4 Helpful Tips for Thriving in Commercial Real Estate Investing

Written by Lanre Onibalusi

Investing in commercial real estate is a big step up from investing in empty land or homes. This type of investment comes with a unique set of challenges and opportunities. This type of real estate investment is known for its ability to bring in a consistent, high-income revenue stream provided you’re able to manage your commercial properties to the expectations of your tenants. The relatively low risks and high rewards that the commercial market promises are enticing to investors from all walks of life, provided they have the initial capital to invest.

However, investing in commercial real estate isn’t going to guarantee you make a return on your investment. You’ll need to be vigilant, keeping a close eye on all of your properties so you can make successful investment decisions. That’s why you’ll find four tips that will influence your commercial real estate investment decisions and set you on the right path toward success in this rewarding market.

1. Hire Competent Property Managers

As an investor, it’s unlikely that you have much experience with property management (in the case that you do, great! Take this advice with a grain of salt). You may think that you’ll cut down on annual costs by managing your properties on your own. But in reality, you’ll be using precious time on learning the ins and outs of property management - and you probably won’t be able to manage the property as well as someone specialized in that field can.

That’s why it’s in your best interest to hire a competent property manager. This qualified individual can spot potential risk factors at your properties, prevent, liabilities, source potential new tenants, collect rent, and take charge of several other tasks that would eat into your time. TalkMarkets contributor Than Merrill, CEO and founder of Fortune Builders, believes that this is the key advice you should take to heart when investing in commercial real estate, as it will let you pursue more opportunities and reduce your overall stress.

2. Stick to Important Financial Metrics

There are hundreds of financial metrics used by different financial advisers, mathematicians, and asset management companies. But instead of trying to understand all of these metrics, you should focus on just a few that you can easily understand and apply to your investments regularly. A few of the metrics that you could employ to understand financial situations include:

• Capitalization rate: Often shortened to cap rate, the capitalization rate is a metric that finds the value of your property that’s producing annual income from tenants or other income sources. A few variations of this metric exist, but primarily these metrics act as ratios of your net operating income to your property values.

• Scheduled gross rent: This metric calculates the maximum amount you could make from a property if all units were rented at current market rates. Scheduled gross rent is a great way to understand the potential annual value of a property for your finances.

3. Always Finish Due Diligence

The commercial real estate investment space can be highly competitive, requiring you to make purchasing decisions extremely fast or risk losing out on the property. But that doesn’t mean you should skimp on due diligence. Due diligence is the process in which you research every aspect of a property - how likely the property is to get tenants, its location relative to other commercial real estates, the potential maintenance issues the property may have, and more - and assess how valuable the property truly is.

If you neglect some of the key steps of due diligence, you may find yourself purchasing a property that has major flaws. Flaws could tank your investment and could result in a property that requires even more capital to fix it up for tenants or for you to be able to sell that property. 

Roy Dekel, CEO of real estate software company SetSchedule, claims that "The more you know about a property and the inherent costs, both expected and unexpected, the better you are able to mitigate risk. I advise making an inventory of the current property conditions and every foreseeable cost including things like HVAC repairs and tenant screening costs before deciding whether or not to invest in a property. Knowledge is power and the more you know about your investments, the more powerful you are as an investor." 

Proper due diligence will always result in the acquisition of properties you’re happy with and will generate solid income streams. To thrive in real estate investment, you’ll want to develop a due diligence checklist that you follow with every property you’re interested in.

4. Build A Complementary Team

While it’s a perfectly viable option to start investing in commercial real estate on your own you’ll likely be far more successful if you build a team of trusted co-investors that complement your skillset, as expert real estate broker and investor James Kimmons says. For example, if you’re great at talking to property owners to assess their properties but don’t understand how financing works, you’ll want to find a co-investor who deeply understands financing. The success of your expertise will be far greater than the sum of its parts, getting you great deals through collaboration. Without these expert co-investors, you may miss a critical piece of information that could tank your investment - one that would have been obvious to an expert in that area of commercial real estate investment.

Investing in real estate takes a tremendous amount of up-front research and effort, but the returns can be fantastic. If you want to see success in real estate investment - especially in the commercial space - you’ll need to be detail-oriented and quick-witted. Furthermore, you’ll need to look at all of the facts about properties objectively. With this in mind, along with the four tips here, you’ll be well on your way to success in this tricky space.

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Lanre Onibalusi is a Digital Marketing Expert/Consultant with over a decade's worth of experience. He majored in Economics during his time at the University of Ibadan and is currently a self-employed entrepreneur. A huge part of his expertise involves research, writing, and public speaking. Some of his writings have been published on LifeHack, Entrepreneur Mag, and The HuffingtonPost among many others