Commercial real estate investing. This combination
of words seems to always evoke a heady mixture
of thoughts and emotions in my clients: attainable wealth, uncertainty, tentative excitement, fear, and an affluent retirement lifestyle. I would postulate that both the positive and negative thoughts evoked are usually the result of an incorrect assumption and a lack of knowledge with regards to investing in commercial properties.
A lack of knowledge is the biggest difference clients can face when considering the merits of commercial real estate investing and other types of investing, including residential. It takes real knowledge of retail, industrial, multi-family, the commercial real estate market, property management, financing, and more, to avoid making costly mistakes.
Most people investing in condominium units can afford to make a mistake or two. Usually the sums of money involved in such investments are smaller ($300,000-$500,000 is a typical investment condominium price) than in commercial real estate investments. Not only are the purchase prices of commercial properties higher than those of residential properties, but the amount of down payment you have to commit to a transaction is also more - often 30 to 50 per cent down.
At this point you might be wondering if you will ever be able to stomach the risk and take the plunge into commercial real estate investing. However, the two largest benefits commercial real estate investing offers over residential are as follows;
1. The landlord has more power than the tenant (anyone who is a residential landlord in Canada is aware that more often than not, landlords are at the mercy of their tenants); and
2. The owner has myriad opportunities to increase the value of the real estate asset by decreasing expenses, replacing a tenant with a better paying one, dividing space and charging more per square foot, changing the allowed use of the property, redeveloping the property, and so on.
If you really want to learn about commercial investing, ask investors who are actively in this property area. You should also reach out to Realtors, lawyers, and friends that are involved in this sector, and get them to tell of the bad stories they may not be keen to recall. Feel free to shoot us an e-mail or leave a comment in the section below.
When did they lose money? What went wrong? What would they do differently now if they faced the same situation. As I regularly say to my students: The most important thing in commercial real estate investing is to know what questions to ask and who to ask them of.
These questions alone will not only keep you out of trouble (i.e., keep you from losing money), but will likely allow you to create more wealth for yourself in commercial real estate.