3 Keys to Successful Passive Investing in Commercial Real Estate
Owning commercial real estate can provide a steady stream of securitized income for many years. Owning and profiting from real estate can be accomplished through carefully selecting the right property and being focused on a clear and concise investment strategy. Below are three successful strategies to succeed as a commercial real estate investor.
Target Distressed Sellers
Just like with residential properties that are bank owned, short sales or in foreclosure, a key strategy to investing in commercial property involves targeting bargains. Commercial properties may similarly be in foreclosure, be a short sale or owned by a bank that is ready to get it off its books. Business owners may be distressed because their business has not succeeded, the partnership has dissolved, the business is going into bankruptcy, an owner has died, or a family business is torn apart by divorce. When business owners or banks are in a state of distress, they are more likely to accept a discounted price.
Distressed sellers can be found by scouring the list of foreclosure properties and court records. Another way is to look for going out of business sales and liquidation sales. Obituary notices may also indicate properties that may soon be sold.
In the case of commercial properties, it is important to balance distressed status with a prime location for commercial establishments. If a location has been bad for the last few businesses, the next tenant may have a similar experience. However, if the business is in distress because of poor management or some other factor that is not related to the real property, it can be possible to get a good deal and create a good source of revenue.
Learn Creative Financing Techniques
Many commercial real estate investors will want to acquire more than one property. They may constantly be on the lookout for good opportunities. This makes it important to have a variety of financing options available other than a conventional loan. Commercial real estate investors may develop multiple partnerships with other investors orhelp offset some of the costs of having an ongoing relationship with multiple financial institutions that are ready to provide financing when an opportunity arises.
Look for Signs of Growth
It is important for investors to constantly be on the lookout for markets that show signs of growth. There are several indicators such as rising job and population growth, increase in airplane deplaning, growing tax base, and infrastructure improvements all demonstrate that a market may be a good place to invest in real estate. If businesses are growing, they will need more space to expand their business. At the same time, greater job numbers will help ensure that the business has adequate income to consistently pay rent.
Another sign of a stronger market is an increase in the population. If a property is secured and the population continues to expand, there may be less supply for tenants and they may be willing to pay a premium price for commercial space. Also, look out for other signs of growth like a new major development, new companies coming to the area or more amenities in the area that make the location more desirable. More residential construction in the area is also a sign of growth.
These strategies can help ensure that you are able to lock up a quality commercial real estate investment property that can generate significant passive income.