How to Start Small and Win Big in Commercial Investing

Posted by Kris Lindahl on Thursday, November 17th, 2016 at 9:57am.

Real Estate Investment Growth There are a lot of opportunities in Minneapolis/St. Paul to rehab smaller commercial buildings and strip centers, turn older homes into modern office buildings, and generate income from four-unit apartment buildings.

Starting small may be the path toward large-scale investment or you may find that you enjoy the relative simplicity of small-scale investment.

You can reap big dividends by investing minimal cash, as long as you allocate sufficient time and energy to the learning curve. However, know that a real estate empire cannot be built overnight. Learn patience - there is no substitute for due diligence. If your goal is to build an investment portfolio that includes rental property, the best way is to start with small steps on the path to your marathon run.

Learn the Terms and Rely on Proven Expertise

Learn to locate and evaluate potential income-producing property based on sound judgment and proven principles. Assess your own skills and know what strengths you bring to the table. Supplement your own knowledge and expertise with advice from trusted advisers and business associates.

It's always important to study up before you begin. Joining an investment group, enrolling in an online investing course or learning the basics by reading a book are great ways to build upon your existing knowledge.

Understand terms like "NOI" and "Cap Rates" and learn how to evaluate financial statements. Always review "the comps" when evaluating a specific property. Work with knowledgeable professional real estate brokers and tax accountants. Sharpen your skills over time and don't be in a rush to build your portfolio in a hurry. 

3 Ways to Maximize Investment Potential

1. Look to Your own Neighborhood

If you like your neighborhood and can identify opportunities close to home, it may be advantageous to start there due to your knowledge of the area. That being said, areas outside of your region may prove to be good starting points as well. Neighborhoods in flux often represent great opportunities. Ask local officials about building codes and zoning laws; be certain to figure the costs of renovation or updating into your equation as you evaluate risk and potential. 

2. Mine Resources for Creative Financing

Local banks or private investors may be your best sources for financing, but investment loans typically have different requirements than residential mortgages. Investigate a combination of options for every property you consider, including a lease-back by a current owner or private equity financing based on repayment from rental receipts. As an alternative, form a limited partnership with one or more like-minded investors. 

3. Plan for the Future

Many commercial properties have effective "life spans", so consider your options for five to ten or more years down the road. Run projections and plan an exit strategy. Apartments require ongoing routine maintenance and periodic refurbishing. Office and retail space must keep up with the times; there are ongoing needs for need for security, technological and aesthetic updating. Establish a contingency fund for those expenses and maintain sufficient insurance coverage.

Whatever your personal goals, be sure you define them carefully and review them as necessary in order to stay on track. You can always change what doesn't work, but it's good to have a plan. 

Commercial investing is not an easy path to take, but it can be extremely rewarding. If you're just starting out, take your time and look to small opportunities before jumping into big ones. Enlisting the services of a seasoned real estate agent can help you identify opportunities before others as you search for ways to build your portfolio.

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