Five tried-and-true tips to help you profit from commercial property investing
Sometimes the best-looking property can be the worst real estate investment you've ever made. Remember that investing in commercial property is all about the price, the terms and the ongoing return on investment. Here are several tips for successful commercial property investing.
Be an investor – not merely an accumulator of commercial properties.
The reason you make investments is to produce a worthwhile profit. So if you end up buying a property that produces little or no growth, \you basically acquired a property (instead of making an investment).
Get yourself a mentor so you benefit from his or her experience.
Mentors can save you from making very costly mistakes, identify when you've missed due diligence items, and connect you with resources that you otherwise wouldn't have immediate access to.
Understand that every commercial property has a lifetime.
One of the biggest errors you can make as an investor is to ignore the fact you will need to spend money on the upkeep of the building over time. The building may need a new roof, or the electrical system may need to be upgraded. Every building goes through these renewal phases. Therefore, make sure you have a long-term strategy to handle such repairs.
Focus on one commercial property sector at a time.
Especially when you're starting out, you should focus on one type of investment: offices, shops, warehouses, or whatever you prefer. Each deal needs your undivided attention. It's much better to master one aspect than to be average over many. And who wants average-performing properties anyway?
Decide whether you and your assets are adequately protected.
As with anything in life, messy lawsuits can occasionally occur. Therefore, you need to do everything in your power to protect yourself and your investment. Ask yourself the following questions to determine whether you're fully covered:
How is your commercial property protected – both legally and insurance-wise?
Are your other investments totally separate from each other so one lawsuit can’t affect the other investments?
What do you have at stake, if you lose a lawsuit? Is your personal property, for example, your home, isolated?
Don't try to guess when it comes to the answers of these questions. Talk to a lawyer to ensure you're fully protected if ever you were to be sued.
For a partnership or syndicate, finance the deal using non-recourse finance. Non-recourse means you aren't personally guaranteeing the loan. This gives you two distinct advantages: it allows you to be taken off the loan if the partnership sour, and, if the property were to fail, the financier cannot come after you personally.
Once you understand the “rules of the game”, buying commercial property is really quite straightforward. You just need to do a little homework and make sure you get the right advice along the way.
Chris Lang is a commercial property investor and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.