How to Get Ahead Financially By Investing in Commercial Property

Think of all the investment commercials you have heard and seen that admonish/encourage you to start saving money early in your working life. Messages like, “Take advantage of your company’s 401k program,” and “Start an IRA program,” are like investment mantras and there is a great deal of wisdom in those messages. But what also can be important is expanding your mindset to additional investment opportunities like investing in property.

Risk and challenge

Property investing is often described as “high-risk, high-reward.” It may not be the ideal investment plan for the faint of heart. But it can be a good match for the investor who:

• Likes a challenge.

• Has an enormous amount of patience.

• Can commit to a hands-on approach to managing the investment.

• Is willing to learn the business of investing in commercial real estate.

Reducing risk

The first “risk” to reduce is a lack of knowledge in commercial property investment:

• Learn all you can about the subject.

• Find a mentor to further your education.

• Consider partnering with a successful commercial property investor.

• Start conservatively.

Next, don’t try to invest without help from a commercial estate specialist. The person you work with should be a fiduciary (one who will be working in your best interest). Industry writers recommend that your broker should be a member of the National Association of Realtors and adhere to its code of ethics. Most important of all, your broker/realtor should represent only you – not the seller, or not you and the seller.

Making money on your investment

Getting ahead in commercial property investing is accomplished in several basic ways. Your investment can grow through income and appreciation/selling.

• Income generally comes from rent. It also can be generated if your tenants are required to pay fees for contractual options (like right of first refusal on an adjacent space).

• Appreciation is another investment/money-making option. This is where the adage, “Buy low, sell high,” applies. Experienced property investors will buy the property at a low price, put a finite amount of rehab work into the property, possibly redefine the property to a more marketable purpose, and sell at a higher price. These investors make their money on flipping the commercial property, not on rental income.

Types of commercial estates and income potential

The type of commercial property in which you choose to invest can affect your earning potential. Consider the income opportunities in these properties:

• Motels/hotels located in tourist or major business travel areas.

• New commercial construction can be highly profitable but requires serious knowledge of the industry (and significant financial backing).

• Small commercial properties like strip malls and small office buildings often have long-term tenants.

• Industrial properties include manufacturing sites, distribution centers, and warehouses. A financial plus here is that these tenants are usually responsible for most repairs and maintenance.

• NNN leases are often found in larger businesses and with stable tenant companies that lease long-term (like 30 years at a time). These tenants are responsible for all expenses, including property taxes and insurance.

There is money to be made for the commercial property investor who is willing to start slowly, become knowledgeable, be focused, act conservatively, exercise patience, and work hard.

Rarely will commercial property investment be your get-rich-quick ticket. But over time, it can significantly augment your retirement fund or provide you with the financial resources to fulfill other dreams and plans.