It is often tough for beginners to know where to start in commercial real estate investment. It is a sector that can seem complex and daunting – which is why I’m sharing some of my own tips with you here.
Why invest in commercial real estate?
A good question! It’s a tricky area, but for me the biggest benefits of commercial real estate investment are clear:
- Greater stability and financial security, thanks to longer leases.
- Higher, more regular rental income.
- Higher occupancy rates than residential.
Sounds good? Here’s how to get started.
Understand what you’re trying to achieve
Some quick questions to consider first:
- What are you trying to achieve financially?
- How soon do you need to see returns?
And, most importantly:
- Is commercial real estate investment the best way of achieving those aims?
This initial goal setting process is crucial, as it will help you to form a sound investment strategy to inform your future purchases.
But what should that strategy look like?
Decide how involved you want to be in your investment
Not everyone wants to be heavily involved in their investment. This is the advantage of investing in the stock markets, or in a managed property fund like a REIT. Other people will do much of the hard work for you.
If this is you, then your first focus must be finding a good team to support you in your search for commercial property to invest in. Environmental experts, legal professionals and real estate agents are just the start. And if you’re looking for commercial units to add value to then you’ll need experienced building contractors too.
Look for where you can add value
Learn to spot those areas where rental yields are steadily and naturally increasing and focus on purchasing there while you can still afford to. As always, try to be aware of true value, and beware overvaluations. Once again, this is where the help of a local real estate agent is invaluable.
Alternatively, you could look at purchasing commercial units that need value adding to them in some way. By doing this, you’re investing in them to make them more attractive to tenants or buyers. But once again, the key here is having a team around you that you can trust to do any work for you.
The bottom line is this – your aim is to build a portfolio of units that will give you a steady, reliable monthly cash flow.
Always look to diversify
For me, a good mix of quick fix properties and units you’ll hold onto for the longer term is best. It’s the easiest way to spread risk, and done right, one can finance the other. By fixing up commercial properties and selling them off quickly you can then purchase longer term investments. It’s a great way to avoid borrowing and adding to your debt burden.
Finally, I can’t stress enough how important it is to get a good team around you. This is a complex area with lots of potential liabilities. Commercial landlords are exposed to huge costs if things go wrong, such as environmental clean ups after toxic waste spills on their premises.
So, focus on developing your team, seek out professional help, and listen to all the advice you can get before you commit to anything.