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Boom or Bust – How Do You Profit In Commercial Real Estate?

Most investors who own single-family rental houses limit their search for commercial real estate properties to a geographic area that falls within a 30- to 60-minute radius of their personal residence. These investors want to remain close to their properties so that they can easily deal with day-to-day issues such as showing the property, making repairs and disciplining tenants as an owner of commercial investment properties, especially as you gain experience and trade up to larger properties, you can broaden your horizons. Whether it is a period of boom or bust, you need to follow simple rules of investing to maximize your returns.

Carefully choose where to invest

Ideally, invest in those geographic areas that provide good cash flows and high potential for property appreciation. Before you choose a location, investigate its local job picture. Assess its potential for growth in population and new development of competing properties. During the next decade or two, real estate investors in some areas will enjoy a doubling, tripling, or even quadrupling of their property values and rent levels, whereas property owners in other locales may do well to merely keep up with inflation. Think about the length of time you plan to hold each of your acquisitions. If you plan to fix and flip, your economic and market analysis need not look out further than 6 to 12 months. On the other hand, as a buy, improve, and hold investor, take a mid- to long-range perspective of, say, 3 to 15 years.

Invest according to your expected returns

Different time perspectives lead to different investment choices. In the current market, many lower-priced neighborhoods, communities, and even countries are poised for property appreciation; however, to be successful in some of these areas may require a patient investor who is really interested on his expected returns.If you want to earn quick cash, find bargain-priced properties that you can fix up and immediately resell. In any case, don't choose your locations or your properties until after you've clearly thought through the when and the how of your exit strategy. Want to make money in commercial real estate and avoid losing money? Then monitor the population, employment, and income trends in the cities and neighborhoods where you invest. Or more proactively, look for those cities, neighborhoods, or countries that are poised for takeoff.

Can you estimate the right price?

Nearly all commercial real estate experts tell investors to buy at a bargain price. But what is a bargain price? Below-market value? How about above-market value? Again, maybe. You score a bargain anytime you pay a price today that will look dirt cheap 3, 5, or 10 years from now. How can you tell which markets will appreciate the most during the coming years? How can you tell whether that below-market price you pay today might look expensive 5 or 10 years from now? Study the economic base and growth potential of the area where you are investing. Areas where the government is investing in infrastructure, is more likely to see a boom.

Tips on creating a valuable financial safety net

A wise purchase can create a valuable financial safety net. But before you snap up an apartment building, follow these tips to help you choose the best possible property.

Location

Location is one of the most important aspects of commercial real estate. Just as with residential, a good location can make up for many other property inadequacies. Some properties have more potential and can be marketed as a variety of business opportunities, lessening the need for a great locale.

However, apartment buildings, condos, parking lots, or any property that has a revolving door of tenants will benefit greatly from a prime location. You want to ensure that your property is steadily occupied in order to maximize profits.

Know your limits

Just because you are able to purchase a property, does not mean that you have the ability to manage it as well. Managing commercial real estate is a time consuming affair and a career in itself.

Unless you are prepared to make this property your sole source of livelihood, it's best to outsource management to a trusted professional. That way you can concern yourself with more important matters than tenant complaints and trying to phone the cable company because apartment D's TV is on the blink again.

Know what clients you want

Which kind of client you are interested in working with will determine what commercial real estate to invest in. Larger businesses that rent or lease your property have greater negotiation skills and higher expectations and demands than small or family-run shops.

Smaller businesses, however, can hit financial hardship which could negatively affect your own finances. Residential property can reap great rewards, but again there will be management issues. Each kind of client will provide a unique set of challenges as well as benefits.

Buy new or used?

If you are buying a pre-existing piece of commercial real estate, you'll have to consider if you plan on budgeting renovations or remodels. Remodels can be a drain on finances as well as time, but you can potentially save money if you make wise choices.

Not making necessary repairs, however, can put you at a great disadvantage. Sometimes buying newer property is the simplest solution, especially if you have little experience.

Commercial real estate is a great strategy to help spread and balance your investment portfolio or can just be a great way to earn some extra income. Investing in commercial real estate is a dynamic investment that will continue to grow over time, providing peace of mind that you are generating a healthy profit with minimal continuous effort.

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