I think real estate is one of the best ways—maybe the best way—for everyday people to build wealth. And commercial real estate can build wealth faster, safer and with less effort than coming through the ranks of single-family house investments. But to most folks it’s a closed and mysterious world.
At seminars and in emails I am often asked, “How do I get from where I am (usually single-family residential properties) to dealing in commercial properties?” The investor usually has a story about a deal he missed, or didn’t know how to work, and couldn’t find anyone to ask for help.
Some who ask the same question have yet to do their first deal and wonder if they can start in commercial real estate without first acquiring smaller properties.
The answer for both is yes; you can start investing in commercial real estate from wherever you are. All you need is a plan, a plan designed to get you where you want to go, starting from where you are, with detailed instructions of what you need to do and an estimate of how long it will take.
Sound good? It gets better. Ideally that guide would be personal, leveraging your strengths and avoiding your weaknesses. It would be customized with the amount of time and capital you have to invest, not a case study that assumes both are unlimited.
4 Steps to a Commercial Real Estate Investment Plan
The difference between successful investors and those who wish they were is in how well they prepare themselves for the task. The first step of preparation is to identify what is needed to accomplish the goal.
What does a successful commercial real estate investor need? It’s simpler than you might think.
- Get Your Personal Financial Statement in order. Inventory what you have to work with. Orient your financial affairs to serve your purpose of building wealth. Collect cash from all available sources; clean your credit with a stiff brush; prepare your financial statement for public viewing. Remember my favorite truism: Opportunity without the capacity to capture it is an illusion.
- Form Your Investment Criteria for property type, location and size. Decide what you want to own. Each property type requires a different set of skills and resources, and it is much better to fit the property to the investor’s strengths rather than trying to make the investor fit the property. Identify the market area(s) where you want to invest. Establish your minimum and maximum deal size based on your capital and credit.
- Know how to accurately Value, Finance and Structure a deal. Answer the right question: “What is it worth to me?” Use the right financing for the deal type. Use terms to overcome price and still provide a margin of safety. Put deals together to win, no matter what.
- Reap the profits, and keep them. Tax planning and asset protection are key components in structuring transaction terms to protect your position from start to finish.
These four steps happen to align with the four modules in my book, DealMaker’s Guide to Commercial Real Estate.
Need to know more? That’s okay, and I understand. If you look around the website, you’ll find more details on each of the four steps above. Read through the articles, use a few of the downloadable tools, search the blog topics. What you’ll find is a wealth of information put here to guide you every step of the way.