Commercial Real Estate Investing Basics: How to Buy a Commercial Property

Commercial Real Estate Investing Basics, It’s common knowledge that real estate has become one of the best ways to build wealth in today’s world.

With commercial property investment opportunities you can partake in and generate income both actively and passively, real estate has become a highly profitable venture for most people.

This article will give you a grounding in the commercial real estate investing basics and help you become a successful property investor. Firstly, what does commercial property investing entail?

What Is Commercial Real Estate Investing?

Commercial real estate is property used solely for business purposes. Often, commercial real estate is leased to tenants to generate income. Thus, becoming an investment.

In other words, commercial real estate investing entails putting money into properties such as hotels, office buildings, multifamily apartment buildings, hotels, malls, warehouses, shopping centers, etcetera.

If you’re interested in committing to this type of investment, you must be prepared to keep your commercial real estate holdings invested for the long haul. Given that this type of investment involves an illiquid asset, your capital may be tied up for a long time.

Furthermore, some of these opportunities may include high start-up costs and several regulatory obstacles, which are often problems for newcomers. 

Notwithstanding, illiquid assets are splendid for investment because they yield higher long-term returns and aren’t affected by frequent price fluctuations.

Real Estate Investing Categories

As an investor, your investment falls within either of two categories: passive investment or active investment. Let’s look into both.

Active Real Estate Investing

Active real estate investing involves buying a rental property and taking over the management of the asset and its occupants. It can also entail catering for the purchased property to sell it to generate profit.

Here, you take on the role of the landlord and handle several responsibilities, including initiating repairs and renovations of the building, attending to the tenants whenever necessary, handling property tax payments, etcetera.

Passive Real Estate Investing

As the name suggests, passive real estate investment involves purchasing real estate without actively managing the properties.

For example, an individual holding share in a real estate investment trust (REIT), which buys real estate and manages it on behalf of the REIT’s owners, is a passive investor because the individual doesn’t handle the property management. The investor’s only task was to buy the company’s shares. 

Apart from REITs, there are also several passive commercial real estate investments, including crowdfunding, syndication, etcetera.

Now that you know the category of property investment you can belong in, let’s dive into how to buy commercial real estate.

How to Buy Commercial Real Estate

For successful commercial real estate investing, it’s important to know how to buy properties to begin an investment. 

Here are several guidelines to help you buy real estate: 

  • Examine Your Investment Plan

This step is one of the commercial real estate investing basics that requires your attention. Reviewing your investment strategy is critical because you have a choice to make. You have to decide whether you’re buying real estate for investment purposes or personal use.

Buying a Commercial Property for Personal Use

In the owner-occupied real estate (OOCRE) investment strategy, the property is bought by the individual (investor) to conduct business operations.

OOCRE offers several tax benefits to investors. For example, you can deduct and depreciate annual loan interest. Also, as a homeowner, you build equity, which enables you to sell the property for more in the future.

You can also benefit by renting a portion of the building. Thus, generating passive income while you’re running your business activities on the same property.

Buying Commercial Property for Investment Purposes

Investing in commercial property has lots of benefits. As stated by the Bank of America, returns from commercial property vary from six to 12 percent yearly, which is greater than the typical return on single-family residential properties (about one to four percent). 

Depending on factors such as financial goals and timelines, investors adopt several strategies when using commercial real estate for investment. Here are a few of the most prevalent real estate investment strategies: 

  • Wholesaling

This strategy involves buying and contracting a real estate property at a price below market value, then sending the contract to an interested buyer. 

  • Land Banking

This factor entails purchasing and holding land until you plan on selling it when its value increases or developing it.

  1. Development 

An investor purchases raw land to construct on after waiting for it to appreciate. 

  • Fix and Flip

Here, the investor buys a property, renovates it, and resells it for a higher price. This strategy often involves physically depreciated or poorly maintained buildings.

  • Choose a Property Type

If you’re looking to invest in commercial real estate, you may consider different forms of commercial property, including:

  • Multifamily

Multifamily estates might be anything from a two-unit duplex to hundreds of Pine Hills apartments distributed throughout a garden-style apartment complex.

  • Office

Office buildings vary in size. They could be skyscrapers or home-sized complexes.

  • Retail

Retail real estate comprises shopping plazas, malls, restaurants, etcetera.

  • Industrial

Industrial real estate properties include warehouses and distribution centers.

  • Hospitality

Hotels and motels fall under the category of hospitality real estate. Short-term rentals are sometimes included as well. 

  • Obtain Finance From a Lender

After reviewing your investment plans and the property you’re looking to invest in, it’s time to secure your capital to begin investing. 

Since real estate investments are sometimes capital intensive, unless you’re financially capable, it’s advisable that you seek loans, especially those that fit into your credit score range and with an affordable interest rate. 

Some of the most common lending options you might consider are permanent loans, SBA loans, and bridge loans.

  • Pay Attention to the Real Estate Market

It’s critical to pay attention to the real estate market and determine its ups and downs before making a move to purchase a property.

Paying attention to the market’s flows might help you position yourself to take advantage of a fantastic deal in a down market. 

  • Build a Team of Trusted Professionals

As a new investor, you must surround yourself with a team of knowledgeable and experienced personnel. This move can guarantee a successful investment.

Professionals, you should be looking to hire include:

  • Realtor
  • A commercial real estate attorney
  • Accountant
  • Property manager
  • Mortgage broker

You can even allow commercial real estate investing companies to handle property management for you. 

  • Begin Making Offers

At this point, you’re ready to begin making offers on real estate you’re looking to purchase and invest in. It’s recommended that you make these offers frequently to increase your chances of bagging one.

However, before making an offer, you should consult your team first, for good measure.

Conclusion

The goal of investing is to generate income, and this can only happen if done properly.

You must know commercial real estate investing basics to ensure you’re a successful investor.

As aforementioned, there are a few guidelines to follow when investing in commercial real estate. These recommendations are meant to guide you and ensure you achieve your goals in property investment.

Leave a Comment