Need to know how to get into commercial real estate? This article provides the top benefits of commercial real estate and the types of commercial real estate you can invest in. Plus, we’ve included an easy step-by-step guide to show you how to get involved in commercial real estate.
Currently, the commercial real estate market is worth $1.1 trillion. There are over 2 million businesses in this sector, validating how much interest there is in commercial real estate for 2022.
If you’d like to know how to get into commercial real estate and get a piece of that pie, let’s get started!
Before you understand how to get into commercial real estate development, take a look at the key benefits of this sector.
What investors love about commercial real estate is the cash flow is much more regular than residential properties. Commercial properties usually have more than one unit, which means you have the opportunity for more income. The lease periods are also longer for commercial real estate.
Have you heard of the triple net lease? Well, you’re going to love it. A triple net lease is when a commercial property’s tenants pay the rent alongside the property insurance, building taxes, and maintenance fees.
Finding new tenants can be tedious. But for commercial real estate, you don’t have to worry about this so often. Commercial real estate leases are agreements that last for years rather than months. This can significantly optimize an investor's profit.
Residential tenants require someone to be on standby 24/7. But this is not the same for commercial tenants. These tenants often share most of the load for maintaining the property. This advantage is highly convenient for investors.
Stepping into the commercial real estate world opens doors for business relationships. You may be able to establish connections with business owners renting your property. This advantage can lead to professional opportunities, and you can meet like-minded people.
For developers who want to know how to get involved in real estate development for commercial properties, understand what these properties are. These properties vary in features, costs, and maintenance. Here are the five main types of commercial real estate for investors.
Retail properties include clothing stores, strip malls, banks, and restaurants. You can find these properties in cities, towns, and other urban locations. The size of a retail property greatly varies, giving you a chance to find the perfect property. According to Statista, Los Angeles takes the lead for retail property investments, so this may be a great area to consider.
Office buildings for commercial real estate investment are more detailed than it sounds. There are three main classes of office buildings for investment. Let’s take a look at each of these classes.
These are office buildings that have just been built or renovated and exist in central areas. Think upper-class skyscrapers and fancy office parks for Class A commercial real estate. Most commercial real estate investors get renowned property management companies to handle these offices to maintain operational standards.
Class B commercial real estate properties are a popular choice for investors. These offices are cheaper due to needing more repairs and maintenance. You’ll also notice that Class B offices are much older than Class A offices. In turn, the property will require more attention.
Looking for a big development project? Class C offices are ideal. These buildings need tonnes of TLC, and you’ll find them in poor locations. Investors need a lot of capital to reform these buildings, but they can be highly lucrative.
When we say multifamily buildings, think of residential properties with several units. Examples of multifamily buildings are complexes, multifamily units, and condominiums. While this property is for residential purposes, we consider it commercial real estate when there are more than four units. However, the lease terms would be the same as residential properties.
Any sites, locations, and buildings dedicated to manufacturing are considered industrial real estate. Unique to any other kind of commercial real estate, industrial properties have specifications, space, and features to aid manufacturing.
Special purpose properties are real estate used for one specific purpose. Consider schools, hospitals, and airports when talking about these properties. There are also multi-use real estate properties. These buildings have more than one purpose and may combine residential and commercial real estate features.
We’ve covered the advantages of commercial real estate and the types of properties available. Now let’s jump into five key steps on how to get into commercial real estate development. These steps are easy to get started, and before you know it, you’ll have a vast commercial property portfolio.
If you haven’t already, get your license for commercial property in investment. Real estate professionals can generate income while learning the ins and outs of commercial real estate. Know that every state and jurisdiction has its laws for commercial real estate licenses.
You want to learn as much as you can about commercial real estate and expand your knowledge as you progress. Nobody, even the most successful investors, know everything about the real estate market. But educating yourself and staying informed will make it more possible.
If you don’t have a tonne of real estate investment experience behind your name, a mentor can help. Yet if you know a lot about this industry and how to make investments, consider getting a partner. As we mentioned above, you always want to progress your knowledge, and a partner or mentor can help you do that.
