Photo by Markus Spiske on Unsplash
Investing in real estate is a great way to increase your wealth and save for retirement. Some investors go the residential route and become landlords over rental properties. Other investors, however, find the lure of commercial real estate investing to be quite tempting.
In 2016, the commercial real estate market was worth nearly $2 billion, meaning there’s plenty of commercial properties to be had. If you’re thinking of becoming a real estate investor, here are a few tips to help you avoid some common mistakes:
1. Don’t Leverage More Than You Can Afford
As a first-time commercial real estate investor, you may be tempted to borrow more than you can comfortably afford to pay back. While it’s unlikely that a lender will give you 100 per cent of the funds you need to purchase a property, doing so will make it very difficult to reap a profit from your investment. You’re better off buying a property that’s cheaper so you have a better chance of actually earning a profit each month.
2. Do Your Homework
You can’t expect to do well as a commercial real estate investor without doing some homework. To avoid an almost certain failure, you’ll want to make sure you understand the area and the market in which you’re investing. Learn the demographics and the most up-to-date trends in your target geographies, as well as the market in general. It’s also crucial to have a deep understanfing of critical factors like rental agreements, vacancy rates, and legalities that may affect your ownership. Knowing this information will help you make informed decisions and avoid buyer’s remorse.
3. Stick with One Property Type at First
As a new entrant to the market, you’ll want to focus your energies on one type of property. This will enable you to get your feet wet without too many distractions. There are several types of commercial properties to choose from including:
- Office buildings
- Shopping malls
- Medical facilities
- Industrial properties, and more
Figure out which type most excites your interest, take the time to learn all you can about it and gain some initial experience before branching to other types of commercial properties.
4. Learn from an Expert
If you have the opportunity to learn the art from someone who’s already successful at it, take it. In addition to teaching you all about the complicated world of investing, a mentor can also connect you with important people such as business accountants, contractors, suppliers, and others that every investor should have on his team.
5. Be Prepared to Bail Quickly
Seasoned real estate investors hope for the best but plan for the worst. At the very least, you should have exit strategies in place, both for the short and long terms. Whether things go as you plan, or they go south and you need to bail quickly, having planned exit strategies and contingencies can mean the difference between financial security or crisis.
When you purchase a commercial property, one of the first things you need to decide is how long you plan to hold onto it and what you’re going to do to get out from under it when it’s time to sell. The more you plan ahead, the less likely you are to fail.
Real estate investing, particularly commercial real estate investing, can be extraordinarily profitable. If you’re a first-time investor, the tips outlined above should help you find the path to success.