For those looking to begin investing in commercial real estate property, there are a few things they should be aware of before jumping in and buying a property. Preparation is essential and will help prevent you from failing and going bankrupt. Here are three things you must do before purchasing your first commercial property.
Do some homework
If you’re making the switch from residential real estate to commercial real estate, you already have some basic knowledge on the subject. However, while commercial and residential investing have some similarities, there are just as many differences. Because of this, it’s necessary to do some research on the field as a whole before purchasing a property. Do some general reading to help you grasp the jargon. You should then consider practicing your skills and what you’ve learned by networking with commercial investors in your area to see how well you understand the field and see what else you still need to learn.
Choose your preferred niche
Commercial real estate investing has numerous specialties, each having their own defining traits and characteristics. Those new to commercial real estate should think about picking a niche that shares a lot of commonalities with residential real estate, like hotel rooms or student housing. This helps to lessen the associated learning curve and make the jump from residential to commercial investing less stressful. It’s also smart to stick with your chosen area as a beginner, so you have a strong understanding of it. Later, if you feel you need to diversify your portfolio, you can think about investing in a different niche. Other sectors include industrial, offices, land and retail.
Learn how the numbers work for your sector
In residential investing, typically you purchase an entire property, have ownership over the management and decide the rent price to charge tenants. With commercial properties, it’s more likely that you’ll purchase a unit versus the entire property. All of the investors are then usually required to use the same property management company. These companies will guarantee you a fixed income for a period of time. There is also a process that allows investors to sell the property back to the vendor for an already-agreed-upon price. All of these differences can result in the need to make a mental shift in order to adjust to commercial investing.