We all are thinking about it and
some of us are actually taking action and getting their
hands on real estate investment properties. The longer
the NY Stock Exchanges doesn’t produce desirable returns
the more people are starting with real estate
investments.For most of
us the obvious choice of properties are single family
homes. Although you can invest in real estate without
owning a home, most people follow the experience they
made while purchasing their own home. This is familiar
ground and the learning curve for doing a real estate
deal of this type is pretty slim.
Of course there’s a drawback
with this approach. The competition is fierce and there
are markets where investors are artificially driving up
the cost of the properties while completely discouraging
first time home buyers. If this is the case, the burst
of the real estate bubble is just a matter of time.
How do you avoid these
situations and still successfully invest in real estate?
How do you get ahead of the competition and be prepared
for bad times in real estate investments as well? The
only answer I have is commercial real estate.
Why commercial real estate you
might ask? Commercial real estate is a solid investment
in good and bad times of the local real estate market.
The commercial real estate I’m referring to are multi
unit apartment buildings.
Yes you will become a landlord
and No you don’t have to do the work by yourself. You
are the owner and not the manager of the apartment
building. The cost of owning and managing the building
is part of your expenses and will be covered by the rent
income.
Apartment buildings are
considered commercial real estate if there are 5 or more
units. To make the numbers work you should consider to
either own multiple small apartment buildings or you
should opt for bigger buildings. This will keep the
expense to income ratio at a positive cash flow. Owning
rental properties is all about positive cash flow.
With investing in single family
homes it is easy to achieve positive cash flow. Even if
your rent income doesn’t cover your expenses 100%, the
appreciation of the house will contribute to the
positive cash flow. With commercial real estate the
rules are different.
While single family homes are
appraised by the value of recent sales of similar homes
in your neighborhood, commercial real estate doesn’t
care about the value appreciation of other buildings.
The value of the property is solely based on the rent
income. To increase the value of a commercial real
estate you need to find a way to increase the rent
income. The formula on how this is calculated would be
too much for this short article. I listed a few very
helpful books where you can find all the details.
What’s another advantage to
invest in commercial real estate? Commercial real estate
financing is completely different than financing a
single family home. While financing a single family home
you are at the mercy of lenders who want to make sure
that you are in the position to pay for the house with
your personal income. Commercial real estate financing
is based in the properties ability to produce positive
cash flow and to cover the financing cost.
After reading all these
information about commercial real estate you want to go
out there and dive into the deals. Not so fast. First,
you need to learn as much about real estate as possible.
In commercial real estate you’re dealing with
professionals. If you come across too much as a newbie
you will waste these guys’ time and your commercial real
estate career ended before it actually started. Second,
no commercial real estate lender will lend you any money
if you can’t show at least a little bit of real estate
investment experience.
What’s the solution to this? Go
out there and do one or two single family home deals
yourself. It doesn’t matter if you make huge profits to
start off with. Most newbie investors are loosing money
on their first deal anyway. If you can manage to show
positive cash flow with your single family home deals
you are ahead of the pack.
My advice, buy a small single
family home in a decent neighborhood and rent it
immediately. This will keep your out of the pocket
expenses at a minimum and you will have rent income to
cover for your monthly expenses. Bonus, you gain
experience as an investor and as a landlord.
Here’s another observation I
made during my real estate investment career. Most
people like to analyze, learn, discuss and analyze some
more. They never actually got to do a real estate deal.
They love to talk about real estate investments, but
never did it themselves.
My approach to real estate
investment was simple.
-
I
bought some books about real estate investment.
-
I
read every single one of them.
-
I
put together a simple plan on how I want to get
started.
-
I
started looking for properties.
-
I
bought my first investment property 30 days after I
started reading my first book.
-
I
made positive cash flow with all of my properties so
far.
What is my point? You have to
go out there and practice what you’ve learned. The only
valid credential in the real estate business is
practical experience. Having a couple of deals under
your belt, you can go out there and start looking at
commercial real estate and even impress seasoned
investors with your knowledge. Because you made this
experience by yourself and you know what you’re talking
about.
Book reference for commercial
real estate investments:
Gary W. Eldred, PhD: “Make
Money with Small Income Properties”
Jack Cummings: “Real Estate
Financing and Investment Manual”
You will find these books and
many more on my real estate investment website at
http://www.suncoastrenttoown.com/author_directory.htm
Sincerely,
Peter Dobler
Peter Dobler is a 20+ year
veteran in the IT business. He is an active Real Estate
Investor and a successful Internet business owner. Learn
more about real estate investments at
http://www.suncoastrenttoown.com
or send a blank email to
mailto:suncoastrenttoown@getresponse.com
