How to Get Started in Commercial Real Estate Investments
The primary reason for getting started in commercial real estate investing is to build a portfolio that will also build wealth. If you’ve previously purchased residential real estate, you should know the route to commercial property ownership requires a different approach.
Commercial property owners lease to businesses of various industries, depending on the type of real estate. The different types include office, retail, multifamily, industrial and special purpose. Carefully researching the different types will help you determine which is of most interest to you. It should be noted that multifamily real estate is the only type of commercial real estate that is also residential, which includes apartments and condominiums.
When you buy a property, you’ll be using the square footage to determine the lease rate. Typically, the lease on a commercial property is much longer than that of a residential, which is an attractive feature of this type of investment.
How you calculate the lease will also depend on comparable in the area. You’ll also want to purchase properties that are typical for the area, including size and style.
There are different metrics to determine your success in the commercial real estate market. These include:
- Net operating income
- Cash on cash
- Cap rate
Each will be beneficial in calculating cash flows and rate on returns on investments. As you learn how to use the various calculators, you’ll find other beneficial calculators to help you on your road to success while mitigating risk.
Another important factor to consider is how you will finance your investments. For many people starting out, a loan through the Small Business Administration might make the most sense since they guarantee the bank loan, making you a good investment for the lender.
Other options would be conventional loans, commercial bridge loans, and hard money loans. There are also more creative sources of funding, including crowd lending and borrowing from family or friends.
Once you’ve secured financing, you can start searching for the right property or properties. Starting out, a multifamily property can be a good introduction and learning experience for the serious investor. A strong business plan can help you plan your path to future investments.
Commercial real estate investments have provided many investors with lucrative cash flows and fast growth of wealth. The most important thing an investor can do is perform rigorous research and calculators prior to each purchase. Choose your steps carefully and you’ll be on the fast track to success.