Many people want to get into real estate investing or flipping commercial real estate, but they don’t know where to start.
This article will cover the basics of starting a commercial real estate business. Understanding these basics is crucial before making any investments in the CRE business.
These days, there are few more lucrative opportunities for investors than CRE deals.
There are many different things you need to consider before starting a CRE business, including what type of CRE business to start,
how much money you will need to get started and who will help you.
CRE Opportunities
If you want to invest in commercial real estate, there are countless opportunities available in almost every city. Here are the most common:
Above all else, it is crucial that all commercial real estate deals go through proper due diligence before proceeding.
This means that the deals have been thoroughly analyzed to determine if they will be profitable for all parties involved.
If this process is not completed with care, then it can lead to poor investment decisions.
Commercial Real Estate Investment Types
There are three main types of CRE investments that you can choose from when you first start a business.
Whichever investment type you choose will affect the way that your business develops. The main types of CRE investments include:
CRE Deal Structuring
There is always a risk involved with any real estate investment,
so it is important to plan for the worst-case scenario.
If the worst-case scenario happens, the CRE deal will have to be restructured in order to avoid losing money.
Some typical things that can go wrong during a CRE deal include:
above average vacancy rates, higher than expected expenses and unexpected legal issues.
In order to make sure that your deal will be profitable regardless of these risks, you need to have a well-structured deal,
which means that you have structured the investment deals in such a way that they are risk-free.
The five main factors that should be considered during the structuring process include:
*Lender Value
*Lender Credit Rating
*Buyer Equity
*Return on Investment
*Tax Exemption The first factor is lender value.
This is calculated using a detailed analysis of CRE deals that performed well over the past few years and includes: return on investment (RORI), tenant net operating income (NNOI) and tenant vacancy rate (TVR).
The second factor is lender credit rating. This is determined using the cash-on-cash (COC) return, the debt service coverage ratio (DSCR) and the loan-to-value ratio (LTV).
The third factor is buyer equity. This is determined using the initial investment amount, net operating income and residual value.
The fourth factor is return on investment.
This is a detailed analysis of how much profit will be made when all of the factors above are taken into account and it can vary greatly depending on the type of CRE deal you select.
Flipping Property
Flipping property is a type of CRE investing that involves buying, improving and then selling a property in less than six months.
This is optimal for investors who want to invest in smaller deals and diversify their money across many options.
Flipping property can be risky, but it can also be very beneficial as long as there was proper due diligence completed on the deal up front.Finally, there is tax exemption.
This is determined using the net operating income of the property and how long you expect it to be exempt from taxes.
Real Estate Agencies
In order to ensure that your CRE business will be successful, there are several important factors you must consider.
The first thing you need to do is find a real estate agent who has experience in both residential and commercial real estate.
This is important because agents have great knowledge about both types of deals and will help you throughout the entire process.
If you want to start a CRE business, keep your eyes on the real estate market in your area and look for places that are already occupied by businesses.
It is not necessary to start off with an office property but make sure that you have an idea of what type of space you want right at the start.
Another thing to consider when looking for a place to buy is how much money it will cost you to get started.
This should be based on the type of property you want, but it is also important to make sure that you are aware of the current market value.
The last thing you need to look for when looking for a property is local management companies. Management companies help with upkeep and maintenance which can be very beneficial if your deal will have turnover rates frequently. https://fabulousstory.com/
Another thing that can have an impact on your purchase is a mortgage loan officer.
This is important because it will be easier for your agent to get a loan if he or she has access to one.
