What type of Commercial RE property for beginner investor?

Question

Hello - My name is Alan Malicse and I live in Hercules, CA

I'm guessing this has been asked before but I'd like to bring up here.

I've recently made the commitment to change career paths after being laid off from a career I've been in for 17 years. I've taken the step towards my Real Estate license in which my state exam is scheduled for Jan.

My question is - I had first set my sights on retail / strip mall type property but considering my lack of experience - what would you advise as good properties to start with? I know many have started with 4 - 5 unit apartments and moved up from there.

Could someone with no experience invest in retail as opposed to multi family units?

Thanks for your time!

Karen Margrave · Answer

@Alan Malicse  My advice is not to invest in any type of property until you have done enough research and understand the differences between the property types, the local market and economy. Educate yourself first, don't get into a hurry to jump into investing and make a bad decision.

Read the Beginner's Guide to Investing, it's accessed through the tab "Learn" at the top of the page. Listen to some podcasts. Look in the classifieds, of your local paper, online, etc. and see what different properties are selling for. Go look at them. Commercial properties with their leasing are much different than residential and multi family.

We don't have any idea what your capabilities are as far as being able to manage properties, analyze them, etc., you do. How well do you know your market? What experience do you have in real estate? If none, then, start at the beginning. Just as in construction, start with a strong foundation. Good luck.

Joel Owens · Answer

Alan with being laid off you need to answer what is the pre-tax cash flow and post tax cash flow you need from the property based on the down payment invested??

This will give you an idea of how much the property needs to throw off in return. Certain asset classes are throwing off different caps in the cycle right now.

Any asset class will eat you alive if you do not know how to buy properly.

David T. · Answer

if you're going in as an agent or broker it doesn't really matter, it's what makes you happy. I started with industrial and did not have a clue, just access to more money than sense!

This business is all about where you really want to be and keeping an open mind.

Keep BP in your pocked and you'll be just fine. Best of luck!

Alan Malicse · Answer

@Giovanni Isaksen Thank you for that great piece of advice. Those are definitely a lot of aspects to consider that I know as a beginner would overlook at the moment. I'll look to build a solid foundation as recommended and see where my sights fall

Justin B. · Answer

Alan,

Personally, I started with Single Family Homes.  It's probably the easiest to understand.  If you are truly new to real estate, I'd say buy a SFH home first.  I now own 5 of them.  The experience has been invaluable and I feel MUCH more prepared to jump into Multi-family which I plan to do in 2014.  It's a good way to jump in without much risk.  I have sub-$100k homes and my risk is limited because if the worst happens it doesn't break me financially and that is something I feel comfortable with.  Never do more than your comfortable with.

Giovanni Isaksen · Answer

Hello @Alan,

My personal take is that with more and more shopping being done online, bricks and mortar retail requires a compelling attraction to work. It could be the location, i.e. coastal SoCal (or conversely at the airport where people are literally trapped for hours), it could be the exclusive presence of unique brands or merchandise (think boutique/trendy/artsy), something special has to draw traffic. On the other hand even if we all end up working online in our sweats from the couch, we'll still need a place to put the couch and that's why I like apartments.

When you add in the fact that there are 22.5M 18-34 year olds living at home with their parents, and the fact that the median price of both homes and condos (in the US) are north of $200k meaning that buyers looking for conventional financing have to come up with $40k just for the down payment, apartments have powerful demographic and financial drivers behind them.

From a practical point of view, commercial leases have many more moving parts than apartment leases, and this is especially true with retail where percentage rents are often included. The negotiation of every lease whether it's for a new tenant or a renewal can be as big a deal as the negotiation to buy the property in the first place. And then you have to verify your retail tenant's numbers to make sure you're getting all the percentage rent you're owed. There's a lot more to learn to be successful investing in retail than apartments.

Paul Timmins · Answer

@Alan Malicse

Welcome. Started with small multi's 2-3 families.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having 40 past ones to catch up on.

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info.

Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook

Good Luck

Paul

Alan Malicse · Answer

@Karen Margrave  - Really appreciate the feedback! I'm definitely all for building a solid foundation before jumping into anything. I've already started on the beginners guide and for sure plan on getting as much education as possible. I guess my question really is what have most people started with when first investing. Regardless - thank you again!

What type of Commercial RE property for beginner investor?

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