Commercial Real Estate Investing for Beginners [Ultimate Guide]

Commercial real estate investing is a business approach with a lot of profitability and potential in the industry. Despite its volatility, the real estate market has always been a relatively secure investment option. Investing in commercial real estate is viable if you have the capital to invest and need a passive income.    

In 2022, the average sales price of a new home in the US was at a whopping half a million dollars (approx), but individuals with this level of investment option can easily earn a strong ROI from it. However, this is only possible if you know how to invest in commercial real estate.  

Ways to Invest in Commercial Real Estate  

The right options for commercial real estate investment can make all the difference in your experience. Some real estate investments are more profitable than others based on individual factors.  

The real estate market has transformed in the past few decades with new and versatile investment options ready for business enthusiasts. Following are the common options for real estate investing that you should check for: 

  • Wholesaling - When a real estate owner places a contract on a property and finds an investor to buy it, it is called real estate wholesaling. There’s a higher price for contract assignment, leading to significant profit for the investors. Wholesaling is common for property schemes with multiple units and focuses on sales volume. 
  • Syndication - It is primarily a partnership between investors who pool their resources (monetary) into a single project. These kinds of real estate investment are best for larger projects, requiring more working capital. Once the real estate syndication completes, the investors take their share from the total amount earned. 
  • REIT Investing - REITs or Real Estate Investment Trusts are schemes used for managing properties that produce a profit. These investment trusts generally have multiple investors, providing the necessary capital to run the property project. 
  • Rehab - These are investments where the investors purchase a property, renovate it, and sell it off for a profit. These projects are great for areas with high demand but limited properties. You can purchase a property, fix it up, and list it down for purchase again for a significantly higher price. It is one of the top-rated options for real estate investing and provides higher profitability.  
  • Flipping Houses - Flipping houses include purchasing a high-value property and selling it quickly for a higher price. These investments result in a good profit as real estate prices generally increase. The higher you sell your property, the higher your flipping profit is. 

Getting Started with Investing  

Real estate investing has great potential, but a single investment mistake can land you in serious financial turmoil. It’s necessary to know the right approach when getting started with investing. Here’s a list of quick tips to get you started. 

Take Inventory of Your Financial Resources  

Financial resources matter the most for any real estate investing. You need to keep pooling investments in a property, regardless of the property you have. Therefore, taking inventory of your financial resources and allocating them aptly is crucial. 

Research the Market  

We recommend researching the market based on your desired property type, location, socio-economic factors, etc. It will help you get a more clear idea of the future predictions in the market. 

Determine the Cost of Ownership  

Purchasing the real estate property doesn’t include the price alone. It also includes taxation, registration, documentation, and other requirements, increasing your budget. Gather all the required information before stepping into business to keep it streamlined. 

Start With Smaller Investments  

It’s somewhat thrilling to go all out during real estate investing—but it’s not smart. It’s necessary to follow a balanced approach with smaller investments. You can increase your investments with time and get a better ROI. 

Determine Long-Term Management  

Owning a real estate property is just the tip of the iceberg. You need to have a long-term view of real estate investing. Set a budget, property-owning tenure, and an approximate selling price as soon as you step in. This way, you’ll have some indicators to act according to. 

How Is Money Made from Your Investments? 

Investments in real estate reel in a lot of money, but how does it happen? Before investing, you need to learn how the money rolls in.  

Property appreciation is the most common principle for any property investment— real estate investment focuses on increasing property value when sold. There’s a variety of factors that impact these profits, including: 

  • Location 
  • Improvements 
  • Development 

However, inflation also plays a crucial role in property value appreciation. If inflation is high, properties you own have a higher market price. However, if you want to purchase property, high inflation isn’t the ideal time for an investment. 

Moreover, with real estate investing, you can get rents for commercial and residential properties, making it a great option. Some companies in real estate investing even provide you with payments or royalties for a particular property. 

For instance, if a property you own has resources such as oil or gas increase in value. You can lease out these properties to professionals and get a royalty for them every month.  

