The commercial real estate game can be won in many ways and has provided many people with a way to earn a lot of money. In fact, a large percentage of the world’s millionaires earned their wealth through real estate investments. While nothing is certain, real estate offers numerous opportunities for the savvy investor. Whether he wants to create wealth or simply maintain it, there are several methods he can implement to get where he wants to be.
Where should you start?
Let’s look at the investment factors involved in commercial real estate.
Commercial Real Estate Step 1: Research.
The first thing you need to understand before you can invest in real estate is to understand the characteristics of a real estate transaction. All the niceties can be taken care of by a lawyer and accountant, who are well equipped to protect you against fraud and risk. So the first step is to find a real estate attorney and accountant who can serve your needs. Don’t worry too much about the price, as this expense will count towards your return on investment. You can discover the right property and hire a mortgage broker before you hire a lawyer.
Commercial Real Estate Step 2: Calculate your budget.
How much cash can you invest or raise, and what return do you have to produce on that investment to make the investment worthwhile? This problem must be determined in advance. This amount is purely subjective and will vary from case to case. Some investors will apply a work backwards strategy that looks for properties with the highest returns. This is an unfortunate technique where many offers that offer a good return are passed over in favor of the potential ‘home run’.
Commercial Real Estate Step 3: Determine your specific technique.
These are the most popular strategies:
rehabilitation
A rehab is where you buy a dilapidated building that requires a lot of attention. It will then provide the necessary elbow grease. When it’s finished, the property is returned to the market and you make a nice profit, mostly from your ‘working capital’.
The key to this technique, of course, is to find real estate that is undervalued. If you overpay, no matter what you do with the property, you lose the deal. Also, you should stay away from real estate that only needs cosmetic improvements. You won’t make a profit if all you need is a fresh coat of paint and mowing the lawn. Stick with the properties that need the most TLC and you will emerge victorious.
Buy and hold:
Probably one of the most common methods of investing in commercial property is the buy and hold strategy. You buy real estate valued at a fair price that will remain in your portfolio for years to come. It could be in your neighborhood, across town, or even in a foreign country. As long as you hold on to real estate, the value will continually increase. At least that is the beginning, because we hope that there will be developments and improvements around you. After a few years (or decades), you, the master entrepreneur, sell the asset for millions more than you pay for it. There is nothing better than this.
While there is a lot of money to be made in this type of company, it can take a long time to mature. This really is great for someone who has a large amount of money that they want to sit on for a few years. There is no set time limit as to how long it will take you to win. Basically, you have to go with your gut in this case. This strategy can produce excellent returns and is quite a passive source. You really don’t have to do anything except buy the real estate and wait.
quick flip
The quick turnaround usually requires a property struggling with foreclosure or bankruptcy. In this circumstance, a homeowner is under pressure and it might take a significant reduction in price to get out quickly. He then acquires the distressed property and quickly returns it to the market. Since he doesn’t need to sell quickly, the property will fetch fair market value and can make thousands of dollars in profit. As with property rehab, the key is to find cheap properties that you know are undervalued. If you know the market, you can do very well with this type of transaction.
Whichever investment technique you choose, make sure it’s the right one for you. Think through all the elements carefully before making your decision. Just remember that you, too, can be successful in commercial real estate investing.
Commercial Real Estate Step 4: Start the search.
OK. You are now ready to begin your property search. Although you should look for the highest yields, if you find a property that meets your yield specifications, you should send it to a mortgage broker to compare and get some quotes for cost. Don’t worry about wasting their time, as they understand that only 1 in 6 opportunities will close, so they are happy to buy your deal with investors.
Conclusion:
As mentioned above, the world of commercial real estate can provide a significant stream of income for a savvy investor. But as with any investment strategy, it is not without risk. In order for you to maximize profit and minimize risk, it is suggested that you seek the advice of an investment specialist.
