Best way to get started in Commercial? Have cash, need advice!

[Mark Hamblin]

Hi all,

I'm looking to get started in commercial deals, and would love to hear any advice on the best strategies to get started.  

I have my own cash (around $600K-$800K that I'd like to put to work soon, not necessarily all at once), and I'm considering a couple different strategies:

Option 1) Buy and hold (5+ years) already-stabilized office, industrial, or retail properties. Get commercial loans with ~75% LTV to fund the purchases. Pros: Fairly conservative approach, but good to get started and start building relationships with commercial brokers and lenders. Also, requires less work (important, since I'm doing this out-of-state) Cons: Limited upside potential, as the properties are already stabilized, likely without much room for value add.

Option 2)  Buy higher-end soon-to-be vacant or recently vacant properties (likely office or industrial), pay all cash.  Fix what needs to be fixed (but look specifically for already-nice places), and look for a good long-term tenant.  Once stabilized with a long-term tenant, either sell at a decent cap rate, or refinance to pull money out.  Pros:  Better upside potential, can get some good deals.  Cons:  Zero or negative income while the property is vacant (generally OK with me, as long as there's good upside later).  Also, requires more work, which could be annoying since I'll be doing this out of state (but in a place where I visit often, know well, and have family).  

I know both are good strategies for the right investor, but any advice as to which one a newbie to commercial should / should not stay away from?  

A bit about me:  I'm still fairly young, so most important for me at this point is learning the ropes, building relationships, and building credibility.  Eventually I'd like to put together larger syndicated commercial deals, but I need to learn first.  I am new to commercial real estate, other than being an LP on 5 multi-family deals with some close friends.  

I am currently looking for properties in either:  

Pittsburgh, PA (used to live there, am LP on other multi-family deals there)

Madison, WI (grew up there, have family & connections there, know the area pretty well)

Bay Area, CA  (where I live now... but I don't really want to buy in at these current silly 4% cap rates)

(I know... they're all very different places... but I go for what I know)

Any advice or thoughts from you wonderful BP people would be great!  

Thanks,

Mark