How to Make Money in Commercial Real Estate
What is Commercial Real Estate?
Buildings that take on the form of flats and apartments and other commercially viable spaces that generate revenue for the owner are termed as commercial real estate. The value of commercial property and its appreciation will be dependent on several factors.
How to Make Money in Commercial Real Estate?
Get a stronghold of your money
To become a tycoon of real estate, you need enough liquidity reserves. Demarcate in clear terms how much you want to use on the property and how much you want to borrow from commercial banks. While you are at it, get a proper approximation of how much money they will loan you and against what collaterals.
Reading up on the trade
If you are trying to make your mark on the real estate industry, make sure you acquaint yourself with the trade tricks. Before that, you will need to brush up on the basics by understanding the terms associated with this industry. Some websites are up on the internet to educate you on such issues.
A proper understanding of the prevalent market conditions is essential. Estate markets like the stock exchanges are a volatile area. The price fluctuates very often. When the market is unhealthy, the price will be low, and that might be the correct time to buy. When the market is doing well, the prices of the assets will be high, which is the appropriate time to sell.
The area that houses your investment also has a role to play in determining the asset’s price. If it is in a posh and upscale area, the investment might yield a better price than a conventionally labeled bad neighborhood.
Adding value to your Property
Once the property legally belongs to you, start planning improvements. Make sure a contractor scrutinizes your property and gives you suggestions about how you can sell it at a higher price after making additions. Such fixes include renovation, adding new paint, placing decors, etc.
Assigning Competent Staff
Rent out the property if you can, and if you can’t, employ a competent property manager who will do it for you. It isn’t easy to make customers compete for one property and make them pay their rent on time. Such jobs are carried out seamlessly by an efficient workforce on behalf of you. Keep yourself attached to the finances that emerge from your property and have total control over the cash outflow and the bills you need to pay. In this way, you can stay on par with the finances.
Two approaches to a Commercial Estate
The conventional way to get your business up and running is to adopt the buy and hold strategy. In this case, you buy the asset, make certain value additions, and bring tenants for the long haul. In an ideal scenario, the revenue earned should be at least 20% more than the cost incurred by you on advertisement, depreciation, value additions, and maintenance. If need be, use a canny accountant.
The riskier way to go about the job is to flip the property. You need to buy the property, make decent upgrades, and sell it for a greater amount than you invested in it. To do this, you need to have a pretty great understanding of the market and the timing of sale and purchase.
Once you are sorted about how you want to go about it, try and compare the selling prices of similar properties from different backgrounds to understand better if you want to hold the property or sell it. Before you start renovating, see if there are just too many renovations to make and if the neighborhood is stagnant. If you are new to the renovation game, take quotes from different contractors to see if someone’s offering you a better deal.
- No question is a question when it comes to real estate. The first question that you shouldn’t shy away from asking is why someone would want to do away with the property. In many cases, the cause is pretty obvious. Someone would want to save himself from going completely bankrupt, or maybe someone wants to relocate. In certain underhand cases, it might be because of tax burdens.
- Ensure you have a good understanding of tenants’ presence is deflating or inflating the price. The present cash flow and the future cash flow should be factored while making the acquisition. If the possibility of future cash flow is higher, you can opt to pay a higher amount for the asset, especially if you envision this project of yours as a post-retirement income or to generate money for other projects.
- One quality that separates a good investor from a bad one is the entrepreneurial risk of that investor. Many investors fail to act fast and, as a result, lose out on rewarding properties. A lot of thinking followed by inaction will land you nowhere. A bit of optimism goes a long way to ensure that you end up with nothing.
Apart from the means listed above, there are other ways by which you can make money from real estate properties. By contract flipping, you can earn a decent commission where you introduce a buyer to a seller. If your house is located in an exotic vacationing place, you can put it out for rent for visiting families at competent prices. Just make sure to list your property on websites like Airbnb. Also, if the property’s price is creeping higher by the day, you can put it on lease with the obligation to buy a contract in place. In this scenario, you will get a great return from your initial investment.
Making Money in CRE FAQs:
The loss of income when a tenant moves out and there is no new tenant is called a vacancy rate.
Yes, longer leases give owners a better sense of security which ensures that moving out activities will lessen and his cost of operation won’t increase that way.
Make sure you advertise your property at least two months before your tenant’s lease expires, so that the prospective tenant is ready and all the repair work should be sped up to cut your operating cost for the minimum time.
It is best to do some background check on the tenant and check his credit ratings before allowing him to sign the lease. If there is a genuine trouble, then it’s better to be empathetic.
Having license as an investor has its benefits. It can give you access to most listed properties and you can make a greater percentage of profit.