Hold your goals loosely. What we mean is that you should keep your investment’s exit strategy flexible at all times. An exit strategy has two parts, a plan to modify or improve the property and a method to sell or trade into another property. We like to have several exit strategies ready at any given time. Market conditions change. Your personal circumstances can change rapidly as well. So, don’t get wrapped up in executing just one exit strategy, because it may no longer apply.
Know where you are in the real estate cycle. There are four parts to any real estate cycle: expansion, contraction, recession, and recovery. By reading Chapter 2, you can figure out where your particular city is in the cycle, and you can determine when to buy, sell, hold, or bail. Each part of the cycle demands that you pay detailed attention to your investment decisions. Understanding real estate cycles helps you take the correct actions with the best timing. There’s nothing like timing the market like a pro!
You'll discover that controlling the risk in your commercial investments begins with finding good deals (Chapter 5) and managing them well (Chapter 12). Unfortunately, there's not one box that you can check off to eliminate risk. What you can do is learn to make good decisions so that you're acquiring stable properties which are much less likely to fail. (See Chapter 14.) You may have thought that risk-proofing was impossible, but you’d be surprised at what a little knowledge can do to your investment portfolio.
GETTING EXTRA HELP
Why go it alone when we’re here to help you? As a reader of this book, you get additional free purchase contracts, handouts, and property evaluation software. This is all included in a fun 5 Day Challenge Masterclass where you’ll discover how to Find, Analyze, and Make Offers on Commercial Properties That Get Accepted. See the About the Authors section for details, or go to CommercialQuickStart.com.
Chapter 2
A Crash Course in Commercial Real Estate Investing
IN THIS CHAPTER
What comes to mind when you think of commercial real estate? Downtown skyscrapers? Corner strip malls? Apartment complexes? Okay, that’s a good start. But have you thought about being the owner of one? You may assume it’d be too complex or too expensive, but jumping into commercial real estate investing could be the wisest and most lucrative investment you ever make. To us, the benefits outweigh the risks. But find out for yourself.
In this chapter, you find out what commercial real estate is, and you discover the different types available. We break down the big world of commercial investing into easy-to-follow categories so that you can pick and choose your favorites. We also uncover the five biggest myths that stop people from investing and understanding commercial real estate. Because the value of commercial real estate depends on the cash flow that it produces, we show you how cash flow is made on a monthly basis, and we help you discover the steps to building long-term wealth. We also tell you when it’s the most profitable time to buy, hold, sell, or bail (we even share with you ways of predicting the future!). By the end of this chapter, you’re sure to be convinced that commercial real estate is, by far, the best way to produce true and lasting wealth.
Comparing Commercial Real Estate and Residential Real Estate
Here’s our definition of commercial real estate: It’s any piece of real estate that’s bigger than one house on one lot. So, commercial real estate includes everything from small apartment buildings (five or more units) and large office buildings to shopping centers, to industrial parks, and even land development.
The three biggest differences between commercial real estate and residential real estate include the following:
Commercial real estate projects are passive investments only after they’re up and running. Remember that unless you have a ton of money and don’t care about getting huge returns, commercial real estate will take a lot of your time and effort to get started. After all, you have to deal with many things, including the learning process, finding the right mentors or teachers, searching for the right deal, financing your investment, picking management teams, protecting it from lawsuits, and overseeing the project. The good news is that after you have a commercial project off the ground, it’s usually big enough that it allows you to pay other people to take care of it. So, it won’t take much of your time at all — and that’s why it’s called a passive investment. Compare this to a single-family home that may require collecting rents and making repairs for many years to come.
All it takes is one big commercial deal for you to be set for life. Doing one commercial deal the right way can generate you a profit several times your yearly salary in addition to providing you sizable monthly income as long as you own the property. Residential real estate can produce a sizable profit as well, but it will not generate anywhere near the cash flow that a commercial property will. You’ll receive one check per month from a single-family residence, but you can receive several hundred checks per month from a commercial property.If you don’t believe us yet, consider this: Our clients shared how they got started in commercial real estate. We found out that one of them is in a project that already has a profit of $10 million or more. Another one bought a piece of land near their home for $1.5 million, and it has jumped in value over the past two years to $9 million (and they didn’t even have to use their own money).
The people that you meet who invest in commercial real estate are all big thinkers. They’re people who have decided that they want to think big, live big, and hang around other people who are just as passionate about life as they are. Until you get involved, it’s difficult to really understand just what your life could look like. Investors of residential real estate think of one monthly check and one tenant; they wait for appreciation (which may never come); and they’re limited in ways of creating massive value for their property.
Deciding to Invest in Commercial Real Estate
We think commercial real estate investing is a great way to generate wealth, and the main reason we like it so much can be boiled down to one word: leverage. Leverage is what allows you to use a small amount of your time and money to bring you a magnified return. Commercial properties are usually bigger and more valuable than other types of real estate, such as houses. What this means to you is that after you figure out how to find, negotiate, and buy commercial property without using much of your own money, you’ll be able to sit back and watch