How to Make Money by Investing in Commercial Real Estate

The credit crisis, which really hit hard in 2008, severely affected the commercial real estate market. In fact, commercial property values fell by almost 11% in the last quarter of that year, the largest drop in quarter of a century. The market has yet to recover though there are signs that it will do just that in the near future. However, as things stand, savvy investors know that the current market offers genuine commercial real estate opportunities. While you will need the courage to take the occasional risk, the market offers you the chance to greatly boost your bank balance.

Insider Knowledge

Make money by investing in booming commercial real estate market

The present conditions in many of the nation’s leading commercial real estate markets is very inviting to investors who know what to look for.

You can only enjoy success in the commercial real estate market if you think like a professional. This means being aware that unlike residential properties, commercial real estate is valued according to its amount of useable square footage. Additionally, commercial real estate leads to greater cash flow because leases are longer than they are on family homes. In an age of tight credit, cash in hand is essential as lenders in the commercial property market look for approximately 30% down before approving any loan.

Learn How to Renegotiate

In the world of commercial real estate, a deal is never done until the paperwork is signed, sealed and the money is delivered! You can renegotiate the purchase price even if an offer has been accepted if an inspection of the property reveals any problems. In this instance, you could keep the price the same but ask the seller to pay for repairs. Beware the ‘as is’ clause in a contract because if a client signs it, they won’t have the opportunity to ask for a reduced price.

Equity Build-Up

There are numerous ways to increase a commercial property’s equity and the most obvious one is to purchase the property for below market value. This takes a keen eye and an ability to negotiate while also having the skills required to find motivated sellers. Paying down debt is another method of building equity. In order for this strategy to be successful, you need to get the lowest possible interest rate on the property.

Increasing Property Value

We have already mentioned the importance of maintaining a property but you also need to look at ‘strategic’ improvements. These are enhancements that will be worth several times what you paid for them within a few years. The best commercial property investors have a keen eye for this sort of thing and know how to maximize the value of every aspect of their purchase. Another method is to purchase land near the property, turn it into a subdivision and sell it off to land developers.

If you want to make it big in the world of commercial real estate, you’ll need to develop an eye for a bargain and have the ability to see promise where others see nothing. Make sure you get more than what you paid for, keep the property in great shape and sell it on for a huge profit. It sounds easy but few people ever manage to do this successfully.

Image license: iStockphoto (view source)

 

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