Are you wondering how to get started in commercial real estate? Commercial real estate is a powerful avenue for investors who have the capital to make this type of investment. You can choose between long-term income from your property or a short-term return from major enhancements. If you’re interested in exploring the world of real estate investing, these steps will get you started.
Raise Startup Capital
Investing in commercial real estate is a costly endeavor. One of the key benefits for people who can manage to invest in commercial properties is the lack of competition. While it’s not unusual to encounter a stiff bidding war for a single-family residential property, you’re less likely to have a lot of competitors when you’re looking at a commercial property, simply because the costs are so high.
Before you can invest in commercial real estate, you need to determine where your funds will come from. There are several options that you can explore.
Crowdfunding allows investors to purchase a small share of your commercial property in return for an upfront investment. Investors enjoy the convenience of crowdfunding platforms because they offer an easy way to diversify one’s portfolio and add real estate investments with a low minimum entry that’s just $1,000 on some sites. You can invest in someone else’s project through a crowdfunding platform or use one of these platforms to solicit investors for your own real estate purchase.
Real Estate Investment Trusts
Real Estate Investment Trusts (REITs) allow you to take a hands-off approach to real estate investing. Investors can purchase REIT shares on the stock market, making them a liquid asset. REITs must pay out 90% of their earnings through dividends, which is great for investors who want to add real estate to their portfolios without putting in the time and effort to select or manage properties.
If you want to purchase real estate yourself and take a very hands-on approach to the investment, a loan is one of the best options for your project. There are many different types of loans that you can explore. Our team at Titan Funding can help you navigate all your options and find the one that’s best for you. Some loan options you might want to consider include:
- Hard money loans.
- Fix and flip loans.
- Rental property loans.
Evaluate the Latest Trends
It’s always wise to take a closer look at the current commercial real estate market before you take the plunge and make a major investment. The COVID-19 pandemic has had a notable impact on commercial real estate. Many commercial properties were forced to close their doors, which caused the demand for commercial spaces to plummet. While recovery is expected within the coming months and years, many properties may need to adapt.
Upgraded ventilation systems are in high demand to increase health and safety. This can add up to $20 to the price tag for every square foot. The shift to working from home is expected to result in a permanent decline of 15% for office spaces. However, this may open up fresh opportunities for co-working spaces as people reemerge into the world looking for a more comfortable space for their remote employment.
While hotel bookings in densely populated cities are expected to be on the decline until around 2025, this could present some opportunities for campgrounds or properties with a number of cabin rentals where visitors can get away from home while maintaining social distancing.
Select Your Specialty
There are four basic categories that commercial real estate properties fall into. While you might become a real estate guru and diversify your portfolio to include several of these, it’s usually best to begin with one area where you can do a deep dive and really increase your expertise as you’re starting out. Your options include:
- Office buildings: From office parks to high rises, this category includes any commercial space that will be used for offices. Leases for offices are usually between 5 and 10 years, giving you a great long-term investment.
- Industrial properties: This category encompasses warehouses, manufacturing facilities, factories, research and development facilities, and heavy manufacturing facilities. Industrial properties are usually located in designated zones that are not located near residential properties. These properties also have long lease agreements of five years or more.
- Retail: Retail properties are those where goods are sold. They include shopping malls, shopping centers, strip malls, big box stores, factory outlets, and restaurants. It’s important to consider the local demographic carefully when you’re investing in retail properties to make sure there’s a strong demand for the type of property you’re purchasing. Leases on retail properties are around three to five years.
- Multifamily properties: A multifamily piece of real estate features an apartment building, condos, or townhomes. These are residential buildings but are managed as commercial properties since the owner makes income off of rent. These have the shortest lease agreements. Most are just one year, and some properties even rent month-to-month.
Complete Your Due Diligence
As you’re getting started in commercial real estate, it’s especially important to complete your due diligence on any property that you’re considering. You should know how the property’s value compares to other real estate in the area. If the property is significantly cheaper, consider the improvement costs that will be necessary to make it competitive. Will you need to update the infrastructure, make major renovations, or replace the property completely? Consider all the expenses associated with making the real estate profitable.
Next, you need to identify your avenue for profits. Do you plan to earn income from rent or flip the property and sell it? The former will give you long-term returns while the latter provides a large sum of money in a shorter period of time.
It’s crucial to have solid financial backing when you’re investing in commercial real estate. Our team at Titan Funding can help you get the money that you need for your next foray into investing. Contact us today to get started and find the right path for your needs.
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