Investing in commercial real estate is a great strategy to earn some extra income. But the road from first-time investor to CRE guru has some twists and turns. If you’re thinking about taking the plunge on your first investment property, here are 5 things to consider.
Have a long-term plan
Getting started with your first investment property is exciting. As consuming as the startup plans can be, it’s important to analyze long-term ROI and have a growth plan in place. What type of property do you want to invest in this year? What profit goals can you realistically set? What do you hope today’s investment will accomplish for you in 10 years?
Setting specific and measurable goals can help you ensure you’re maximizing your investment and always moving towards the next profitable step.
Know your market
Make sure there’s real demand for your target industry in the regions you’re looking to invest in. Oftentimes, jumping on the bandwagon of a local industry boom can lead to oversaturation in the market, which equals wasted money for you. Partner with a commercial real estate expert like NAI to run formal location analysis and feasibility studies that can inform your strategic investment plan. That way you can feel confident knowing you’ve found the right property in the right neighborhood.
Local experts like NAI can also help you navigate the hidden pain points of a particular market, such as local regulations or tax implications that may impact your investment, or any hidden costs of the transaction you might not have considered.
Prepare for rainy days
First-time investors can often get so caught up in the excitement of getting started that they forget to account for unexpected vacancies or a sudden market downturn. You can’t prepare for every possible market outcome, but creating a contingency plan can help make those unexpected disappointments less painful and costly. Project how long your investment property can sustain a vacancy and develop step-by-step strategies for filling vacancies quickly and efficiently. As a rule of thumb, set aside 5-15% of your cash flow each month to help cover surprise expenses.
Answer one very important question
Should you be your own property manager? For first-time investors, managing your own properties can be a way to save money early on. If you have the time and enjoy being hands-on, it can be a win-win. But DIY property management isn’t for everyone, especially if you’re approaching your investment property as a side hustle or if you own multiple properties. Partnering with property management companies can help you efficiently manage tenant and maintenance issues and focus your energy on further maximizing your investment.
Partner with experts
Surrounding yourself with people you can trust is the best way to make sure you can protect and maximize your investment. Work hard to find and build relationships with a CRE broker, attorney, accountant, insurance agent, and general contractors. They can step in to make sure you avoid common first-timer mistakes and serve as valuable partners through the ups and downs of owning a commercial property.
Whether you’re a first-time investor or a seasoned pro, NAI Mid Michigan can help you navigate the ins and outs of your commercial property. Contact our team today to learn more.