What Real Estate Heavyweights Must Remember in Commercial Real Estate

Most investors mistakenly think that to nail down commercial real estate deals they will need to have at least a million dollars in their bank accounts, wear $5,000 suits and be the head of a large real estate conglomerate. None of this is true. I think the perception persists because when people imagine "commercial real estate" they think of a 40-story bank building or the Sears Tower. While these types of deals surely qualify as commercial real estate, so do less expensive yet still very bankable things like an apartment building, a strip mall or a self-storage facility.

Simply put, pretty much anyone can get into commercial real estate investing. The methods for doing so, however, are slightly different than investing in residential real estate. There are a few matters the beginner should not forget when ramping up commercial real estate deals.

First, you should focus on managing deals with enough profit so any mistakes or miscalculations can be absorbed and you can still generate money. This sounds obvious, but many new real estate investors are so excited to do a deal, any deal, that they don't make sure there is enough earnings to address unforeseen miscalculations that come up. Consider this: what happens if you decide to invest in an apartment building that relies on close to 100% occupancy in order to have any profit and and you have to evict a couple of tenants? Now you have to struggle to find more renters while your new deal hemorrhages cash. These are not deal you want to make! There are too many better deals out there to settle for average.

So, you'll need to determine if you have a strong deal or not. How do you tell the great and average deals apart? Elementary research is mandatory here. When you're starting your evaluation, you can do this with pre-contract due diligence without spending any funds. Really! What you're doing is simply gathering the essential details and the best part is you don't have to do it all by yourself. There are a great number of free sources out there for the data you need, easily accessible, that have done a lot of the difficult work for you. Utilizing them can rapidly help you decide if a specific deal is worth going after or not.

You also have to babysit the deals you find. Just because your introductory prescreening looks sound doesn't mean that you won't find problems when you do your more advanced due diligence. You have to know when to pursue a deal and know when to cancel it and walk away. This step is difficult for many new investors, as they find it impossible to walk away from the work they've done up to this point. But it's much better to cut your losses now than to get burned later.

These are just a few of the things you have to consider when you decide to invest in commercial real estate. There are numerous more. There other noteworthy differences between commercial and residential real estate investing. The fledgling investor should spend time learning about his local market. Most Especially, take advantage of all the resources that are accessible to you. As the market continues to change, make sure you can adapt and change with it.
This article is based a chapter of book Be a Real Estate Heavyweight, entitled The Millionaire Transition to Commercial Real Estate written by Terry Hale. For more information on the book, be sure to check out www.RealEstateHeavyweight.com.