Investing in anything requires determination and careful planning. Real estate is no exception. While investing in real estate is an amazing financial opportunity (consistent returns, passive income, and growth potential), it's important to understand that increased reward requires increased responsibility. As always, we strongly encourage you to reach out to a commercial-certified expert (reach out to us for more info), but here are some tips we think you should do before deciding to invest or purchase commercial real estate.
Determine Goals and Needs
Before jumping into any decision, it's important to know why you're doing it. Are you looking for an investment property? Do you need business space? Are you interested in developing? Determining your goals and needs will help determine what kind of property you're looking for. Determine a strategy for buying commercial real estate. Here are some different types:
1. Land Banking: This is when you buy larger parcels of land that will likely be developed in the future. The land will appreciate in value as development continues.
2. Development: Buying land creates all different types of opportunities. Make sure to research the market to make the best use of the parcel.
3. Fix & flip: Much like residential fix-and-flip, this is when you buy commercial real estate, make repairs, install upgrades, and resell it at a higher cost.
4. Wholesaling: Wholesaling commercial real estate is where you find a good deal on a property, put it under contract, then sell the contract to another investor or owner-occupant.
5. Owner-Occupied: This strategy is when you buy commercial real estate and plan to run your own business within it.
6. BRRRR: Similar to residential real estate, this is when you buy, rehab, rent, refinance, and repeat.
7. Passive investing: This is when you buy commercial real estate strictly for passive income. This usually occurs when you don’t have time to run and operate deals yourself.
Know the market area and supply and demand
Similar to buying a residential home, you want to make sure you are investing in a profitable and healthy area. Some properties perform better or worse depending on the area so make sure you do your research. This is a common issue with investors that can be easily avoided.
At Seaport, we perform our own market reports with every listing. We use data from CoStar, as well as our own tools, to help determine if an area is not only profitable but also affordable for the buyer.
Start your search on the right foot by making sure you know how much you can afford and secure the financing.
There are numerous different financing options to choose from such as a commercial real estate loans to hard money lending.
Each of these options will come with unique loan terms and interest rates, so weigh your options carefully.
Be prepared for setbacks and extended timelines
Commercial real estate is NOT like traditional real estate. The typical commercial deal can take months to finalize, and that's if everything goes smoothly. Most people severely underestimate the time it takes for a deal to go through. Major setbacks could include waiting on documentation, waiting to hear back from the right people (attorney wait times can seem like forever), construction timelines, financing from the other parties, natural disasters, etc. Make sure you are personally and financially able to accommodate those setbacks.
Work with professionals
Make sure you align yourself with agents who know the ins and outs of commercial real estate.
True fiduciaries can help you determine if a property will be a good investment, help determine where a good market is, and help make sure all due diligence is done.
Make sure to give us a call when investing in real estate.
Tim Bray on