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Commercial Real Estate Investing Basics

By Daniel Doran | July 23, 2012

With great risks comes great rewards.  While an investor can get rich buying and selling residential properties, true wealth comes from owning commercial real estate.  Commercial real estate is somewhat unique among real estate investment types, as this kind of real estate requires a high investment to get into the game, much higher than most residential properties and poses equally great risks depending on what you plan to do with your property once you own it. Of course there are also many options for your commercial real estate investment that investors find appealing.

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Most investors find leasing office building or warehouse space to be the safest route to take when it comes to starting out as a commercial real estate investor. They feel that this is a relatively steady source of income because most businesses prefer to keep their locations as long as possible. Smart business owners are well aware that customers, clients, and vendors need to be able to find them in order to do business with them and for this reason, prefer to keep their business in the same location whenever possible rather than reestablishing themselves in different locations year after year.  While a residential real estate investor might have to search for a new tenant every two years, a commercial property sometimes has the same tenant occupying it for decades.

Commercial real estate investing is a different animal than buying traditional residential real estate that many of us might be more familiar or comfortable with. You will need to do a lot of research before jumping in with this particular sort of investment. Commercial real estate investments can take on many forms. From strip malls and outright shopping malls to business and industrial complexes to sky scrapers and high rise condos you will find all manner of commercial properties. Whether your interests lie in business or personal types of commercial real estate there are significant profits that can be made.

Unfortunately, beginners often find the path to commercial real estate investing difficult to comprehend.  There is a much larger learning curve then investing in residential properties. You need to understand the terms used like NOI (net operating income), NPV (net present value) and NNN (triple net lease. A lease requiring the tenant to pay in addition to a fixed rental, the expenses of the property leases, such as taxes, insurance, maintenance, utilities, cleaning etc.)

To create even bigger profits it is often best to work as part of a team of investors. Not only does this approach spread out the risks to some degree but also helps find the good buys, spreads the labor pool, creates an environment of ideas, and allows you to bounce those ideas off one another. It is a great idea for those who are looking to build a prosperous future in the field of commercial real estate investing and can be extremely profitable for all involved.

Real estate, in and of itself, is a high-risk venture. Commercial real estate bears a little more of the risks in the beginning.  However once you're established and people, particularly investors, know your name you will find the path to real estate wealth is much easier obtained through commercial real estate than almost any other types of real estate investing.

Commercial real estate investing can be extremely intimidating if you allow it to be. Avoid putting yourself in a situation where you feel out of control or completely uncomfortable for your first investment.  But if you have the means, the price is right, the deal appears to be solid, and you feel you are ready for the challenge, commercial real estate profits can be a serious motivation to learn the ropes.

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Daniel Doran is a 20+ year veteran in the real estate industry. He is a previous owner of a law firm, mortgage and title company. Daniel has also written several books on mortgage modification, short sales and real estate investing. He currently specializes in Commercial Finance and Real Estate Development and is a graduate of Manhattanville College and Brooklyn Law School. You can contact Dan at www.buildingsbyowner.com .

Daniel Doran is a 20+ year veteran in the real estate industry. He is a previous owner of a law firm, mortgage and title company. Daniel has also written several books on mortgage modification, short sales and real estate investing. He currently specializes in Commercial Finance and Real Estate Development and is a graduate of Manhattanville College and Brooklyn Law School. You can contact Dan at Buildings By Owner
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  • 2 comments on “Commercial Real Estate Investing Basics”

    1. Great Blog. Starting out as an investment group is a great idea for new investors.

    2. I think it's a good idea to go into a first time investment as a kind of 'syndicate'.

      As you mention, it spreads the risk and if the risk is less, the pressure is accordingly. This will allow you to make better decisions on behalf of the business, meaning it will stand to grow better as a result.

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