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The 7 Biggest Myths of Commercial Real Estate

The 7 Biggest Myths of Commercial Real Estate

Everyone has different opinions about commercial real estate, but there is a world of difference between an opinion from an experienced investor or broker, and an opinion from a person not experienced in commercial real estate.

If you’re thinking of getting involved in commercial real estate because of the potential profits but were deterred by what you heard from friends and relatives, you might be missing out on an investment with the potential to substantially increase your income.

Myth #1: You Need A Lot Of Money Or Fantastic Credit To Get Started

The truth: You don’t need any money in order to get started in commercial real estate. Not only do banks care more about the potential profit of the property than your bank account, but even private money lenders are willing to lend if the numbers on a potential deal work out.

Due to the nature of commercial real estate, at some point, nearly all investors will choose to leverage profits by borrowing the money to finance a new investment. Plus, there are a number of methods that you can employ such as wholesaling, using master lease options, and subject-to, that will allow you to own a property with little to no money down.

There are also opportunities to invest as little as 5 thousand dollars with companies that are proven, reputable income property investors.

Myth #2: Running The Numbers Is Too Hard

Running The Numbers Is Too HardWhile you definitely want to make sure the numbers add up in commercial real estate, don’t assume you’ll be sitting with a calculator and a sketch pad. Nowadays there are numerous software options, both online and offline, that make it running the numbers a lot easier.

Usually, you’ll just need to make sure you have the financial information you need, and then that information will be plugged into the software to give you all the details necessary to make a decision.

You will need to know what the numbers mean, however, but learning an experience will remedy the lack of knowledge.

Myth #3: Managing Commercial Real Estate Is Twice As Bad As Residential

Commercial real estate and residential real estate are two different beasts altogether.

While it might be feasible for you to double your time as a manager and an investor, in commercial real estate, it makes more sense both financially and time-wise, to hire a management service.

The profits you make in commercial real estate are higher than in residential real estate, thus making it financially viable to hire a management company. In addition, hiring a management company experienced in the type of property you’ve purchased is essential: they will not only know have the experience you lack, but they will have access to vendors and service companies that you don’t.

Plus, since your income property won’t be the only one they manage, the economies of scale will mean they can manage your property more cheaply than you can as an individual investor.

Furthermore, if you buy a triple net lease property, you’ll never be responsible for any management or maintenance responsibilities, since a triple net lease tenant is always responsible for almost everything – and as a franchise of a reputable business (unlike residential tenants) they make sure to keep everything in tip-top shape.

Myth #4: Good Deals Are Hard to Find

There are always good investment opportunities available in commercial real estate. That’s because even when the market is down, there are always certain property types and other factors that make it easy to find a deal if you’re willing to make a reasonable effort.

Triple net lease properties, for example, are always available and are low risk with stable profits. Right now medical properties are booming, due to ObamaCare and the explosion of baby boomers, who the U.S. Census Bureau says will account for 1 out of every 5 people by 2030.

Myth #5: Commercial Property Investment Is Too Risky

Commercial Property Investment Is Too Risky

Commercial real estate investment is like any other investment; your level of risk depends on what you choose to invest in. While many factors determine the risk level of an individual property, in general, there are certain property types that are riskier than others.

Triple net lease properties, for example, are low risk with a steady return and interest rate, while office properties are considered higher risk. Keep in mind that the more volatile a product, the higher the risk – but the higher the profit. A property that is lower risk will generally offer lower profits as well. In general, you want a balance of both high risk and low-risk properties in your portfolio.

Myth #6: The Majority Of Commercial Income Properties Are Advertised

Very few commercial investment properties are advertised, relative to the number of properties available. You will not be able to put ads in the paper or hang up bandit signs in order to find a potential investment property.

Instead, it’s best to hook up with a broker who has good relationships with other investors and brokers. Westwood Net Lease Advisors, for example, has a list fifty thousand strong of investors, and a nationwide network of brokers at their fingertips.

Myth #7: Commercial Property Investment Is A Full-Time Job

Again, this is another instance where the type of investment property you choose to invest in makes a big difference. Many types of commercial income properties are totally hands-off, while others – particularly properties where you plan on renovating to increase equity, or if you choose to build on raw land- are labor intensive.

In addition, as you become more successful, your time will be better spent working on new deals than on working in your day job- which is a pleasant conundrum to be in.

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Tags: Census Bureau, commercial real estate, income property investors, management company, master lease options, private money lenders, residential real estate, subject-to, triple net lease property, triple net lease tenant, wholesaling