At some point in the residential real estate investor’s career comes the urge to take on bigger game, and thoughts naturally turn to commercial investing. Immediate obstacles present themselves. The first is that lenders whom you’ve built relationships with at the smaller financial level of most residential purchases may not even do commercial lending, which leaves you in the uncomfortable position of finding new sources of financing for these larger buys.
The trouble with playing the residential income property investing game is that eventually you’ll hit the wall, and won’t allowed to take out more loans because to do so would fall “outside their lending parameters.”
Remember that real estate is a get rich slow approach. You need to make a decision in the beginning whether this is only going to be a job for you, or do you want to build an empire? An empire builder must think things through thoroughly on every single deal because bad deals slow down your ability to transition to commercial investing.
Get your finances in order.
Before making the leap to commercial investing, get your financial affairs in the proper order so that you can make it happen. If you need available cash, refinance as many residential properties as possible to allow yourself the capacity to move quickly when an appropriate property presents itself. Perhaps nothing is more frustrating than opportunity without the capacity to capitalize.
Identify potential deals.
While there is no one size fits all approach, you should develop a methodology that allows you to filter deals and arrive at the decision that it is a good deal for your needs. Factors to consider include how to place a legitimate value on the property, what your return on investment needs to be, and your borrowing power. If you don’t have it, and can’t borrow it, the best deal in the world doesn’t do you a bit of good. Learn to let it go if the deal doesn’t work. You should know by now that there will always be another on the horizon.
Lastly, before making an offer, don’t ask, “What is it worth?” but rather, “What is it worth to me?” That makes it a simple matter to submit an offer on your first commercial property. What is it worth to you? Figure out that number and don’t pay a single penny more.
The Commercial Investing Center Team
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