Commercial Investment Tips

Whether you are a novice or seasoned investor, you should choose a niche area when investing in commercial real estate.  Choices range from apartment buildings, office buildings, shopping centers, industrial warehouses and mobile home parks. Here are some commercial investment tips that work for any type of investment:

Don’t Rush Into Buying

Commercial real estate takes longer to find the right deal. Commercial real estate also takes longer to buy and sell. An average closing is about 90 days. If you are renovating, you must allow plenty of time for that as well. Do your due diligence and don’t rush. You might make a bad investment that you will end up regretting for years down the road.

Terminology

Familiarize yourself with real estate investment terminology. For those of you who are switching over from residential real estate investing to commercial, learn the new terms and formulas. Net operating income and debt coverage ratios are your new words. In order to make an intelligent offer, you need to know what you are talking about.

Networking is essential

Build relationships with other investors. It’s a good idea to join an investment club or sign up to an investor newsletter. The more partnerships you build, the better chance you have at finding new deals and selling your current properties. Commercial deals spread by word of mouth. If you are new to commercial investing or have never invested in real estate, you will want to work with a partner or mentor to start.

Line Up Your Financing

If you don’t have cash, then you will need to line up your financing in advance. Check with other investors to find out the names of lenders in your area. It’s a good idea to compile a list of private money lenders as well.  You want to be able to have your financing or private money available so you can act quickly once you find a good deal. Also, you will need down payment money of at least 20% to 30% unless you are doing a master lease option.

Do Your Due Diligence

Be prepared to spend money on due diligence. Inspections are very important to find out the condition of the property. You will also need to get an appraisal and you may need to run environmental tests depending on the type of property you are purchasing and the intended use. It is imperative to get a property survey and you may also need an environmental report. Figure on spending at least $3,000 -$10,000 on due diligence. Think of it as insurance.

Work with a Team of Experts

Build a team of experts that you can rely on for help. Your team should include a Realtor, attorney, tax advisor, lender, contractor and appraiser. Once you find people you can trust to work with, keep them.

There are many good investment opportunities right now in commercial real estate. Money is tight, but there are private investors who are willing to take risks so don’t let that scare you from getting started. The above tips should help point you in the right direction. Don’t get discouraged if you don’t find the right property quickly or you lose one to a multiple offer. It’s a learning experience. So if you lose one or the deal doesn’t feel right, just move on to the next deal.