This guest post about CRE development investing opportunities specifically in the Dallas market is written by our buddies at Sapient Funding LLC CRE Investing. Take it away guys. As with any real estate investment, CRE properties have some issues along with the upsides. While CRE properties have the potential for big sales and profits, they also represent an increased financial risk for the owners. Understanding this is important.
POTENTIAL RISKS OF CRE INVESTMENTS IN DALLAS FORT WORTH:
- Noticeable Financial Investment. Commercial real estate investing in Dallas equals more capital upfront than residential properties. Just a fact and always will be.
- Rules and Regulations Should Be Considered. Now let's look at rules and regulations. CRE investment is relegated to increased USG oversight, payment considerations, and difficult regulations for property owners. Working with an experienced broker and property management company can help you navigate these legal considerations.
- Longer Vacancy Times. While tenants tend to reside in a commercial property longer than residential tenants, it can take longer to find a new tenant. That is, if a commercial tenant leaves, your property could sit empty for months or even years.
- High Renovation Costs. Remodeling a commercial property is difficult. Commercial painting, for example, can cost quite a bit more than a residential painting project.
Tips for New CRE Investors: How to Invest in Commercial Real Estate Before you buy a commercial property, it’s important to do your research and consider all the potential challenges.
1. SECURE FINANCING - First and foremost, make sure you’re secure with resources before you invest in commercial real estate. Most CRE types require significant financial investment, so you must have funding secured in advance. It’s useful to get a loan for a commercial property. But these loans typically require large down payments and shorter repayment setups than a home mortgage.
There are ways to invest in real estate without having to be the only buyer. Options like real estate investment trusts (REITs), some partnerships, and crowdsourcing platforms allow entrepreneurs to invest in commercial real estate with limited money. However, before you follow any of these options, be sure to do your research and make sure it’s a legitimate deal.
2. DO YOUR DUE DILIGENCE - Just as with all real estate purchases, when you buy a commercial property, it’s your responsibility to ensure that property is a good investment. “Due diligence” includes three main aspects: physical inspection, financial review, and legal inquiries.
- Physical Inspection
Inspect the building for any evidence of damage. During this procedure, you’ll be able to view what renovations, repairs, if any, and upgrades need to be made before renting the location. Use these findings to determine whether the building is worth the time and effort, considering all the renovation and repair costs.
- Income Review
During this part of the buying process, you’ll want to hire an experienced real estate accountant with CRE investment experience. This professional can evaluate a property’s past returns, the potential for future profit, and the tax benefits for owning the property. Make sure the property will be a financial asset and not a liability.
- Legal Asks
Legal asks should be conducted by a real estate attorney or reputable title company. During this process, your representative will ensure the title is up to date and useful. Your representative will also ensure there aren’t any liens against the property, and that there aren’t any special use cases or ordeals that might hold up the sale.
3. KNOW HOW TO PROTECT YOURSELF AND YOUR ASSETS For commercial real estate property owners – particularly those new to the CRE investment world– it’s crucial to protect not only your assets but all of your financial and physical holdings. Unfortunately, CRE investors are at an increased risk of lawsuits due to the public nature of CRE.
4. FOCUS ON ONE CRE TYPE AT A TIME - It’s tempting to get roped into assets from multiple CRE categories at one time. But the best way to become an expert is to stick to one type of CRE. As a novice CRE investor, you’ll want to master one type of CRE investment opportunity before moving on to the others. Think about your interests, your goals, and the local market, and choose the investment type that best suits you and your portfolio.
Learning how to invest in commercial real estate takes time and experience. You won’t get wealthy in a day; investing takes time, patience, and practice.
5. KNOW THE MARKET CONDITIONS - Before you invest, do your due diligence. Most markets have plenty of data revealing vacancy rates, average rental costs, lengths of a contract, and many other considerations. If you can’t find this data on your own, contact a reputable broker who can help you identify properties that will be the most profitable.
Also, look into the local economy and job market in your central area. Where is the main and significant growth? Is industry ramping up this season or cooling down? Are retail jobs hot? Is there a new business coming to town? Does your area need more multifamily housing units? By researching the economic trends, you can make smart decisions that will show substantial returns down the line.
6. HAVE A PLAN FOR LEASING AND PROPERTY MANAGEMENT - At Sapient, we manage your investment property developments from start to finish.
While some investors make CRE opportunity investing and management a full-time job, new investors are probably years away from quitting their usual gig. Thus, you’ll have to hire someone to help you find high-quality tenants, get them into your property quickly, and keep them there long-term.
At Sapient, we manage your investment properties from start to finish. We will help you identify available listings and navigate the purchasing process. But our expert property management team will also handle tenant applications, leasing terms, and long-term property management.
We work hard to keep your tenants satisfied. And by doing so, we keep your investment performing at its best. Protect your investments by partnering with a professional property management company that always puts your investments and your tenant’s satisfaction first.
7. BE PATIENT ABOVE ALL ELSE - As previously mentioned, keeping your cool is critical when learning how to buy in commercial real estate. Just about every step of commercial real estate takes longer than residential housing. It will take even longer to identify a good property. You’ll also wait longer for inspections, lender bills, and other due diligence.
Moreover, when your tenant leaves, it could take months, or even years, to find a new tenant or sell your property. Therefore, having an abundance of patience – along with a healthy stock of cash – will increase your chances of success.