Investing in Commercial Real Estate

By November 11, 2013Real Estate Investing


In an increasingly complex and competitive business world, more and more people are searching for ways to supplement their income. The days of a single breadwinner in the house aren’t as common, and even multiple earners are working to manage the household finances. Of the many avenues available through which earnings can be improved, investing in commercial real estate remains one of the most secure and profitable.


The Reasons to Invest

The Economy: Commercial real estate makes perfect sense as an investment choice. It is a relatively secure financial venture, compared to most other options, and it adds a lot more zeroes to your bottom line as you can enjoy plenty of economies of scale. You can effectively manage a considerably larger number of offices, apartments, etc. compared to residential houses, and you can do it all at reasonably low costs.
The Value: There are considerable differences between the valuation of commercial and residential properties. The income derived from a commercial property is based on its usable square footage. Commercial real estate leases last longer than residential ones, and the yield per square foot is also higher, which lends commercial properties with greater cash flows.
The Finance: A major benefit of investing in commercial real estate is that you can start with virtually no money and still purchase multi-unit properties. This can be achieved through private money investors, or a combination of bank loans and owner financing. Commercial loans also tend to be considerably more lenient compared to residential ones. The biggest benefit however, is that you can take out commercial mortgages which allow you to acquire new properties through equity raised from your existing portfolio.


The Tips for Investing

Take Your Time and Give Your Time: It is essential when investing in commercial real estate, to take as much time as you need in order to avoid rushing this important decision. Remember that commercial properties are a long term investment and that you will have to devote significant time to them if you want any profits.
Think Big and Then Bigger: If you are going to use commercial financing one way or the other, then why settle for small properties? You can benefit from economies of scale by purchasing more units, and of course, earn more money at the end of the day.
Learn, Learn, and Learn: Although investments in commercial real estate have a high probability of being profitable, there is still a lot you need to learn about the business before you reap its rewards. Arm yourself with as much knowledge as you can, learn all the rules of the trade and make sure there are no surprises in the details.
Relationship Matters: It is critical that you maintain good, long term working relationships with your investors and lenders. This will help when looking for commercial mortgages. The very nature of commercial real estate investments often demands that you work closely with partners, and a strong established network can only help you find more and better deals.
The Finance Equation: In matters of finance, as in most other things, it is better to be well prepared. Commercial loans differ from residential ones and usually require larger down payments. Therefore, you need to find good, solid financing for commercial mortgages well in advance and you need to make certain that you find the best lenders in your area.

The global marketplace is an increasingly volatile place, with high risks and no guarantees. It is always wise, in such situations, to plan and prepare and investing in commercial real estate can be one of the most reliable ways of ensuring a secure financial future.