While there’s no way to remove all risk from a commercial real estate investment, there are tricks to the business that allow you to stack the odds of success substantially in your favor. The truth is that this sort of investing can be very profitable when done correctly. Done wrong can ruin your financial life for a long time, maybe forever. This is not meant to scare you away, merely to remind you to pay attention to the details.
1. Buy Low – If you’ve heard this old maxim once you’ve heard it a million times. Guess why people keep saying it? Because it happens to be true now and forever. If you can think of a situation where it makes more sense to buy high, please let us know. Until then, endeavor to pay as little as possible for your commercial real estate investment.
2. Don’t Bank on Appreciation – Betting on a certain amount of appreciation within a certain time frame will not only bust your portfolio but probably give you ulcers at the same time. The pretty little bow tied around this picture is that you don’t need appreciation to make money. How? Pay attention to the next point.
3. Don’t Enter a Negative Cash Flow Deal
– Even if your commercial real estate investment never gained a penny in value, you could be making out like a bandit from monthly tenant payments. See how important positive cash flow is? It’s tough to justify a deal that doesn’t have this, and it should be enough to pay the mortgage, cover maintenance and repairs, and leave a little bit extra in your pocket.
4. Low Interest Rates – A low interest rate on a property mortgage makes a big difference. A BIG difference. One reason we’re so hot on income properties right now is that interest rates are still at historically low levels. Even though standards have been raised when it comes to down payments, over the length of the mortgage, a lower interest rate is second to none in importance. If you interpret this to mean you should invest now, we say what are you waiting for?
The Commercial Investing Center Team
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