1. Understand Both the National and Your Local Market
Your local real estate market is the city and state in which you live. The national real estate market encompasses the entire United States. You need to have a good understanding of what’s going on in both markets before you invest your money or anyone else’s.
Nationally, the real estate market had a crash of historic proportions in 2007 and 2008. It’s been recovering ever since. Today, most analysts agree that commercial real estate markets have recovered nationally and may be overheating again.
Since real estate markets are currently so strong, you might not want to invest right now because assets may be overvalued. Furthermore, you might really struggle to find a deal because sellers are able to get their full asking price most of the time.
Is it hopeless? No. Shift your focus to the local real estate market. Suppose that you live in a small southern city that’s been doing alright economically. After considering all of the cities in your state where you might invest, you stumble upon Goldmine. Goldmine is just a two hour drive away from you and the Chamber of Commerce informs you that after decades of stagnation, big things are about to happen there.
According to the Goldmine Chamber, their savvy, young, new mayor has managed to lure several Fortune 5000 corporations to the city and they expect a huge influx of workers who will need housing. So, if you are willing to move or at least do a little bit of commuting, Goldmine may be a good, long term location for the small investor to buy and hold a small apartment complex or office building.
2. Educate Yourself On The Cheap
Real estate investing is far more complex than most people realize. It encompasses aspects of marketing, finance, construction, accounting, and psychology.
It’s imperative that you educate yourself so that you really know what you are doing before you begin spending money to invest in real estate. You don’t need to spend a fortune doing so.
The best free resource for real estate investing education is probably YouTube. Just enter “commercial real estate investing” as your search term to get started. It’s true that you can learn almost anything on YouTube, so grab a legal pad and a pen and watch educational videos on commercial real estate investing while taking some notes. Beware exaggerated claims of success and investors that never admit failure.
Another excellent, free resource for real estate investing education is Bigger Pockets. Bigger Pockets offers the rookie investor seeking guidance an abundance of educational articles as well as virtual networking opportunities with fellow professionals. While most of the information on Bigger Pockets will relate to residential investing, once that investor has exceeded 6-8 contiguous units, he is now a multifamily, commercial investor.
Finally, check out the real estate investing section of Amazon. Look for those commercial real estate investing books that are very highly rated. Then, check out the actual reviews to determine which books seem to be the most real and authentic. Again, be wary of people who write only of their endless successes. Once you feel like you’ve found a few good titles, check them out at your local library and read them.
Last but not least, you simply must join your local real estate investing club and attend meetings regularly. This valuable investment in your own education should cost you a couple hundred dollars a year. Absolutely nothing will teach you more about investing in your local market than networking with other real estate investors at the local meeting. Find your local club here.
3. Develop Your Intuition and Your People Skills
As a commercial real estate investor, you will be working with a large and diverse group of people and you must be able to connect with them in an authentic and honest manner. Realize that they have challenges and goals in their life just like you. Always be respectful and polite.
If you choose to use an agent, it will be easier for you because you will only be dealing with that one person. If, however, you plan to represent yourself, you may have contact with numerous different agents and property owners.
If agents or owners feel you are being unreasonable, they may become irate. Investors are always trying to get the best price they can for an asset while sellers are always trying to get as much money as possible for the same asset and conflict is sometimes unavoidable.
Interacting with tenants is equally challenging. Multifamily residents consider your apartment building to be their home. When inevitable conflicts arise, it will be you or your property manager who will have to tactfully resolve them. The goal is always to maximize profits while keeping your tenants happy.
Commercial tenants always believe that they are paying too much in rent. You could hire a commercial real estate agent to conduct a market analysis for you which proves that your tenant is paying market rent or below and your tenant will still believe, in his heart, that you are charging him too much. If it’s time for him to renew, you must determine how to deal with his beliefs. Even if you’ve been advised to raise his rent, perhaps you should negotiate no raise for a year to keep a valuable tenant in place. This is a judgment call that requires intuition and empathy.
To summarize, commercial real estate investing is challenging. The goal of finding undervalued properties is difficult today, but still possible. Successful investing requires not only knowledge but significant people skills, all of which can be developed with time.