Ready to Purchase Your Own Commercial Building?

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When you are interested in getting into commercial real estate as a business investment, there are many things to consider, especially given the state of the real estate market the past few years.

You need to look at interest rates, vacancy rates, appreciation levels, the overall market in your area, and so forth, but the key thing to know is this: Over time, real estate has been – and continues to be – one of the most sound investments out there.

While that may sound strange given the bursting of the real estate bubble in 2008 and the resulting mortgage crisis thereafter, the way to look at real estate, especially as an investment, is over the long term. Despite what you may see on TV (and while some people are in fact able to “flip this house”), for the smart investor, real estate has to be a long-term play.

Why Real Estate Makes Sense Over the Long Term

The reason for that is, over the long term, real estate goes up. Sure, it dips down too, just as it has the past few years, but that only means two things:

*  When it’s down, it is a buyers market, and *  It’s going to go back up.

If you were to look at a graph of real estate prices over, say, a 20-year period, you would see one of those arrows that slants upwards, occasionally dips down, but has an overall upward trajectory.

The other great thing to understand about real estate as an investment is that you can leverage your money far more than in almost any other investment. Think about it: If your business used $10,000 to put 10% down on an office building and financed the rest, you would end up owning a property worth $100,000 for only $10,000 down.

Where else in the investment world can you buy something for only 10% down, and yet be deeded 100% ownership? Right, nowhere. Being able to leverage your money is another significant benefit of investing in real estate.

Given all of this, the question then may be, what sort of commercial real estate investment is best for your business? There are many options, depending upon your purpose and desire. Here are some of the more common ones:

Single-family residences: If you want to become a landlord, the single-family residence is often the investment of first choice. The problem with this option is that, once your tenant moves out, you have a 100% vacancy rate. No fun in that.

Duplexes, four-plexes, mini-malls, and other small commercial units: What makes these properties so attractive to the commercial real estate investor (and they are attractive), is that 1) they can be very affordable, and 2) when someone moves out of, say, a four-plex, you only have a 25% vacancy rate. You can also get some very nice terms on small units like these.

Large properties: Typically, the way real estate investing works, the investor begins with small properties like those above, and then over time, grows their equity to the point where they can sell the properties, and move up to larger properties that can make them even more money. It’s sort of like Monopoly, when you trade in some small houses for a big apartment complex. In fact, it is exactly like that.

For more information, I highly recommend the book The Unofficial Guide to Real Estate Investing.

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