Investing in Commercial Real Estate? Here are 5 Keys to Remember

There are a number of tips you should remember when Investing in Commercial Real Estate ... photo by CC user AgnosticPreachersKid on wikimedia commons

Dipping into real estate investment is no small undertaking. There is a lot to learn and a lot you need to do in order to give yourself a chance at getting a good return on your investment. This is true of all types of real estate investment, but especially when you are buying an apartment building. There are a lot of small details that can be overlooked, and if you are not careful, you can find yourself in some trouble. To help you out, here are some things that you should do before making your purchase.

Talk To Professionals

Buying an apartment building is not something you are going to be able to do on your own. You are going to need the advice and expertise of other business professionals to help you through the process. For example, you will want to talk to a real estate lawyer to help you with all of the legal documents, and an accountant to manage things like state and federal taxes, along with your budget. You will also need a real estate agent to help you find a good building, inspectors to ensure that the building is up to code, and an insurance broker to ensure you have the correct insurance coverage for your apartment building.

Lastly, most investors do not manage their investment buildings on their own. Rather, you hire someone else to run it for you, and this usually falls to a property management company. When looking for all of these different professionals, be sure to find people who have experience working with apartment buildings.

Do Your Math

Before you buy a building, you want to make sure that it is going to be profitable for you. A few basic math formulas will give you the answer to this. Some things you will need to figure out are the net operating income of the building, along with the return on investment and the cash flow rate. If you are not sure how to figure any of these things out, a simple Google search will lead you to the correct formula.

Secure Funding

The next thing that you need to do is get funding for the building. Unless you have the money in an account somewhere, you will probably need to take out a loan. You will probably need a roughly twenty percent down payment, but this will vary from lender to lender. The money for the down will also likely need to be seasoned, which means a lender doesn’t want to see a large transfer right before you look for a loan. They want to see the money in the account usually for AT LEAST 90 days.

There are two major types of loans that can be used for investment. The first is a Non-recourse Loan, which are for properties that are worth more than $2.5 million. It requires collateral in case you do not meet your loan payments, and the lender can take the property back. The other type of loan is a Recourse Loan, in which all of you and your wealth will be personally responsible if you fail to make payments. You will have to use this type of loan if the property is worth less than the $2.5 million. Click Here for more information on these two types of loans.

Find The Right Building

One of the most important aspects is finding the right building. You can’t just choose any building and hope that it will turn into a good investment. To find the right building you will probably need the help of a real estate agent, who will know about buildings for sale and where you should look to invest. You can also look through the local paper to see if anything is for sale, or talk to other investors in the area to see if they know of anything for sale.

Learn As Much As You Can

Finally, before you invest, it is important to learn as much as you can about not only your building, but the entire process. Pick up some books on real estate investment, attend some legitimate seminars. and talk to other experienced investors. The more you can learn beforehand, the better off you will be when it comes time to invest.