contract. You want to be as prepared as possible, so read through all documents and consult professionals when necessary.
- Next, get your documents prepared with your contact information and business plan so that the sellers and financial institutions know that you are prepared and serious.
- Then, you should start looking at which type of property is right for you and researching the area you are considering investing in. Commercial properties can be found by researching commercial real estate networking groups, direct mail, or bandit signs. See our other blogs post for tips on how to find the best real estate deals.
- You will also need to get your finances prepared. If you know you will need investors, measure the value of the loan you need to take out to cover expenses against the value of the property. Seriously measure the property’s ability to service debt and how long it will take you to pay off all loans and mortgages associated with your new property. And though it may seem obvious to some, take the time to improve your creditworthiness. Pay off as many items on your credit report as possible and keep your credit in good standing.
- Create a long-term business plan. The more detailed the plan, the better. Consider if you need to hire an onsite office manager, a property manager or maintenance staff.
Mistakes to Avoid.
As you prepare to invest your wealth, keep these pitfalls to avoid in mind. Don’t neglect your due diligence with improper valuations and financial ignorance. Even though things may appear cheaper to do it yourself, it may cost you more in the long term for not bringing in a team of experts. Bringing together the right team can make all the difference in a successful investment.
For more questions or for advice, feel free to contact the experts at MarketSpace Capital.