For those looking to start investing in commercial real estate properties, basic foundational knowledge is necessary to know where to begin and how to manage such lucrative investments. Here are the four fundamentals investors should look for to find sound, sustainable, and profitable commercial real estate investments.
1. Finding the right strategy
Like residential real estate, investing in commercial properties requires due diligence. Before investing in any property, you must prepare a plan to ensure the purchase has a beneficial impact that aligns with its objectives. These complex real estate transactions will help you understand if the potential property fits the right investment strategy for your financial needs and goals.
2. Conducting the right amount of due diligence
Another significant barrier to entry when considering commercial real estate investing is not performing enough due diligence. Due diligence includes looking into the property’s financial background, the property demographics, the property class it falls under, and how many times it has been resold in prior years.
Follow commercial trends closely and learn to predict better which types of properties will be sought after. This will help you get the best bang for your buck and increase your success in real estate investing. Also, always look for new vacancies and use commercial trends to determine rent prices.
3. Understand Value Add Opportunities
One of the best advantages of commercial real estate investment is the ability to influence the value of your investments. Look at the potential for adding value by determining whether there is room for improvement.
A few questions that should be asked to determine potential value-add opportunities include:
- Can additional leasable square footage be added?
- How can rents be increased?
- How can expenses be decreased?
4. The role of property management for commercial buildings
The role of property management in commercial real estate is different from residential property management. A commercial property manager will have other responsibilities depending on the property type.
Additionally, how much is expected from a property manager will significantly influence their pay rate. If you take a wholly hands-off or passive approach, then the cost of property management will be higher.
Investing in commercial properties for beginners can be a daunting process. However, it offers several advantages, including higher income potential, lower vacancy rates, steady cash flow opportunities, and high-grade tenants. With the help of an expert and performing your due diligence, you’ll be well on your way to earning passive income through commercial real estate.
Investor Loan Source, a private money lending company, provides high-quality investment property loans to private real estate investors at the lowest costs possible. Our process for providing real estate investors with private lending is unique. We place emphasis on the hard asset and value of the collateral (property) and less on the borrower. Our asset-based real estate investment loan model means we can lend more money to investors than is available from standard bank loan models. At Investor Loan Source, providing real estate investors hard money loans is our business; it’s all we do. We offer several business real estate loan products designed to serve a variety of investors and property profiles, including private money lending for properties to sell on owner finance.