Commercial Property Investing - Tips for the Beginner Commercial Property Investing - Tips for the Beginner

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Commercial Property Investing - Tips for the Beginner

Commercial real estate properties typically refer to retail, industrial, office, warehouses, mixed-use, and apartment buildings. Did you know that investing in commercial real estate offers numerous advantages and potential benefits to the savvy investor? These advantages include: steady cash flow, readily available tenants, lower vacancy risks, and higher income potential.

However, before simply buying any commercial property, investors must complete due diligence, to ensure the property aligns with your investment strategy.

Determine if Commercial Property Investing is the Right Strategy for You

Like residential real estate, investing in commercial properties will require your own due diligence. These complex real estate transactions will help you first understand if the potential property fits the right investment strategy for your financial needs and goals.

Cash Flow

As its name suggests, a cash flow strategy involves understanding and managing your expectations. Before you move forward on this type of strategy, ask yourself the following types of questions.

  • If the property has a lower monthly cash flow, does that mean it’s not as good of a deal?
  • If the property has a higher monthly cash flow, but has other risks, does this mean that it is a good choice for my portfolio?

As you answer these questions, keep in mind that the strategies will be different for each property. Identify your expectations, manage those expectations, and then with an unbiased view, determine if the property will meet these expectations and thus reach your financial goals. Finally, the goal of cash flow properties is to be a more passive investment strategy, requiring a less hands-on approach (especially when compared to a value add property).

Value Add

A property that is deemed “value add,” typically refers to one that needs some work completed before it can either, a) achieve higher monthly rent values, or b) be rented out to tenants. With this in mind, a value add property typically meets the following criteria:

1.It needs renovation.
2.There is deferred maintenance.
3.The exterior / landscaping of the property needs to be improved.

The important thing to remember about a value add property is that this is an active strategy. Additionally, it will have a lot of moving parts, which means that you will need to rely on your local team in order to effectively complete every stage. Finally, as you add value to the property, you should recognize that your cash flow will typically be lower. However, once the value has been added to the property, then typically you will start to see higher cash flows, as well as a higher sale value when you decide to eventually sell the commercial property.

Holding Time

When you are looking at a property, you must determine what is an acceptable time frame. For example, cash flow properties are typically ready to be leased out immediately, while value added properties will need work done before leasing the units and / or the entire building. There are some general timelines that can be expected for each type of commercial investment strategy.

  • Value add properties typically have a holding time of up to 5 years.
  • Buying and selling within 12 months typically aligns with a flipping strategy (vs. a buy and hold strategy).
  • Cash flow properties can be used to generate the income needed to invest in another property.
  • Commercial properties in high appreciation areas will typically be held onto, since the opportunity for increased market rents is higher

Appreciation

As you look at commercial properties, consider the potential appreciation. The following types of questions will help determine how long you want to hold onto the property, before deciding to sell.

  • Is there high demand for land / space to build in the local area?
  • Are more people (year over year) moving into the area?
  • Have rental prices continued to increase (or decrease)?
  • Are businesses flocking to the area?

These types of questions can help to not only determine your holding time for a commercial property, but can also provide insights into the projected appreciation of the investment.

Investing in commercial properties for beginners can be a daunting process. However, it offers a number of advantages including, higher income potential, lower vacancy rates, steady cash flow opportunities, and high grade tenants. With the help of an expert commercial realtor and performing your own due diligence, you’ll be well on your way to earning passive income through commercial real estate.

Follow us on Facebook and Instagram!
&
Subscribe to our YouTube Channel!
Revival Property Group
"Real Estate Solutions At Your Convenience"

Commercial real estate properties typically refer to retail, industrial, office, warehouses, mixed-use, and apartment buildings. Did you know that investing in commercial real estate offers numerous advantages and potential benefits to the savvy investor? These advantages include: steady cash flow, readily available tenants, lower vacancy risks, and higher income potential.

However, before simply buying any commercial property, investors must complete due diligence, to ensure the property aligns with your investment strategy.

Determine if Commercial Property Investing is the Right Strategy for You

Like residential real estate, investing in commercial properties will require your own due diligence. These complex real estate transactions will help you first understand if the potential property fits the right investment strategy for your financial needs and goals.

Cash Flow

As its name suggests, a cash flow strategy involves understanding and managing your expectations. Before you move forward on this type of strategy, ask yourself the following types of questions.

  • If the property has a lower monthly cash flow, does that mean it’s not as good of a deal?
  • If the property has a higher monthly cash flow, but has other risks, does this mean that it is a good choice for my portfolio?

As you answer these questions, keep in mind that the strategies will be different for each property. Identify your expectations, manage those expectations, and then with an unbiased view, determine if the property will meet these expectations and thus reach your financial goals. Finally, the goal of cash flow properties is to be a more passive investment strategy, requiring a less hands-on approach (especially when compared to a value add property).

Value Add

A property that is deemed “value add,” typically refers to one that needs some work completed before it can either, a) achieve higher monthly rent values, or b) be rented out to tenants. With this in mind, a value add property typically meets the following criteria:

1.It needs renovation.
2.There is deferred maintenance.
3.The exterior / landscaping of the property needs to be improved.

The important thing to remember about a value add property is that this is an active strategy. Additionally, it will have a lot of moving parts, which means that you will need to rely on your local team in order to effectively complete every stage. Finally, as you add value to the property, you should recognize that your cash flow will typically be lower. However, once the value has been added to the property, then typically you will start to see higher cash flows, as well as a higher sale value when you decide to eventually sell the commercial property.

Holding Time

When you are looking at a property, you must determine what is an acceptable time frame. For example, cash flow properties are typically ready to be leased out immediately, while value added properties will need work done before leasing the units and / or the entire building. There are some general timelines that can be expected for each type of commercial investment strategy.

  • Value add properties typically have a holding time of up to 5 years.
  • Buying and selling within 12 months typically aligns with a flipping strategy (vs. a buy and hold strategy).
  • Cash flow properties can be used to generate the income needed to invest in another property.
  • Commercial properties in high appreciation areas will typically be held onto, since the opportunity for increased market rents is higher

Appreciation

As you look at commercial properties, consider the potential appreciation. The following types of questions will help determine how long you want to hold onto the property, before deciding to sell.

  • Is there high demand for land / space to build in the local area?
  • Are more people (year over year) moving into the area?
  • Have rental prices continued to increase (or decrease)?
  • Are businesses flocking to the area?

These types of questions can help to not only determine your holding time for a commercial property, but can also provide insights into the projected appreciation of the investment.

Investing in commercial properties for beginners can be a daunting process. However, it offers a number of advantages including, higher income potential, lower vacancy rates, steady cash flow opportunities, and high grade tenants. With the help of an expert commercial realtor and performing your own due diligence, you’ll be well on your way to earning passive income through commercial real estate.

Follow us on Facebook and Instagram!
&
Subscribe to our YouTube Channel!
Revival Property Group
"Real Estate Solutions At Your Convenience"

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