If you have experience in residential real estate investing, now is the time to consider moving up to the investing big leagues. While residential real estate is a profitable business, the serious money is made with commercial property investing.
Many investors are afraid to make the leap from residential to commercial property investing. They think it’s to complicated. While it is different, it’s not something to fear. Once you make the change you won’t want to go back to residential. Here’s the easy way to make the leap…..
Commercial Property Investing Often Begins With Apartments
A good strategy for moving into the NFL of real estate investing is starting with apartments. Apartment buildings with four units and less are considered a residential investment by the banking community. Banks will require that you personally guarantee any loan you take out. Five units and more are considered commercial property investing. Loans for these properties are almost always nonrecourse, meaning they are only secured by the property. Your personal credit and assets are not at risk.
Commercial property investing brings more opportunities and typically more profit than residential investing.
Moving up to commercial apartments makes perfect sense if you already have experience with residential properties. All you are really doing is moving up from a few tenants to multiple tenants. However, residential is more hands on than other commercial property investing. Most commercial properties don’t have tenants calling with plumbing problems at 2:00 a.m.
Networking Your way into Commercial Property Investing
When it comes to commercial property investing, you need to think about networking. Commercial real estate investors benefit by staying in contact with a network of professionals involved with commercial property investing. Often the best deals are done without the commercial property ever being listed. These are called “pocket listings”. An “in the know” realtor is aware these properties are for sale but they aren’t listed in the MLS. Typically, the seller doesn’t want a bunch of potential but not serious investors constantly touring the operating business. The realtor in the know only brings around the most serious buyers. But because of this arrangement, the property is listed at a nice discount to attract serious buyers.
Besides starting your commercial property investing career with apartments, consider other strong positive cash flow properties such as self-storage, mobile home parks, senior living, and offices. Look for investments that appeal to a wide cross section of renters. Multi-use properties are easier to keep rented out. However, there can be more profit in specialty use properties such as restaurants. But with that comes the risk of long periods when the property sits vacant.
You need to Learn About Commercial Property Investing
Market and sector knowledge is critical to your success when moving into commercial property investing. If you have personal knowledge about a particular commercial sector, stay with that sector. If you have no knowledge about a sector, gain the knowledge you need before investing. Even if you’re only the landlord, you don’t want to invest in a hotel if you don’t know anything about the hospitality industry. Same thing with the manufacturing sector. You don’t want to own an industrial strip if you don’t know the best use of the property to maximize cash flow.
Different formulas are used with commercial property investing. Along with sector knowledge, you need to learn new profit and loss formulas before investing in commercial properties. In residential you may have only bought properties for 75% of after repair market value or rentals that cash flowed 20% above expenses. In commercial real estate, you need to understand cap rates, net operating income, and loan to value ratios. These are not difficult but you need to fully understand what each means and how they affect your profitability before moving into commercial property investing.
Real estate investing does not need to be about owning as much property as possible. It should be about controlling as much property as possible for the least amount of money and risk. That makes the Sandwich Lease Option the most attractive investing method I know of. You can take control of the property for a couple of hundred dollars. You then put an option buyer in place that takes on most of the homeownership responsibilities until they make the purchase and take on full ownership responsibility. The Sandwich Lease Option let’s you make a big profit for a small investment. This is the method that I highly encourage my students to use.
By Wendy Patton
For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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