For many investors, the commercial side of real estate is powerfully appealing. Rather than dealing almost exclusively with homeowners, it offers an option to work with a completely different type of clients while giving you insights into new business types which may help grow your own business interests. To be fair, though, commercial real estate is a completely different game than residential real estate. There are certainly some additional thoughts and considerations to be made for each and every deal.
Unlike residential deals, commercial transactions can often take much longer. The investor needs to have the patience and the financial ability to have a property in holding for longer periods of time. Despite the longer sales cycle, there are many real estate agents who are pushing forward and making the jump into the commercial pool.
Below are a few tips to keep in mind before you take the jump yourself.
1. Know Your Market
It goes without saying, but any investor should know and understand the market in which they are investing. The more knowledgeable about the investment market, the more control the investor has which should lead to higher returns at the end of the day. Higher returns means more deals and a more diverse portfolio.
2. Everything Takes More Time
Touched upon earlier, it needs to be well known to an investor. Residential investing moves much faster than commercial investing. From research to paperwork and renovations to finding tenants, the process is always longer. On the other hand, though, the lease terms are also longer. The investor doesn’t have to worry about finding new tenants nearly as often as on the residential side. Commercial real estate is fruitful, but it takes patience.
3. When Possible, Stay Away From Volatile Business Types
There are many business types that have higher failure rates than others. Bars and restaurants are the first to come to mind. It’s safe to say if any of your tenants are restaurants or bars, there is a good chance they will fail. This will mean they likely will default on their lease. If you aren’t properly prepared or covered for a tenant to default, you could run into some problems. Avoid these business types if you either can’t afford to cover them defaulting or if you can’t afford the proper insurances.
This is obviously not a complete list of tips, but it should get any investor thinking and understanding what may need to be done to get into the commercial space. As always, there are many variables in play including area demographics, trends, property types (and the risks of each), and so much more.
Before you take the plunge into the commercial side of real estate, make sure you are ready. The profits can be great, but it will take a great deal of patience as well.