If you are a beginner in commercial real estate investing you should know that there are a number of bad players out there who will sell you properties especially to people who are just starting. There are sellers who have inherited properties and some agents who just do not know or do not understand commercial real estate investing.
If you are just starting in real estate investing the first step is to assemble a competent team that would include a Realtor, a lender or a finance broker, a good real estate lawyer, and other professionals who could help you through your investment journey.
As a beginner in commercial real estate investing the biggest question you should ask yourself is, how dependable and trustworthy each of these professionals are? How will they help you achieve your investment goals? Can you trust these professionals with your money and pray that they won’t leave you bankrupt?
If you are a beginner in commercial real estate investing, here are four important tips you can follow. These tips will help you figure out what to do and what to look for when considering the purchase of a specific property from individuals or companies.
Tip 1 – Knowledge and Creativity
As a beginner in commercial real estate investing one of the most important things to look out for in a professional is to check if they have a good reputation dealing with smaller and new investors like you. They need to not only provide you with personalized service but also be creative enough to structure an investment package that suits your investment goals. Professionals working for larger organizations normally offer cookie-cutter solutions and are often not creative. It is also important to make sure that they are available when you need them.
Tip 2 – Expect Positive Cash Flow
There are real estate professionals who are good at selling something that they already have listed themselves or loan officers who push loan programs that are a "corporate priority". You have to keep an eye out for deals that are not structured for your benefit.
A beginner in commercial real estate investing has to know if the property being sold to him/her will bring profit each month or will it be just a money pit. You have to ensure that due diligence is done and then check it yourself. Do not easily agree and sign on that contract just because of vague promises made or because of some slick sales talk.
Base your decisions on research and solid commercial real estate investing principles and not on "gut feelings" and personal opinions. It is of utmost importance that your investment decision is made based on facts and figures after all real estate is a numbers game.
Tip 3 – Location, Location, Location.
Before agreeing on the deal, make sure that the area you are about to purchase in is a good location. As a beginner, you must stick to the areas that have a good reputation. Areas that have the best reputation are those that have lower vacancy rates, properties in that neighborhood attract fair market rents and the location is economically stable.
Individual commercial property types have specific requirements. For a motel (hospitality) property to be successful, it needs to be located on or near a major freeway exit.
A multifamily property designed for "workforce housing" needs to be located near an employment center, however “Class A” luxury apartments need to be near shopping and entertainment districts, and a single-family rental needs to be in a quiet suburb with a good school district. Therefore, a cheaper property that is in an unsuitable location might be affordable but a very bad investment.
As a beginner in commercial real estate investing you should be incredibly careful with individuals and companies wanting to sell their properties in specific locations, make sure that the property being offered will help you meet your investment goals.
Investors must be mindful of the dynamic nature of real estate markets. Nothing is static; change is constantly occurring. Changes not only affect individual properties, but also neighborhoods, communities, and regions.
Many areas are economically unstable and have a history of crime, death, drugs, etc. and local authorities have plans for rejuvenating and revitalizing these areas. The Like the Warehouse District in Cleveland or Over-the-Rhine in Cincinnati are prime examples. Investing in these areas are good for seasoned investors but not for beginners, properties in these areas not only take a long time to turn a profit but are also considered speculative investments and are difficult to finance. Until you get your feet sufficiently wet, you have to say a big “NO” with these kinds of investment offers.
Tip 4 – Property Affordability
Do not just say yes because you fall in love with the property, it is unwise. The first thing you should consider is if the investment is sustainable. There are sellers who specialize in making people want to buy their property and target beginners. Some sellers or individuals who will deceive you into thinking that what you are purchasing has an upside. It will not take you long to realize that you have paid for a nice piece of property that is not sustainable financially.
Many sellers and individuals have a way of luring beginners into a false bargain. Be diligent with your investment decisions. Sometimes, these "lucrative" real estate investing offers can turn out to be a nightmare.