If you ask any real estate professional about the benefits of investing in commercial properties versus the residential market, you’ll likely get a spiel on how affordable commercial real estate can be and the potential for larger profits. Though this may be true, like any other investment, commercial real estate carries its fair share of risk. So, how do you assess and secure a good commercial real estate deal? The following tips should help.
1. Learn the Basics
To be successful in commercial real estate investment, you must think like a professional. For example, did you know that when listing commercial real estate for sale, the owners arrive at its valuation through an entirely different set of calculations compared to residential real estate?
Commercial real estate’s income potential is based on its usable square footage. Also, commercial real estate almost always generates more income than residential real estate, although you’ll make more profit from a multi-family unit versus a single-family home. To be a player in the commercial real estate market, you need to know what the insiders know.
2. Plan Ahead
For a successful real estate deal, you need to plan ahead and know what works for you. For example, figure out how much you can afford and then shop different lenders to find a mortgage that fits that bill. Just as a tax calculator can give you an accurate estimation of your yearly tax bill, a mortgage calculator can help you get an estimate of how much you’ll pay over the life of the loan.
Figure out other key factors like how much you expect to make on the deal, who the key players are, and how many renters are already on board, and consider how many vacancies you’ll need to fill if you buy the property.
3. Learn to Spot a Good Deal
The most successful investors know how to spot a good deal. They always have an exit strategy that lets them walk away from a deal if they choose to abandon it. They have a sharp eye for value – spotting damage they can repair and assessing risk. They always run the numbers beforehand to ensure the deal will meet their financial goals.
If you ask any real estate professional about the benefits of investing in commercial properties versus the residential market, you’ll likely get a spiel on how affordable commercial real estate can be and the potential for larger profits. Though this may be true, like any other investment, commercial real estate carries its fair share of risk. So, how do you assess and secure a good commercial real estate deal? The following tips should help.
4. Look for Eager Sellers
As with anything that’s for sale, customers drive the commercial real estate market. Your job as an investor is to search for and identify the ones that are motivated to sell below market value. The truth of the matter is nothing significant happens in real estate until someone is motivated to sell. If there is a pressing reason to sell, the current owner will be more willing to negotiate, giving you a better deal.
5. Don’t Limit Yourself
You never know where you’ll come across a good commercial real estate deal. Don’t limit yourself to searching in just one place. Scan the internet, scour the classified ads, and hire a real estate bird dog to help you find the best commercial real estate deals out there.
Real estate bird dogs are people or companies that keep their eyes open for properties that fit your needs. In return, you pay them a commission for their finds. Landing a good commercial real estate deal takes a multi-faceted approach that combines good communication, a keen eye for the factors that meet your needs, and building relationships with the right people. Once you know the basics, what you can afford, and how much risk you’re willing to take, you can start implementing the tips above to spot great commercial real estate deals.
