The Basics: How to Get Started Investing in Commercial Real Estate

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You might have seen one of the many television programs today centered around “flipping” houses, home improvement businesses, and the like. If this sounds like fun, this is actually part of investing in commercial real estate. This is one of the oldest industries tracing back to the 1800s. Since many aspects have changed since the first major real estate acquisition, the basic fundamentals of the whole sector are still intact. So, how does it work?

Real estate investors take on large projects with plans to make significant returns on their property investments. Though many real estate investors start with a second home, or with a vacation rental property, others choose to take the road to greater riches and invest in commercial real estate.

Commercial real estate includes business properties, large buildings, and apartment complexes. Now, you might think that it takes a great deal of money to begin an endeavor of this size. But, depending on where you live and the type of investment you’re after, it doesn’t have to be.

As a beginner, there are various investment options you might want to consider like real estate investment trusts (REITs) and online real estate investment platforms. Once you’ve gained enough experience, you can then try house flipping or even construction, although the latter will require a lot of capital. Even so, you can leverage the power of the best real estate crowdfunding platforms and connect with investors looking to finance projects like yours either through equity or debt.

Here, we’ll focus on the business of investing in commercial real estate and how to get started.

How Much Money Will I need?

Many people think it takes hundreds of thousands of dollars to get started investing in apartment complexes or commercial real estate. While you do need some startup capital, you might not need as much as you initially thought.

The typical down payment for a 75,000 dollar investment property might run you around 15,000 dollars. This is because the typical down payment cost runs around 20 percent of the total value of the property you’re attempting to invest in.

If you play your cards right, over time you can save up that amount in a few years. But, for those who want to get into the game right now and not wait around, applying for an apartment building loan might be your best option.

Apartment building loans for commercial investors are quite popular, especially for those who wish to get started right away. The general timeframe that it takes to secure an apartment building loan is much shorter than it would take anyone to save up 20 percent of the cost of a property’s total value.

And, considering that most large apartment complexes run in the high 6 figure range, a loan is the more attractive option.

Start Talking to Other Investors

While it’s always a thrill to go it alone and make your fortune from the sweat of your own brow, don’t let your pride make you stubborn. The real estate industry is very unpredictable, and your dreams can be easily swept away by unprecedented economic waves. Having a network of real estate investors will help you in your decision-making, and you’ll also have where to start in case things go wrong.

Chances are, you know a few real estate investors in your area. You might even have one or two in your family. Regardless, picking the brains of other real estate investors will allow you to get the inside scoop on how the game is played.

Any real estate investor mentor could share with you several of the following key elements, a few of which might be totally unfamiliar to you:

  • Deal Analysis (cash flow, expenses, mortgage rates, etc.)
  • Lender Reliability
  • Real Estate Attorneys
  • Brokerage Programs
  • Property Insurance

Though the aforementioned is only a shortlist of the many terms that you need to familiarize yourself with, speaking to another investor is a great way to begin to understand all of the moving parts that come along with real estate investing.

Just like in any other industry, not everyone is ready to help you achieve your dreams. Therefore, you must be careful when choosing investors to work with. Also, have a look at their track record in the industry to see how much you can learn from them as you grow your career.  

Choose a Property

Selecting an apartment complex or commercial property to start your investment career with is probably the most critical choice you’ll have to make. No matter what property you choose, you’ll be spending a great deal of your time (and money) on perfecting this property, maintaining it, and making it the best it can be.

The best advice, especially if you’re new to the real estate game, is to start out small and then build your enterprise from there.

Small complexes offer you the ability to ease into your new investment with the least amount of overhead, and without all of the overwhelm that might come with attempting to manage a larger complex.

No matter what property you choose, you must ensure that it’s a sound investment. Older complexes will come along with many problems, and you’ll be responsible for fixing all of these.

Beginning a career as a real estate investor can be a rewarding experience both personally and financially. Once you’ve gotten your feet wet in the world of commercial real estate, you’ll then be set to learn as you go, and then set your sights on larger properties with even greater return potential.

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