Commercial real estate is typically a lucrative investment, but to ensure a profitable investment, you need to do your due diligence and have a sound investment plan. Although you may think purchasing commercial properties is similar to investing in single-family homes, this is not the case. These investments require more time, effort, and finances.

Commercial Property Defined

Commercial property is any property that you use to generate profit. It can be businesses or land, but it may also include residential rentals. Typical properties include retail, manufacturing, or office spaces as well as multifamily or hospitality properties.

Commercial Versus Residential Purchases

Commercial real estate is often more customized for your tenants. Whether you are purchasing a retail space or condo complex, your tenants will have a say in what features they want. These properties can also be either leased or sold to your tenants. Financing, taxes, and regulations also differ between properties.

Your Investment Plan

Before you invest in any real estate, you need to determine why you want to invest. For example, why invest in real estate at all, and why choose commercial properties over residential? Your goals should be clearly defined. Then, you need to determine what type of property you want to purchase. For example, do you seek long-term projects, such as purchasing land that you will later develop, or are you only interested in short-term investments where you purchase property, fix it up and resell it for a profit? Are you only looking for a passive income? Define your property criteria.

Your Team

Your next step is to create a great team. You are looking for realtors, mortgage brokers, contractors, bankers, and real estate attorneys to partner with. You may also consider working with a CPA. If you are new to the industry, you should consider working with a mentor. This person can connect you to the right people, help you make your initial purchases, and guide you through the process. Make sure your team specializes in the types of properties you plan to purchase.

Financing

Before you begin looking at properties, you should secure your financing. Determine whether you plan to pay for the property out of pocket or if you need help. If you need help paying for the property, identify whether you want investors or a loan to cover the cost of the property. No matter what financing option you choose, if you have the money in hand, your purchasing process will be much quicker and you will only consider properties you know you can afford.

Purchasing commercial real estate is significantly different from purchasing residential properties. Therefore, do your due diligence and ensure you are prepared before you start searching for investments.