Investing in commercial real estate can be a lucrative business opportunity if you know what you’re doing – but entering the market for the first time is intimidating. You’re going to be learning about entirely new economic dynamics, juggling big deals and expensive properties, and facing potentially extreme consequences for even small mistakes.
But don’t worry about it too much. All the best commercial real estate investors in the world started out with no experience – and with the right strategies, you can compensate for your lack of experience and set yourself up for a profitable, lucrative future.
Important Tips for New Commercial Property Investors
If you’re new to the world of commercial real estate, these are some of the best pieces of advice to follow:
1. Work with a commercial property manager. First, consider working with a commercial property management company. Depending on the nature of your relationship, your commercial property managers may advise you on where and how to buy; when you add properties to your portfolio, they’ll be there to help you manage the day-to-day operations, including finding tenants and maintaining the property. Fees are reasonable, they’ll save you a lot of time, and they’ll help you figure out all the things you’re currently unfamiliar with.
2. Find a mentor. Similarly, it’s a good idea to find a mentor in the commercial real estate investment space. As an amateur, the only way to boost your own knowledge is through research and experience – but you can benefit from someone else’s cultivated knowledge and experience. Shadow your mentor (if you can) and ask lots of questions to absorb as much information as possible.
3. Start slow. It’s tempting to try and build a commercial real estate empire from scratch, even from the outset of your journey. But it shouldn’t surprise you to learn that it’s better to start slow. Focus on one deal at a time and only add the most valuable properties to your portfolio; you’ll make fewer mistakes, face less risk, and ultimately end up ahead.
4. Anticipate mistakes. You’re going to make mistakes in your journey, including at least a few big ones. It’s important to acknowledge this, accept it, and grow comfortable with it. That way, you won’t feel completely devastated when you encounter a challenge – and you can use it as an opportunity for growth.
5. Learn from your mistakes. You don’t have to be happy with your mistakes, but it’s important to try and learn from them. What were the pieces of information and guiding factors that led you to this decision? What could you have done to prevent this problem from happening? What safeguards can you put into place to guard yourself in the future? And perhaps most importantly, what new knowledge have you learned?
6. Diversify however you can. Diversified portfolios tend to outperform their non-diversified counterparts, since they minimize risk, reduce volatility, and make your gains more predictable and consistent. You can diversify your real estate portfolio by investing in different areas, in different niches, or even in real estate investment trusts (REITs).
7. Use someone else’s money. One of the hardest parts of starting out as a commercial property investor is finding the money to invest. If you have no prior investment experience and limited personal funds, you’ll have to borrow money and work with investors to fund your purchases. Of course, if you do this, you’re going to tap into the power of financial leverage – which can help you see much more impressive gains than you could with straightforward investing.
8. Always do your due diligence. Never take someone’s word at face value. Never trust someone else’s numbers without checking them. And never assume that because a property looks good or seems good on the surface, it must be a good investment. You need to do your due diligence before moving forward with any investment in the commercial real estate world.
9. Build the right team. Few commercial property investors are successful in a vacuum. If you want to make more money and create a brighter future, it’s important to build a team of experts – including underwriters, lawyers, real estate agents, and contractors – whom you can trust.
10. Adapt. Market conditions change frequently. So will your level of experience, your knowledge, and your goals. You have to be willing to adapt to these changes if you’re going to thrive in commercial real estate investing.
Finding Your Place
It’s going to take time for you to analyze your own risk profile, discover your investing style, and ultimately perfect your approach. Don’t try to rush the process. Instead, take your time, learn from the best people you can find, and remain flexible as you navigate this new financial world.