Many people who invest in commercial real estate do so in hopes that they’ll be able to quit their full-time job. While your day job may fund your initial investments, the promise of a passive income is enticing. Anna Kelley is a real estate investor who made this dream happen. She is also a wife, mother, and author. Wearing all those hats means that her time is limited. She has perfected the art of achieving her retirement goals through real estate investing.
That’s not to say that investing in commercial real estate is easy. You have to put in the work, which involves planning and executing your moves intelligently. Her story uncovers some excellent tips for a commercial real estate investor who wants to transition away from their full-time job.
Thinking big is a great idea. But starting small can help you get experience so that you can work out the kinks without bottoming out.
One of the best ways to begin the investment strategy that will take you to retirement is to buy property that you can live in. This would need to be a multi-use or multifamily building. If you can cover your mortgage with the rental fees for the areas that you don’t live in, you’ll save thousands of dollars a year. Then you can put the money that you’re saving on your mortgage into new investments.
Talk to people in the areas where you’d like to buy property. You might find unlisted opportunities. You’ll make sellers aware that you’re in the market. You never know when an opening for a lucrative deal will arise. As you make more acquaintances, word of mouth will help you find new prospects.
Negotiating doesn’t mean low-balling people or making senseless offers. It involves poring over numbers, knowing your budget, and understanding what adds value.
Some factors to consider include:
• Rental history
• Current tenants
• Environmental concerns
• Reasons that the owner is selling
• What the competition is doing
One way to test the waters is to discuss a lower offer with the broker. If the owner is willing to drop the price, you know that they have wiggle room. Be patient and see if the listing price drops over time. Then, make your lower offer. It’s more likely to be accepted.
Researching the factors above and knowing the market will help you make knowledgeable points. If you present a clear case for the property’s value, you’re more likely to be taken seriously.
Don’t Chase Cash Flow in the Wrong Market
The research that you undertake to make negotiations will help you make effective decisions. If a property doesn’t have great cash flow now, consider what it would take to improve it. You can’t always add value if the market isn’t favorable.
Also, remember that no one cares about your cash flow more than you. You may think that you can wash your hands of a less-than-perfect deal by hiring a management company to fill the space, collect rent, and reduce expenses. But you’ll likely spend more time and money than it’s worth to keep things profitable.
You don’t have to do it alone. Owning a larger property can deliver a larger passive income. But you can’t benefit from that if you can’t afford it.
Syndication allows you to merge resources, skills, and capital. As a syndicator, you can put in time and effort instead of capital. Your investors will provide you with the majority of the funds to launch the investment. You may receive an acquisition fee and a portion of the return when you sell. If you don’t use a third-party management company, you can ask for a property management fee.
Most people think about adding value by enhancing the property physically. But flipping a property isn’t just about the upfit. You can achieve a similar result by looking at the operations.
Can you reduce expenses? Can you raise rents? Can you fill vacancies? You can often add value to a commercial property just by managing it more efficiently.
Don’t Underestimate Rehab Costs
It’s important to estimate repair expenses when calculating your budget and negotiating a purchase price. Structural issues aren’t always obvious, though. Some buildings are prone to problems that crop up down the road even if they’re not evident at the time of the sale.
This is where networking and research come in. Work with inspectors, realtors, and contractors who are familiar with the area. They’ll give you a good idea of what to look for now and what to expect in the future. You’ll be able to factor in the expenses associated with those rehab costs to come up with an appropriate offer.
Maintain a Strong Vision
Although commercial real estate can provide you with passive income, you can’t sleep through the process. It takes a great deal of work, determination, and perseverance to achieve your retirement goals. When obstacles arise, your vision will help you press on.
Your vision should include your business plan, which combines a structure for your business operations. It will include your goals and the framework that you’ll use to achieve them. But your vision should also take into account the reasons that you’re putting in the effort. Knowing your “why” will help you endure when the “what” becomes challenging.
A vision doesn’t have to be set in stone. As you progress, you’ll learn more. You may adjust your vision as necessary as you enhance your cash flow, develop more equity, and build capital.
If you plan to retire on your commercial property investments, you should focus on consistent cash flow, low vacancy risk, and optimal leasing contracts. You may not be able to retire today, but creating a solid vision that’s based on research and market analysis can help you execute your business plan and quit your full-time job.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.