Talking about commercial property investment for beginners is a misnomer. Most people who invest in commercial real estate are tried-and-true entrepreneurs with business experience under their belt. That said, wading into the changing waters of investment properties is usually unlike any other business operations you’re familiar with. Knowing what to do and what to avoid can be a big help while you’re finding your feet.
Select the Right Property Investment Strategy
There are many types of property investment you can select. Not every entrepreneur is a great match for each kind of real estate investing. There are pros and cons, along with responsibilities, that you need to consider first.
For example, commercial properties require significant due diligence before purchasing. The transactions can be complex, and you need to carefully consider your goals and needs before buying.
First, decide what type of portfolio you want. Some commercial properties will typically have a lower monthly cash flow but few risks. Others have a higher potential cash flow but significant risks. The right choice depends on your personal entrepreneurial style and available financing.
Decide How To Use Your Capital
You also need to consider how much remodeling, exterior improvements or deferred maintenance will be required for the property. Adding value to a property can lower your cash flow at first but provide significant revenue and higher equity and resale value afterward. This can be wise, but only if the market can turn potential benefits into actual gains for your business. Knowing this means doing research (the due diligence again) into demand and rental prices in the local area.
Choose the Right Financing
Your next step is to see whether you can turn your plans into reality. Commercial property investing usually requires extensive financing, both immediate and ongoing.
How can you select the right type of funding? First, look at your credit score. This directly affects your interest rates. Even a single percentage point will massively change the total amount paid on a loan when you’re dealing with large commercial properties.
You also need to look at the length of the loan and the amortization schedule. Your objective should be to save as much money on interest as possible, but also have monthly payments that don’t weigh on your working capital.
Don’t Forget Your Past Business Experience
Fortunately, as a business owner, you know how to balance down payments and overhead costs with cash flow and reinvestment in business growth. Applying past experience to new challenges is a major asset in property investment.