Investing in Commercial Real Estate

Investing in Real Estate is a profitable business in Canada, but having the right perspective and a lot of patience are the key traits of a commercial real estate investor. Usually people start out investing in single family houses simply because they are more accustomed to buying residential units, but investing in other types of commercial properties such as office buildings, shopping arcades etc can be a great way to balance your portfolio. Follow the guidelines given below and make successful dealings in commercial property.

Think Big

The rule of thumb when investing in commercial real estate is to always think big. For example, if under Canadian property law, buying a 5-unit residential apartment requires you to get a commercial loan, then go for the one with at least 10 units. Remember, the more units you purchase, the cheaper it will cost you per unit.

Patience is the key

A commercial deal takes much longer time to complete than a single family house deal. They not only take longer to purchase, but also take considerable amount of time to renovate and sell. Never lose your patience and rush into a bad decision. Do not think commercial deals are ways to create quick cash to pay the utility bills or make the mortgage payments, instead they are big bonuses that you should plan to cash post-retirement.

Don’t Choose Residential Apartments By Default

Though there is nothing wrong with investing in residential units, consider investing in other types of commercial property as well, such as land, industrial and office buildings etc. Since most investors find themselves comfortable with residential apartments, it makes the market quite competitive and challenging for other investors, especially for the newcomers. Compare all of the commercial property types and invest in one that you believe will earn you maximum profit in future.

Learn the new formulas

Create your own formulas to estimate the purchase and selling price of property. For example, if you have decided to invest in old houses, then purchase the houses at 75 percent of post-repair value minus estimated repairs. You also need to familiarize yourself with terms that are most commonly used in commercial property market, such as Net Operating Income, Cap Rates etc.

Build Relationships

Just like in buying houses for personal use, relationships also play a crucial role in buying commercial properties.  You should build relationships with other investors in the property market as well as with private lenders. Relations with lenders will help you get your loan approved easily, whereas having good relations with other investors will help you start joint ventures. For example, it might be practically impossible for you to individually purchase a property costing a million dollars or more, no matter how attractive the deal is. In this case you will need a deal partner to help you out. Spend some time in finding private lenders and partners to help you if you find a great deal.