Investing in commercial real estate has been the key to many financial success stories, and understanding how to close the deal and take possession of a commercial property is the first step in the process. From learning about different forms of financing to plotting an investment exit strategy, there is a lot to learn, and it all starts with controlling your costs to keep them within your projections. Knowing how to access capital at the right price for your investment strategy is a huge part of that, and most beginning investors need that financing to make their first purchase. Even experienced real estate investors usually use financing because it is not only a tool for accessing a purchase, it’s also a way to manage financial risk when investing.
1. Understand Your Investment Path & Costs
Buying a property is a really, really big investment, especially if you are a first-timer with limited capital. Commercial real estate is more valuable than single family homes tend to be, and a mistake can ripple through your portfolio for years. Plot out exactly what you want to do with the building you’re buying before you make an offer. Look at the income potential, costs going in, and time to exit. Make sure you break down all the costs, from loan fees to contractor improvements.
The reason this is so important is threefold. First, you need to know your ARV and costs reach an acceptable ratio. Second, you need to know how those costs will be timed so you can make plans that are consistent with your outgoing cash flow commitments. Third, your investment plan dictates the financing you will need to reach an optimal return.
2. Apply for the Right Financing
The financing you need is the financing that is structured to suit your investment goals. Long-term holdings like income properties should be matched to long-term loans with low monthly overhead costs. Short-term investments that depend on improvement and reselling should use products like home flipper loans or bridge loans. Once you own some commercial real estate with equity in it, you may also want to consider stated income loans to generate the working capital needed to pay for any improvements by tapping your existing investments.
3. Close the Deal
Once your funding is set up, all it takes is a closing ceremony. The paperwork is a lot like that involved with a residential real estate transaction from the perspective of the buyer, and the sales agents will be able to walk you through it step by step. Once it’s over, you will own your first commercial property.