How did you get started in commercial RE?

Question

Bob Langworthy · Answer

My story is simple: I was renting space and wanted my own building with room for tenants. An opportunity came up and I bought a small, empty office building with four offices and parking for 20. We put a little money in to fixing it up, moved my practice in to it and had one other space filled immediately. The other two spaces took a year to fill, but that cash wasn't needed to cover expenses.

My advice: start small. Find a two or three office building or a small industrial building. Maybe an off-market property. Learn from that first one and build from there.

Commercial tenants are willing to sign longer leases, and they don't call you in the middle of the night with a broken toilet. I'm staying with office space for the foreseeable future.

Hope this helps.

Matt Lefebvre · Answer

Hey @David Park, just like with residential real estate... you can start really small in commercial real estate and scale up or if you have lots of money and a desire to get big properties, you can jump right in to large deals.

The barrier to entry is typically complexity and lack of knowledge in the industry... but you really can start small and simple.  I have an office condo on the market in Amherst, NH for $150K that could rent for about $1500/mo... that's really cheap money for someone to get investing in CRE and its pretty simple.  One tenant usually signs for a longer term (3-5YRs probably in case like this) and depending on how you structure the lease, it could be pretty much hands-off.  On the flip side, you could look at the mill buildings in Manchester which boast millions of square feet of commercial space, have dozens or hundreds of tenants, and have eight digit price tags.

As a broker, I decided that I wanted to learn more about CRE and started at the bottom of the totem pole in terms of real estate work.  Leasing low-end offices and retail spaces between $300/mo and $1000/mo.  That helped me scale up into doing larger leases such as 5YR+ retail leases in the $2000/mo - $4000/mo range.  This led to me working on helping businesses buy properties for their business and I continue to scale up by landing larger leasing contracts and selling bigger buildings.

With investing... start small... ask a lot of questions... read as much as possible out there... and stay focused!

Ellie Perlman · Answer

@David Park - some investors invest passively with others and learn about it this way. They either stay passive or become active/syndicators. Others start by teaming up with an experienced syndicator/active investor. They either find deals or capital. I skipped residential and went for commercial (large multifamily) because it scales and pays better. Find an investor you like and trust and ask them what they need help with. Follow their steps - don't do it alone. Best of luck!!

Henri Meli · Answer

@David Park  I just wrote a report here that describes my journey into Commercial Real estate.

I started with Residential as it is easier to understand. Easier to get a loan. And Easier to find tenants. It took me years to scale up into commercial, but looking back, I wish I had scaled up earlier.

The Value-Add concept is something I really advice lots of investors to understand as soon as possible.

Christopher Phillips · Answer

@David Park

It's essentially the same type of work.

Problem is that it can take several years to build up customers in the commercial space. There isn't a Zillow or Realtor.com to buy leads. That means you have to go out and drum up business - either costumers with leases or with business people looking to buy a space. You can also call on expired listings.

The average business shop is going to lease a space. So, you have make friendly with the owners. Buy your bagel and coffee from the same place. Do your dry cleaning from the same place. Eat at the same restaurants each week.

But leases can take a long time to turn over before they might need to go rent elsewhere. As an example, Houston's Restaurant in Garden City, NY at the local mall left a few years ago. Great food. I ate there a lot and it was the go to place for a lot of folks. Houston's was there on a 20 year lease deal and it was ending soon. The mall wanted to hike their rent to something like $75K to $85K per month (vs. $50K/ month). If Houston's was your customer when they first leased the spot, you had to wait for 20 years for their lease to renew. But they ended up bailing out on the mall. They haven't found a new location in the area. The spot they were in is still empty.

Commercial national average vacancy is around 11% right now. Many buildings will sit empty for years before finding a new tenant. Sometimes it's due to the location or due to the building's footprint. A home depot closed near me. It was one of the first in the area. Its footprint would suit Walmart, maybe a Kmart. Kmart already left the area and there is a Walmart already up the road. So, the building is sitting vacant. It might take a few years to find a new customer.

Development side of business can take years for a deal to go through and something to happen. Every company has their own preference for where they want to be located. Location isn't enough. They also have their requirement on how the building is positioned in that location. So, some businesses would rather build something than take over a vacant spot that doesn't fit their needs.

So, because nothing happens over night in commercial, it can take years to really build a book of business. But if you keep you clients happy, over the course of several years they will eventually need your services.

Daniel Kong · Answer

Been a Software Developer for 17 years and going. Put a lot of time and energy into making money that way. I read Rich Dad, Poor Dad, which blew my mind. I realized that for all the time and energy I put into my job, my ROI was so capped. Decided just jump straight into RE (part time for now) after that. Its been fun and promising so far!

Mike Krieg · Answer

I started investing in real estate when I turned my home into a rental and bought another one as my primary residence. After that I started adding properties. The problem I ran into on the residential strategy is that it doesn't scale as well as commercial. I was eager to stop landlording, reduce my legal liability, and angle toward an income model that made better use of my strengths as a financial analyst. Commercial apartment deals, i.e. syndications, allowed for me to transition. I have friends however who are very happy staying in residential and have no desire to go into commercial. I think if it works for you, then go for it. The one thing I'll say about commercial RE is that its a team sport. I also worked on teams in my "other" career and really enjoyed building and leading those teams. Commercial RE allows for more of a team approach, and I love that! I was much more of a loner in the residential stuff than I am now in the commercial space.

How did you get started in commercial RE?

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