Real estate prospecting is one of the tougher ways to invest in commercial properties, at least when you’re a beginner. It takes a multi-pronged approach, which is why instead of open-ended prospecting, many new investors focus on a single strategy like flipping houses or single-occupancy commercial properties. Once you know an area and you have established some experience in a couple areas of speculation, you are in a much better position to make the most of your commercial real estate acquisitions.
1. Stay on Top of Local Research
National real estate trends are important when you are forecasting and deciding on an overall strategy, but to win on the ground you need information that is at the ground level. That means local market research to tell you if a neighborhood is ready for redevelopment. It also tells you if there are incentives on the horizon that could speed it along as well as other important details about the local economy. Even in neighborhoods with steady values, the right price on a building with good bones can result in a quick turn for profit.
2. Control Your Risks
Commercial real estate investment always comes down to risk control and your bottom line. That’s all there is to it. If the numbers are right and you keep a hedge against the unexpected, you make money. Here are a few ways to control risks, and it’s best if you can manage all of them:
- Use financing to cover purchases and control your risks wherever possible so your capital reserves stay strong
- Know your market cap before purchasing, not just the market cap you expect in six months to a year
- Develop multiple profit models including fix and flip, wholesaling, and raw prospecting
- Build a portfolio that includes long-term commercial income properties you can use as an equity basis for financing project costs
Taking these steps ensures you hold as much of your principal capital as possible for absolute emergencies by making your risk the risk you may lose the asset if you default. It protects your core holdings.
3. Purchase With Purpose
Never close on a property without understanding how you will get your money back out. It’s best if you invest in commercial real estate with at least two backup plans, in addition to your intended strategy. It lets you pivot, so you are not stuck in an example like a fix and flip whose neighborhood suddenly starts losing value. Know your intended profit margin, your backup low profit plan, and your emergency escape hatch before you close and you will never be at a loss for what to do when the market moves unexpectedly.