Advantages of Investing in Commercial Real Estate 

Real estate investing has amazing market potential for commercial properties. It offers plenty of benefits that investors might not enjoy in other industries. Here’s a comprehensive list of advantages if you’re looking for a reason to help you start real estate investing.  

  • Steady Cash Flow - Investing in real estate and earning profits from it ensures a steady cash flow. For instance, some investors purchase commercial real estate buildings and rent them out, so they get substantial cash flow monthly, saving them from liquidity issues common in stocks, bonds, and other investments. 
  • Build Substantial Equity - Real estate property values can be built over time, providing substantial equity. This way, as the market continues to grow, the investors get a steady ROI. Moreover, as the property value appreciates, the overall property potential also boosts. 
  • Leverage Substantially - For instance, assume you purchased ten properties for 100,000 dollars in total and rented them out for $1,000 a month. You will steady your cash flow and recover your initial investment in 10 months. Therefore, real estate investments allow more leverage from your investments leading to further business endeavors.  
  • Excellent Appreciation Value - Real estate has more of an appreciation potential compared to other investment options. It is a more secure option and reduces the chances of loss. 

Risks and Challenges You Should be Aware Of  

Real estate investments are a viable option for property owners that want a safe and secure profit. However, like all businesses, real estate investing also has some risks and challenges that you should be aware of.  

By learning the challenges, you can identify the true market potential, avoid poor decisions, and get a better ROI from your investments. Here’s a comprehensive list of risks and challenges you should be aware of: 

  • General Market Risks - General changes in the market are an inevitable part of real estate investing. There’s no letting when the real estate market might plunge suddenly. A classic example is the recent surge in prices, which slowed down as demand stopped. You should keep this market risk in mind as a real estate investor. 
  • Asset Level Risks - Like all businesses, real estate investing also has some risks based on your property type. For instance, multi-family properties are higher in demand and can be sold for a good price. On the other hand, individual properties in odd locations might sell off harder. Either way, investors must keep an eye on the market trends and find solutions accordingly. 
  • Liquidity Risk - The real estate market has some real depth. There’s a variety of co-dependent factors that can impact the prices. For example, as a real estate investor, you may see several buyers on bidding tables trying to get properties of your interest.  Many times an investment is easy to get into but can be challenging to sell off. Therefore, you should consider the liquidity of the property accordingly.  
  • Credit Risk - A property stream’s stability determines a huge portion of your success in real estate investing. For instance, if a property owner leases their property to Apple, the value will increase much more than other properties. It’s because of lesser credit risk; many experts believe these properties are as safe as U.S. Treasury Bonds. 

Flipping vs. Owning Properties  

Flipping and owning properties have their benefits and drawbacks. Here’s a comprehensive comparison between the two.  

The pros of Flipping may include: 

  • Quick Profits 
  • Understanding Buyer Needs 
  • Improved Real Estate Network 

While the cons of Flipping may include: 

  • High Risk 
  • Unanticipated Expenses 

The pros of Owning Properties include: 

  • Builds equity  
  • Increase with positive payment history 
  • Tax deductions 

And the cons of Owning Properties can involve the following: 

  • Requires upfront costs for a down payment 
  • Complex process 

Bottom Line 

Both flipping and owning properties have their pros and cons, and you need to realize their potential and role in real estate investing. If you have dealt with issues in real estate investment—know that this is normal.  

However, it’s always best to consult with professionals if you still require more insight. With more info, you’ll be able to better find solutions to your real estate-related problems and resolve them accordingly. Reach out to Millennium Properties today to meet your real estate needs. 

Anne Barer

About Ro Crawford

Ro has extensive background in several sectors of the Real Estate industry including residential and commercial assets. Ro is responsible for developing a comprehensive marketing plan for each property as well as managing the company’s social media accounts. She designs, writes and edits offering memorandums, press releases, proposals for new business, eblasts and more. For questions, comments, or suggestions related to our blog, you can contact us via our website.