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Fundamentals on Commercial Real Estate Investing All Beginners Should Know

Fundamentals on Commercial Real Estate Investing All Beginners Should Know

Commercial real estate typically refers to office spaces, warehouses, mixed-use, industrial and apartment buildings. Do you have any idea that commercial properties provide many benefits to the investors on both a short-term and long-term basis? The benefits include steady cash flow, readily available tenants, lower vacancy risks and high-income potential. As a beginner to invest in commercial properties, almost all the investors should complete the due diligence to ensure that all the properties are aligned with the investment strategies.

In this blog, you will learn about the pros and cons of commercial property investing for beginners. As you learn more about commercial real estate investing, you will also learn how to start investing in property and which is best for your financial strategy. So, it is high time you spend some time writing up and knowing about commercial property investing.

Fundamental 1- Is Commercial Real Estate Investing Good For You

Like residential real estate, investing in commercial property will demand due diligence. These complex transactions will help you understand the potential of commercial property, and, how investment strategy fits into your business needs and objectives.

  • Cash flow- It involves understanding and managing expectations. Before you move towards this type of strategy, you should ask yourself some questions like – whether the property has low monthly cash flow or if the property has higher monthly cash flow but has other risks associated with it.
  • Value addition: The property deemed “value-added” mainly refers to one that needs some work completed before achieving the higher monthly rental values or being rented out to the tenants. The value-added property means it needs renovation or maintenance, or the exterior or interior landscaping must be improved.
  • Holding time- When you are searching for a property, you should check the acceptable time frame. For example, does this commercial property lease out very easily.
  • Appreciation- When you are looking for commercial properties, check their potential appreciation.

Fundamental 2- Realize If the Multi-Family Investing Is Best For You

When you invest in multi-family properties, you have to decide what type of project you want to buy. As the multi-family properties are very close to the residential ones, people tend to move towards this type of building.

Cash Flow Project

  • It is the main driver to the multi-family property
  • High occupancy rates
  • The units are leasing at or above the current market rental values
  • Expenses are low from the rental rates earned

Value Add Project

  • Low occupancy rates
  • The exterior or interior needs have to be updated
  • The units are leasing lower than the current market rental rates
  • Operational costs are relatively high
  • Typically difficult to manage

Fundamental 3- Understand the Role of Property Management for Commercial Buildings

There is an important role played by property management in commercial real estate, which is different from residential properties. A commercial property manager has different responsibilities depending on the type of property that you are buying. For instance, an owner will not have the property manager use triple net leases for multiunit apartment tenants.

These are three fundamentals, you should know about commercial property investment. If you want to invest in commercial property, consult with the team from Wealth BCI, who will guide you in commercial real estate investing and will guide you on the process to generate a constant cash flow and show you how to start investing in property in Arizona.