If 2020 taught us anything, it’s that you never know what’s going to happen. So, it’s wise to have your money invested across a variety of assets, with commercial real estate being one excellent option.
Why excellent? Where else can you find an investment that includes cash flow and equity paydown? This happens when the tenant––your business––pays down your bank note. You may also benefit from both appreciation (we’re seeing a lot of that with costs on the rise) and tax depreciation. Many buyers and investors are seeing cost segregation (accelerated depreciation) opportunities as well.
If you’re new to CRE investing, here are my five tips to consider before you sign that first purchase agreement:
1. Do your research. Listen to podcasts, read books, and talk to investors. Be sure to asks questions and listen. It’s also helpful to understand how to read contracts and gain an understanding of your local economy. Brokers can help, as we are experts in the business.
2. Decide what property type best suits your interest and budget. Categories and examples include:
Multifamily: Duplex, triplex, quadruplex, and apartment buildings
Office: Buildings vary from one office to office centers and skyscrapers; grouped by Class A (best construction and location), B, and C
Retail: Small shops, strip malls, power centers, community retail centers and large shopping complexes
Industrial: Manufacturing, light assembly, warehouses, flex warehouses (includes office), distribution centers, and storage facilities
Hospitality: Hotels and motels
Mixed Use: Combination of any of the previous categories
Land: Undeveloped land, infill (could be vacant land or underdeveloped), and brownfield (previously used for commercial or industrial, but can be cleaned up and re-used)
Special Purpose: Parking lots/ramps, stadiums, outdoor storage, etc.
3. Find a mentor or join an CRE investing group. Look within your community and talk to people you know. Someone may know someone. Otherwise, intentionally connect with people that work in CRE.
4. Build a network of specialists. You’ll need to rely on the expertise of brokers, bankers, lawyers, and accountants. Find people you can trust and those who know the local CRE business.
5. Smaller deals are often seeds to get into bigger deals. Starting small gives you the opportunity to gain experience without taking catastrophic risk.
Commercial real estate investing doesn’t have to be a scary or intimidating move. You also don’t need to have enormous amounts of cash to begin. You do need to know the risks and benefits, find the right connections, and determine which deal fits your goals and lifestyle. I’m here to help if you have any questions (612-788-1552 or jeff@CEGspaces.com).
Jeff Salzbrun is the owner and broker of Commercial Equities Group (CEG). As a veteran-owned real estate brokerage, CEG has been involved in many sale and lease transactions, ranging from single offices to 250,000+ square foot buildings. At CEG, we get your deal done. We know space, and we know the CRE business.
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