How to Make Money On Your First Deal
There’s Good News About Property Investing for Beginners…In-Spite of the Government and the Economy
Although Congress has enacted new tax legislation making it more difficult to make a decent profit on real estate transactions….manyo f thoese changes ONLY APPLY to Residential Real Estate…There’s good news for you the new commercial real estate investor!
Here’s How to Get Started Off on the Right Foot:
Interest rates are low and prices have fallen…This alone more than makes up for any negative tax implications congress throws our way.
Even better, there is a HUGE demand for commercial property leases. People who can’t buy want to lease. Business downsizing buildings are leasing not buying.
Cheap prices, low intrest and a high lease rates? What could be better…
In this economy you have to be much more careful about how you choose your investment. Obviously you’ll need to buy at the best price and favorable terms. Many investors will choose to select one or two niches to focus on when first starting out. (i.e. office buildings, self storage, restaurant, retail, etc.)
Commercial Property owners (like any property owner) always think their property is worth more than it really is. It’ll be up to you to do some due-diligence to show them why (by the numbers) their property is worth far less than they think.
For the beginning property invester this may seem like a lot of work and it can be. Remember the saying, know before you go;. However, the pay-offs can be huge even for beginner investors. I’ve seen brand new investors go in and make $3,000-$4,000 per month positive cash-flow on their first deal. Or flip the property for $50,000 profit right out of the gate. They did their homework, they did not rush in to a bad deal and they took the time to get properly trained. Commercial property investing for beginners can be a VERY lucrative business!
Of Course, there’s no promise that your first deal will produce massive profits, (although it can if you do it right)
Beyond price and property evaluation, You’ll need to be certain you want to do the operation side of the property once you close. Nothing worse than buying something and figuring out it’s a lot more work than you planned on. Learning is a life long process. Don’t forget to get all the facts about what’s involved in ‘running’ the ‘business’ and what sort of improvements to the operation may be able to bring that will increase profits even further.
In the old days, investors used to rely on Appreciation to make money. This is no longer a viable strategy. The property needs to cash-flow or be a good enough flip NOW without any appreciation. What ever appreciation you do realize is just a bonus. Depending on your financial status, You actually may even need to consider property depreciation into your equation.
As a new investor, The value of a commercial property needs to be a lot more dependent on the operation or sale of the current business rather than the value of the land. When you do your calculations be sure to separate the two.
If this is your first commercial property business venture you may think that it is similar to owning residential property. You may think, “How hard can this be”. The core is similar but there are many very big differences that you need to know.
The tax laws are different; the county codes are different, even stricter. You can get fined for something that you didn’t even know about. The environmental standards are different.
You may buy a property with the plan of expanding the building or services and you only find out AFTER you buy that the county will not give you permission. Be sure to check with local codes and planning commissions if this is part of your strategy.
I know of a number of people who brought a piece of property with the idea of keeping it a few years and then find the money to develop the property. When they do get enough money to develop the property the zoning had changed, the building and environmental codes had changed and they had to totally change their plans which usually resulted in less profit than their original plan.
Look at what is happening in the commercial market in your part of your state and county. Where is the business flow trending, location and type? What federal, state, and local laws are changing? Or can change. What about environmental impact. This seems to be one area of investing that beginners seem to leave out the most. Bad idea!
One easy way to get an idea of how a community may be expanding is to see what the county has already OK’d to build on, what is the county plan. (check out your local planning commission or future development dept.)
Believe it or not, just because you own a property and it is already zoned commercial, does not mean that you can build any type of commercial business. The county plan may state that they want a shopping plaza in that area and you wanted to put a storage unit facility on that property.
Even though it is your property and your money the planning committee can determine if they will let you put your business on your property.
I am not suggesting that you forget the idea of investing in the commercial property. I am suggesting that you analyze everything. Look up what is happening in your area. Talk to other businesses. Find out the environmental issues. Check regarding what kind of businesses are being financed.
There are groups and associations at the local, state and national level for about every part of commercial real estate that you can think of.
Do not depend on only one source of information. Introduction or beginners courses will give you a lot of information to help you decide if you even want to invest in the commercial area. If you pay a high price for an advanced course before learning the basics you could get into something where you are missing some vital information and you could have wasted a lot of money.
Even if you pay an expert to coach you, if they are not in your area they do not know the environmental and political situation of your local area.
There is one rule about all investing and especially investing for beginners; the more you know the more you make, and the less you know the more you are going to need to pay someone else who does know.
The best thing that you can do is to learn for yourself. Remember, knowledge cannot be taken away from you. Experts can disappear or become less interested in you.
Do extensive research and a very thorough analysis before you decide on a commercial real estate business. In the long run it will help you make more money or loose less. It is real easy for the beginner property investor to lose a lot of money. Others tend to take advantage of you.
To start you off on the right foot, before ANYTHING else is to choose a niche. You cant’ become an expert overnight on every type of commercial property. Retail is different than office buildings; Self storage units are different than Apartment buildings. Pick one, THEN move forward with step 2.
To help you choose a niche, we’ve got several Free ‘General Overview’ videos for the new investor about the pros and cons of different types of commercial property investments.