Do you want to start a real estate business with commercial properties? Starting your own business is a huge undertaking and the commercial real estate space is certainly a competitive one.
First, you need to understand that a commercial real estate business is very different compared to residential sales.
Most individuals have some experience buying or renting a house to live in. You may even have some professional experience in residential sales or leasing. However, when it comes to commercial real estate, it’s a completely different ball game.
There’s a lot more involved in a typical commercial purchase or lease. You will need to conduct more detailed financial analysis, study market demographics as well as environmental requirements, for example.
Your day-to-day activities will also differ greatly, involving cold calls to businesses, studying lease payments in the local area, and so on.
That said, as long as you work hard and understand the nuances of your market, the financial returns in commercial real estate tends to be higher compared to residential listings.
However, if you start small and do your homework, starting a commercial real estate business could be the best decision you make. Here’s how you can achieve it:
1. Understand your market
As with any new business venture, you succeed by doing thorough market research. Within the commercial real estate sector, you may want to examine the latest market trends, property value changes in certain locations, analyze comparables in your area, and research future developments.
This will give you an idea of the sort of deals you could find yourself working towards and help you determine the current market value of properties in your region.
2. Learn the lingo
You need to be able to knowledge of a broad range of commercial real estate investing formulas and metrics to succeed in the industry.
For example, it is important to understand terms such as the net operating income, cap rates, and cash-on-cash.
3. Understand your finances
Before you dive into a deal, analyze your own income, expenditures, and finances to make sure you have enough capital to support your real estate business.
You may want to start budgeting to maintain a positive balance between your future income and expenses.
If you need a little extra financial help, you could apply for a bank loan. This should be a relatively straightforward process if you have a stable job and solid credit history.
If you decide to apply for a commercial investment loan, there are several options to choose from with different eligibility criteria and interest rates.
4. Set your investment budget and return goals
When you plan your first investment, make sure you know the exact amount you can afford to invest and, if the worst does happen, how much you can afford to lose.
From here, you can make some initial plans about the kind of property you can get within your budget and understand the ROI you can expect.
Within commercial real estate, the location and type of property will play a major role in your potential returns.
5. Start small
If you’re risk-averse or don’t have much capital or experience, consider starting small with your commercial real estate business. From here, you can employ a simple buy, fix and sell strategy to slowly build up your capital base for larger property purchases.
There are plenty of small commercial properties, so you have more options and opportunities to learn your craft and grow your business. What’s more, small commercial deals can be extremely profitable.