Investors who choose commercial real estate as the vehicle to grow and preserve profits and wealth are generally on a wise financial path. From a near-certain increase in value over time to a potentially hands-off investment if entrusted to a competent management company, the benefits that a commercial real estate investment hold over other options are plenty and proven. Nonetheless, for every new endeavor there is a learning curve, and the more quickly it is overcome, the more fruitful the project. Luckily, where commercial real estate investing is concerned, even first timers can avoid common missteps if the right precautions from those that have gone before are heeded. Below are 6 tips for those dipping their toes into commercial real estate for the first time. Need advice? Look no further.
1. Invest rather than accumulate. It can be tempting for a first time investor to get ahead of himself or herself, purchasing several properties right away before waiting to see if the first produces a profit. While is certainly possible for this strategy to pay off, a more prudent move is to wait and see if one property makes money before purchasing another. This helps the investor to determine whether any tweaks or changes are needed to make subsequent investment properties more successful than the first.
2. Understand that no property is immortal. When investing in new construction this piece of advice may not apply a strictly, although attention should still be paid to the quality of construction and any concerns about the land it is built on. For any other commercial real estate investment, however, it is essential that the investor realize that over the lifetime of a property it is inevitable that he or she will have to spend some money on upkeep. From a new roof to an updated wiring, there will definitely be phases where investing in the investment will be necessary. Make a long-term financial plan for these expenses rather than being surprised each time one arises and the property will continue to bless rather than burden.
3. Invest in one type of property at a time. Focusing on the success of one type of property before purchasing another allows an investor to become the master of one trade rather than the jack, or even joker, of many. The strategy of purchasing only one type of property at a time until that type has proven successful means that fewer of the same type of property can end up netting the same profit as many of several different types would net, and for a small investment of time and money.
4. Pay attention to environmental concerns when purchasing a property. A surprising number of commercial real estate investors fail to realize upon purchase that property owners assume primary legal responsibility for cleaning up or otherwise fixing any hazardous waste problems that the property ever faces, even after it has been sold to another owner. The cost for clean-ups can run into the millions depending on the degree of damage. To avoid a potential financial devastation in the future, obtain an environmental report as part of due diligence, employing an environmental assessment company if necessary.
5. Enlist a mentor’s guidance. When it comes to financial matters, no one wants to make mistakes. Once an investor has erred in the past and learned from it, however, he or she is often eager to share the lesson with someone newer to the game, in hopes of saving someone else the same trouble or financial loss. A resourceful first time commercial real estate investor will use this fact to his or her advantage, finding a mentor who has successfully invested in similar types of properties. In addition to offering experience-based advice, such a mentor can connect a new investor with resources that he or she may not otherwise have had such immediate access to.
6. Ensure that investments and assets are sufficiently protected. Life happens. In the world of commercial real estate lawsuits happen along the way. Rather than being caught by surprise, prepare for the unexpected before it happens by making sure investments and personal assets are properly protected and insured. In addition to purchasing the correct insurance coverage for every investment and asset, speak to a lawyer to make sure each investment is separate from the others. This can prevent a law suit involving one property from endangering the others.
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