Investing has been around for ages, and there are many different avenues to grow your money from traditional stocks and bonds to fantasy sports! Another popular type of investment is in the Commercial Real Estate world. Investing in Commercial Real Estate (CRE) is considered a lucrative endeavor, with many investors becoming attracted to the potential financial rewards. So how do you get into CRE Investing? What do you need to know? What do you need to have? Below, I am going to discuss a few key points you should take into consideration for your first-time CRE Investment!
- Know Your Goals – The first step to CRE Investing is knowing your goal(s) and what you want to accomplish from this investment. Do not invest first, and then try to determine your WHY! It is vital to set your investment goals before you turn to the market for an investment property.
- Secure Your Financing – In addition to setting your investment goals, another crucial step that I would highly suggest is securing financing before you start your search! It sounds like common sense, but some first-time investors “jump the gun” with this step and waste time (and potentially money) by not securing funding first! Securing financing will give you a better understanding of what you can afford and invest in and a budget to guide you.
- Understand the Market – It is beneficial to get to know your local market and the different types of commercial properties available. There are a few different sectors in the Commercial Real Estate industry that include: office, retail, industrial, multi-family, and special-use properties. Some property types perform better than others based on the supply and demand in the asset’s specific location, so it is imperative that you do your research on the market. Every market is different. When you invest in CRE, you are investing in a specific geographic area. Keeping an eye on the trends, vacancy rates, and supply and demand in your focus market is a crucial step because these factors can “make or break” your investment!
- Keep an Eye on the Cycle – Along with market knowledge, another necessary factor to consider is the market cycle. The “ebbs and flows” in CRE are inevitable, but knowing key indicators that affect the cycle will assist you in making the best investment decisions. The economy, unemployment rate, and Gross Domestic Product (GDP) are just a few components that correlate to the status of the CRE world.
- Be Thorough – Once you have chosen your investment property, complete a thorough examination during the Due Diligence period! Due Diligence is a period of time a prospective buyer has to conduct a detailed inspection of the investment opportunity. A detailed review may include reviewing financials, profit & loss statements, property inspections, surveys, and other essential documents. Creating a comprehensive Due Diligence Checklist will help ensure no items go unaddressed!
- Factor In Setbacks – One more main step for first-time CRE Investors is to set a realistic timeline for your investment project. When planning your time table, consider renovations, new construction, management change, and advertising & marketing for vacancies. These all take time and need to be accounted for when planning your timeline! Be prepared for setbacks and stay flexible when it comes to adjusting your schedule. Equally as important, set realistic expectations and projections for your returns! Remember, the asset’s performance can fluctuate due to the economic factors I discussed above!
Investing in Commercial Real Estate takes some knowledge and patience but can produce a very favorable outcome if you make informed decisions! I hope these tips have helped you understand a little more about smart CRE investing!