Stepping into the world of owning a commercial piece of property can mean a whole bunch of different things. Commercial properties are used to host a slew of different businesses. And the type of business you bring to the table makes all the difference to your path.
If you’re ready to take your professional stance to the next level, owning a piece of commercial property will definitely amp things up. Take a moment now to read through some helpful tips for purchasing your first commercial real estate, and start planning for your future today.
Know your options
You know your goal is to own a commercial property, but you also have to choose what route you plan to travel. There are more than a couple different ways to invest in commercial property. Check it out.
- Multifamily properties mean that you’re investing in housing as a commercial source of income.
- Office space is a valuable commercial commodity.
- Retail space can generate big numbers in revenue.
- Industrial commercial property houses distribution centers and storage warehouses.
- Hospitality is another great method of investing in commercial property.
Consider your investment strategy
Once you decide on what type of property you want to purchase, you should spend some time considering your investment strategy. Check out a few specific strategies.
- Land Banking is when a commercial property investor purchases a long piece of land to sit on it until new development begins appreciating the property.
- Working a development strategy is when you purchase a blank palate with a commercial vision in mind.
- You may want to invest in residential property for a fix and flip strategy.
- Wholesaling can turn a good profit if you play your cards right.
Look into other investment strategies before moving on your first commercial property.
Learn how to do the math
Find some underwriting template tools online, and teach yourself how to work through the numbers of a commercial property sale. Work up your own “back of napkin” formula to make it quick for you to estimate costs, and don’t ever go into such a large purchase unarmed.
Your formula should be something that works to quickly show you whether or not an investment is worth the cost. You won’t have time to work up a whole spreadsheet layout while you’re in the middle of a meeting.
Learn the vocabulary
There is a wide range of terminology you’ll want to make yourself familiar with before jumping into a commercial investment. Dig into the industry-specific terminology, and learn to speak the language. Here are a few examples.
- Loan-To-Value – LTV speaks to the comparison between what you’re borrowing and the true value of your investment property.
- Debt Service Coverage Ratio (DSC) – This terms references the amount of money you’re projected to make versus your total debt if you choose to purchase a particular property.
- Cash on Cash – What you make in a year compared to what you actually put into the investment.
There are a whole slew of other terms you’ll want to familiarize yourself with along the way, so don’t skimp on your research.