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Commercial Property Investing Tips

By Elizabeth R. Elstien

Commercial real estate investing is much different than investing in single-family or less-than-four-unit multi-family homes. As the investment is of a larger scale, more capital is needed and the profits are over the long term rather than monthly. Commercial investing includes office or retail buildings, large apartment complexes, industrial buildings, storage facilities, hotels, and even recreation vehicle (RV) parks. Use these time-tested tips to rock-solid investing in commercial property.

Know Your Terms

Terms such as capitalization ("cap") rate, net income and risk are commonly used in commercial real estate investing. An investor will need to know and understand these and other terms and how they relate to the purchase. Cap rate is basically the net income (gross revenue minus all expenses) divided by the purchase price or current market value and expressed as a percentage. Cap rates vary per commercial property type and area. San Francisco apartment cap rates are now lower than 5%.

Take It Slow

Commercial investing is an art form. An investor has to learn the nuances of each investment type. For instance, storage facilities typically have low maintenance expenses while apartment complexes have high maintenance expenses. It's best to master the purchase of one commercial property type before moving on to another. Then, the risk must be assessed with office buildings considered low risk. In generally, a greater risk equates to a higher rate of return. Take it slow, choose the right investment and slowly watch its worth grow.

Protect Your Assets

Consult an attorney and insurance agent to make sure your investment is properly protected from lawsuits. You will want to be certain your personal property, along with other assets, are separate from each other so they are not at stake if a legal suit should arise.

Consider Environmental Cleanup

Depending on its former use, many industrial properties have hazardous materials in the soil or elsewhere. Even if you (or partners) did not cause the hazards, it is your responsibility to clean up any environment wastes as property owners. Be prepared for a big cleanup expense, but some areas give tax deductions for environmental cleanup.

Partner Up

Leverage your funds by partnering up with one or more investors. That way you can consider larger purchases for potentially larger profits. It helps to partner with an experienced commercial real estate investor who can be a mentor.

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About The Author

Elizabeth R. Elstien has worked in real estate for over 15 years as a real estate...

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