Commercial real estate can be one of the most effective ways to generate income, especially if you have your sights set on becoming a millionaire. Despite all of the opportunities to make money in real estate, there are really only three tried-and-true strategies that will garner you seven figures in commercial real estate. These are investor, developer, or broker.
What should you know about each role and how do you choose the one that is right for you?
Learn How Properties Are Valued
Commercial properties are valued differently than residential ones, which primarily rely on recent comparable sales in the same neighborhood. The value of commercial properties is usually based on cash flow and the credit of the tenant, as in how much the property owner can expect to derive from the commercial tenants he or she rents to.
Real Estate Investor
As a commercial real estate investor, you will accumulate wealth through owning properties long-term and building your portfolio of ownership. You use the income from one investment to invest in another. It can also be helpful to invest in a single property, adding value to it and then refinancing it for a profit that can be rolled into the next investment. The goal is to invest in new properties every few years and taking advantage of the tax savings until you have a million-dollar portfolio.
The challenge of working as a real estate investor is getting the initial investment money for the first property and the risk you take regarding market volatility. Not to mention you are responsible for property maintenance issues and more, depending on the overall role you assume in property ownership.
Another role you can play as a commercial real estate investor is being a developer. This role comes with the most significant risk, but can also result in the greatest reward. The best developers are expert fundraisers and must cultivate capital partnerships. They must also have a pre-determined strategy in place should an economic downturn occur. It can take a long time for projects to come to fruition and there is a great deal of risk and labor involved in commercial real estate development, but the paydays can be significant.
Being a successful broker is about more than just sales. Make no mistake, you are selling, but you are doing so much more. The best brokers become an integral part of a client’s business and offer advice and opinions concerning investment decisions. They work with lenders, attorneys, appraisers, and inspectors to provide leads, and offer suggestions on financing and renovations. Many view themselves as a jack-of-all-trades resource to their vast array of clients and offer far more than just the ability to sell a property.
The most important thing to understand about working as a broker is that there is high income potential with less risk than you find with investing and developing. It is entirely possible for brokers to earn as much as investors and developers, but they will be putting up less of their money upfront and dealing with less risk overall.