There is a huge learning curve when you transition form residential to commercial real estate, we won’t lie about that. But there are a few things to know that could make your transition much easier and help you understand this complex business model a little better. Success in commercial real estate, we are talking specifically about multi-family properties in our case, comes from being able to acquire properties that fit well within your portfolio, and the portfolios of your investors, and give you the ability to add value and lease them continually. Unlike residential properties, the stakes are high, and delving into a commercial endeavor without educating yourself could be disastrous. You will also find that if you begin to pursue a property without prior knowledge of the industry, you will spend a lot of time spinning your wheels and you will probably end up giving up or down a bunny trail that you have no way out of other than to walk away from all the hard work you have already invested. So here are a few of our tips on how to prepare yourself for the world of commercial real estate!
Know the Language
Real estate in general, whether commercial or residential has its own vernacular. There are acronyms for everything, and if you aren’t familiar with the language you will find yourself frustrated and out of the loop. A quick google search will give you a pretty good idea of what you need to know, but you can also check out a few of our other blogs to get an idea of what you should know – Here & Here. These blogs are in no way a comprehensive list of things you should be studying, but they will give you a good gauge of what is important to know.
Understand the Math
Numbers are a huge part of any real estate deal. Something may seem like a great “deal” or an easy investment, but making sure that you understand the math and percentages behind your deal can make a huge difference. More often than not, new investors just throw some figures into a spreadsheet with pre-determined formulas and get all of the information that they believe is critical to a deal, but the problem with this is that if you aren’t aware of what that information means, you could be making a decision that isn’t actually beneficial to you or your other investors. If you had the deal of a lifetime would you be able to crunch the numbers on that investment? We think that it is important that you can! It is vital that you are familiar with what a cap rate of 5% means in your marketplace as opposed to a property that has a cap rate of 8%. And it is helpful to know what operating expenses of 48% mean on a property as opposed to operating expenses of 22% on a similar property.
This is by no means a comprehensive list of what you need to know, but having knowledge of these two things will help you immensely as you embark in commercial real estate. Are you new to investing and looking for a way to get involved with multifamily investing? Are you interested in investing in add value properties that happen to be situated in popular housing markets? Magnolia Design Properties is a real estate investment company that is honed in on add value multi family properties in the B and C class and we would love to have you join us in investing! Let us do the heavy lifting of property acquisition, and head over to our contact page and fill out the form so that we can contact you with information about investment opportunities that you can join us in!
