Our Guide to Successful Investment in Commercial Real Estate – Ten Principles
- Find a property to which you can add or create value. Find a great deal that offers the potential to create value so that you reduce investment risk while increasing the profit potential. Bottom line...FINDING A GREAT DEAL is at the core of being a Commercial Real Estate Investor.
- Don't fall in love with the property. Often investors get emotional, impatient or careless when pursing an investment. Don't let yourself get emotionally involved with either the deal or the dollars so that you're not afraid to walk away from a bad deal. No deal is better than a bad deal.
- Research everything about the market and property. Invest in markets and properties that you intimately understand. Avoid surprises by thoroughly investigating everything about the market and property.
- Crunch the numbers using a realistic financial model. Open your eyes to the realities of the property. Find the story on the property and build your financial model around how the story plays out using realistic assumptions. Be conservative with your underwriting.
- Have compatible partners and investors. Make sure your investors understand and agree with your business strategy. Do they share the same vision? Are they passionate about realizing the dream and enjoying the journey?
- Create a business plan with investment goals. Develop a business plan and financial model that spell out the details of the investment. Make sure you have a map of where you're going and a plan to execute using conservative assumptions.
- Purchase with 25% or more equity to keep debt load down. Keeping debt levels low will reduce risk, increase cash flow and help you sleep better at night.
- Have more than adequate capital reserves. Plan to spend more on capital improvements that take longer to complete. Budget 20% higher for capital reserves than you originally forecast.
- Have a good team in place. Surround yourself with the very best experts that know what they are doing. Weak talent and taking shortcuts usually ends up costing more time and money.
- Be flexible to change. Nothing work outs 100% as planned so be flexible to change. Quickly recognizing problems and adopting a new course of action will help provide stronger investments.
Following these ten principles will lead to positive results in building your Commercial Real Estate portfolio.