Networking in the commercial real estate field is essential to find investments, meet experienced novices and raise awareness of your project. The same benefits apply to real estate masterminds too. Connecting with successful investors in this space can help you hone your skills and find new approaches to old practices.
The fifth and final step you want to take to break into commercial real estate investment is starting your first development deal. This may be terrifying for many. But if you follow the steps mentioned above and be strategic, you’ll mitigate your risks.
Even the best commercial real estate investors make mistakes. If you want to know how to get into commercial real estate, you need to understand these mistakes to avoid them.
As we touched on, there are five primary types of commercial property. Understand the value, features, and purpose of each property and determine whether this aligns with your professional and financial goals. Avoid choosing a random property to prevent you from owning commercial real estate you know nothing about.
If you’re looking for a commercial real estate investment requiring little maintenance consider industrial properties. However, these properties don’t make so much money over time. Multifamily homes do have the highest returns. Yet these properties require the most attention.
If you don’t know enough about the property you’re investing in, it’s easy to set unrealistic goals. Your goals need to be SMART for you to achieve them. Gather ample market research, information about the property and plan realistically to set SMART goals.
You also need to thoroughly assess your financial position and balance the risk of your investment with fiscal responsibility. Taking this step will help you not overextend yourself and exert cash flow you don’t have.
Tax planning is pivotal for commercial real estate investment. As much as there are advantages of tax, there are liabilities too. For commercial real estate, there are tonnes of deductions and potential 103 Exchanges.
Consider that property taxes can rapidly rise over the years too. In turn, you’ll have much higher expenses you need to budget for. The best way to go about proper tax planning is to consult with a real estate tax expert.
Not understanding your market will most likely lead to a bad investment. Determine the average price for occupancy rates, per square foot rates, the demand for businesses that use your property, and what zoning laws and regulations you need to adhere to.
It’s also vital to understand the history of commercial real estate and the local economy. If you want to learn how to get into commercial real estate, understand that your market research is one of the most vital components of any project.
Investing in commercial real estate, especially if it’s your first time, isn’t best to do alone. Commercial real estate may be lucrative, but there are a lot of risks associated with this investment and tonnes of responsibility that come with it.
Consult with an expert real estate broker to assist you through the entire process. Understand areas where your knowledge may be lacking, like perhaps tax planning, and find a tax professional to assist you. There are also financial advisors to help you develop a foolproof investment strategy. It may cost less to do it alone, but it’s never best to rely solely on your expertise.
Don’t choose any random property management company on Google. Your property management company should have a proven track record of managing real estate like yours. The company you choose needs to take a tenant-centric approach and have strategies and processes to ensure your tenants are always happy.
The happier your tenants are, the more likely they will extend their lease. If your tenants are unhappy, this can drastically impact your profit.
Renovations are an expensive task, and it’s common for investors to not budget enough. You’re going to have initial renovation costs to get the property ready for tenants. There’ll be small things to fix regularly too.
During your first renovation, be specific about what you want to change and fix, and have contractors quote you. Never accept the cheapest quote. Accept an agreement that offers value for money from a reputable contractor.
Keep aside a rainy day fund for small and major renovations. Minor repairs will happen often, and massive issues like electrical issues will happen, but not as regularly. Put money aside for all these repairs. Since 2015, the cost of remodeling property has only increased and shows no signs of changing any time soon.
It’s easy to get carried away by the thought of having your first commercial property and turning your back on thorough due diligence. Due diligence is between starting an agreement with the seller and buying the property.
Before signing any document, have real estate professionals review every aspect of the property. This includes looking through financial statements, past lease agreements, and inspecting the property. Never forget to take these measures. Unfortunately, some sellers don’t report every discrepancy, and some may not even know of problems worth noting.
To break into commercial real estate, start with getting a license and leveraging as many educational opportunities as you can. Consider finding a mentor or partner to help you evaluate lucrative choices for commercial real estate. Also, affiliate yourself with other professionals. Once you've taken those steps, you can start your first development deal.
Commercial real estate can be a highly profitable venture, but you need to do it right. Taking the correct steps will ensure you don’t waste or lose money and your commercial real estate is successful.
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