Transitioning from Residential to Commercial - Advice Appreciated

[Greg P.]

Hello everyone. I've been doing Residential Real Estate for a few years and been semi successful. I've created enough cash to potentially into Commercial Real Estate, but I'm very cautious.

Few Questions:

1) In the Residential business, you can find a property for cheap, fix up and sell and profit. If it doesn't sell you can rent it and cashflow. It really is that simple. My question is, with Commercial Real Estate, I've been seeing properties that are fully occupied and functioning well, but they do not seem like great deals. If I bought this property I would barely make any cash flow since I would use bank financing, and then I would potentially be "stuck" because my cash is gone. How does a person who is in my situation buy a Commercial Property and keep moving forward?

2) If I buy a property that is in distress, that could mean no tenants for awhile and it would be a "tough" sell. During this time since I would be using bank financing, I would be negative cash flow. How does one get by this? It sounds like a big risk.

Any advice or tips would be greatly appreciated.

Thank you very much.

Greg

[Sean H.]

The best advice I can give is for you to find a mentor who already does commercial investing. I am fortunate enough to have a relationship with one of the biggest commercial investors in my area. This has led to him throwing deals my way that are too small for him and walking me through lease negotiations, bank proposals, etc.

People are correct when they talk about commercial being an entirely different world. NNN leases, EPA filings, going over business plans to determine a tenant's ability to pay are all a huge part of the game that you would not necessarily have to handle in residential.

Just like any other business, networking is huge. Being able to have a personal relationship with the local congressman as well as the smallest mom and pop businessman has allowed my mentor to create a tremendous, self-sustaining business. Instead of spending all of his time finding deals, people bring them to him or if one crops up, he knows that the local retail store owner has been looking for a bigger place and can put them in it. Obviously it takes some time to get to that point, but if you're serious about going commercial having a huge and healthy network is key.

There is a ton of money to be made in commercial real estate. Lake house and Italian sports car money. However, it is an entirely different animal from residential so the best way to navigate the waters would be to find a mentor. While working to find a mentor, start building and expanding your professional and personal network. Once you get serious and start looking to put deals together, this will prove invaluable.