Investing in real estate is a great way to create a valuable portfolio that could be paying out high value dividends for decades to come. This isn’t always guaranteed, of course, but seeing as property is a tangible asset and people need places to live and work, success is often found here.
But investing in commercial real estate is quite different from investing in residential properties. You can still buy to flip or buy to let, but there are quite a few new regulations you’ll have to get to grips with first. If you’re totally new to the world of property development, the contrast between the two types is something to understand as clearly as possible.
Because above all, commercial real estate can be a great money maker. However, without knowing the things down below, you could end up wasting money and ending up in a worse position than you started out with. So, be sure to check out these points and keep them in mind as you build your commercial property portfolio.
You Can Invest in a Property Fund First
Before you find your feet in investing in commercial property as a whole, it’s often best to do some research into property funds that manage a range of commercial properties. These can be both local and national, and the amount you invest through them can be big and small alike.
When working with a property fund, you won’t own a property yourself, but you will have a share of their portfolio that can still bring in good returns. You won’t need to look into the bigger concepts yourself, such as market demand and what makes a valuable location, as all the work will be done for you. Indeed, most asset managers will recommend your share amount and how many properties you can invest in through the fund on a case by case basis.
Of course, you’ll have little to no control over the properties, and the more you invest the bigger your share and return, but it’s a good place to start as a beginner. Making this choice could even make all the difference between your budget right now and your budget in two to three years’ time.
Try Not to Focus on Only One Kind of Commercial Property
If you do, your portfolio could end up dead in the water whenever a real estate market crash happens. And thanks to the current state of the economy, it’s becoming harder and harder to tell when these will hit. As such, diversify the properties you’re interested in and try to gather a small collection of them into your portfolio.
Most beginner commercial investors start with office space, and this is usually a good call. Renting out an office to a small to medium sized business can bring in a very healthy long term profit, and most businesses willing to rent in this manner make amazing long term tenants.
But if you spot another opportunity in the market, try to ensure it’s not just office space again. For example, go for a retail space this time, where a chain store can open up a new location or a boutique company can get their first physical location going.
The difference in the two spaces means that if the value of one tanks, you’ve still got a healthy profit balancing out on the other side.
You Can’t Just Repurpose a Space
Buying an old building in a residential neighborhood, with the intent to turn it into a working commercial zone, can sound like a good idea. If you know there are plenty who work from home in the area or have to commute for a long time to get to work, the ideas about creating a coworking space have probably been firing across the neurons for a while.
However, thanks to zoning laws across the country, you can’t just repurpose a space without doing your background research. There’s a lot of cross referencing to be done right now.
As such, if you’ve invested in a property because you think it’ll make a great office block, and you’re keen to develop it for the high amount of commercial needs in the area, the first thing to do is get in touch with a zoning lawyer. Without one on your side, you could end up paying massive amounts out in fines, and the property you’ve invested in could end up worthless.
Finding Tenants Can Be a Hassle
This is most commonly true in the residential real estate world, but it also applies to commercial property as well. Finding new tenants that will be in good standing by the time the lease needs to renew can be tricky.
A lot of companies can be unwilling to pay the rental fees, and if there’s a slow period throughout the year (as there often is), the money you can collect may be thin on the ground. You also may not be able to find a new tenant if you decide to cut your losses and end the agreement early.
Balance this as finely as you can. Screen tenants before you agree to rent the property out to them, and be sure to regularly inspect their usage of the space. Be as responsive as you can to their needs as well, as this is the best way to ensure they’ll be low hassle and treat your property well.
Indeed, you don’t want to come across as a bad landlord either. Word about reputation gets around very quickly in the business world. If no company is willing to look at you twice, your properties are going to sit empty for a very long time.
Want to Become a Commercial Investor?
If you’re a beginner who doesn’t know what to expect, this is the guide to check out before you make any moves. Don’t walk into an investment opportunity without finding out everything you can first, but above all, be careful about the use of your budget.
