When new investors decide to enter the real estate world, they typically view buying residential properties as a logical first step. However, tremendous benefits exist to investing in commercial real estate, and doing so doesn’t need to be an insurmountable challenge.

In this article, I’ll outline eight straightforward steps investors can take to get started investing in commercial real estate.

Step 1: Select Your Commercial Property Type

Prior to diving headfirst into buying just any property, new investors first need to decide what commercial property type to pursue.

On the other hand, the broad types of commercial real estate have significantly different tenant profiles and require vastly different professional knowledge for successful investing. While experienced investors may feel comfortable in all commercial categories, most instead choose to focus in one of the following commercial property types:

· Multi-family

· Office space

· Industrial

· Medical

· Hospitality

· Retail

Step 2: Identify Your Market

Investors next need to identify the market where they’d like to invest. Though a convenience exists to investing in your hometown, this isn’t necessary.

In some cases, investing in your own market may be cost prohibitive. For example, if you live in Manhattan or San Francisco, purchasing office buildings will require massive amounts of initial capital – capital most new investors don’t just have sitting in the bank.

Bottom line, wherever you choose to invest, make sure to conduct in-depth market analysis. You’ll want to have a solid understanding of cap rates for comparable properties, rent trends, valuations, etc. Without this information, you won’t be able to make informed investment decisions, regardless of market.

Commercial real estate professionals can help you identify outstanding investment opportunities in any market. Need help connecting with reliable ones? Drop us a note!

Step 3: Build Your Commercial Real Estate Team

Successful commercial real estate investing is a team sport. Most people simply don’t possess every skillset necessary to execute a deal.The best investors recognize this reality and embrace high-quality teams to cover their personal gaps.

While not a comprehensive list, here are the core professionals you’ll need to assemble as a successful commercial real estate investor:

· Commercial real estate broker

· Lenders (for short-term and permanent financing solutions)

· General contractor

· Architect

· Real estate attorney

· Commercial property manager

The longer and more established your relationships with the above players, the more smoothly each deal will go.

Need help assembling a top-notch commercial real estate team? Drop us a note! We have networks of professionals throughout the United States.

Step 4: Define Your Investing Strategy

Becoming an expert in one of these strategies – rather than trying to dabble in all of them – represents the most effective option for entering the commercial real estate world:

· Traditional development

· Commercial BRRRR (a.k.a. value-add investing)

· Long-term buy and hold

· Owner-occupied buildings

Simply put, there’s too much to consider and understand in each individual strategy to try to master all of them, especially when beginning your commercial real estate journey. Most investors find more success learning everything they can about a single strategy, becoming absolute experts in that field.

Step 5: Find Leads

Steps 1 through 4 above represent the foundation to getting started in commercial real estate investing. In other words, no matter what deal(s) you decide to pursue, you need to A) make the above decisions, and B) acquire the associated knowledge.

Finding deal leads constitutes the first step in executing a specific deal. And, while direct marketing represents one option, your best bet for finding solid leads is through your commercial real estate broker. These professionals know their markets inside-and-out, and they’re outstanding resources for finding leads on deals that fit your investing needs.

Step 6: Analyze Potential Deals

Once you’ve identified a solid lead, you need to actually analyze – or underwrite – the deal. While this process requires detailed knowledge and experience to do well, it basically boils down to running the numbers and making sure they support your investing objectives.

For example, if you want a property to generate $1,000 in monthly cash flow, you can build that objective into your underwriting model. Then, as potential deals come along, you can effectively confirm or deny whether the deal’s numbers support this investing objective.

With more experience analyzing deals, you’ll be able to more effectively identify ones likely to accomplish your investing objectives.

Need help analyzing potential deals? Drop us a note!

Step 7: Make and Negotiate an Offer

After you’ve analyzed a deal and confirmed that it supports your investing objectives, you need to actually make and negotiate an offer with the seller. While not all-inclusive, some of the major decisions you’ll want to agree on include the following:

· How much you want to pay

· When you want to close

· What type of financing you’ll use

· Length of the due diligence period and any specific clauses

As a negotiating technique, I like to provide sellers a couple different options rather than a single proposal. Psychologically, sellers are more likely to choose between a couple options than a simple yes/no offer.

Step 8: Close the Deal and Operate the Property

Once you conclude the negotiations and sign the contract, you need to actually complete the closing process. This includes all of the inspections and other due diligence wickets outlined in the contract.

While residential closings frequently use title companies, I highly recommend using an actual real estate attorney to close a commercial deal. Each deal’s unique, and it’ll provide you peace of mind having an attorney sanity check the process.

As a final step – and part of your core team outlined in step 3 above – you’ll have your commercial property management company lease out and stabilize the property. Depending on your investing strategy, this may simply entail transferring the leases of current tenants from the seller. Or, if a vacant property or new development, this may require a comprehensive marketing and leasing strategy.

Once stabilized, you can stay as involved – or uninvolved – with the property’s operations as you’d like. However, even with the best commercial property management companies, I highly recommend that owners continue to supervise their properties to ensure that they perform well and meet investment objectives.

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We recognize that, even after outlining the above information, tackling the challenges of entering the commercial real estate world can seem daunting.

That’s why we’re here to help. The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique objectives!

8 Steps to Getting Started in Commercial Real Estate Investing