Commercial Investing for Advanced Investors

Successful residential investors frequently look to commercial property investing to achieve even more financial security, wealth, and professional challenges. Commercial investing differs in many ways from residential investing. Property income, expenses, and values are often calculated differently, and success in this business requires speaking the language of commercial real estate fluently.

When it comes to commercial real estate investing, you have many more options than with residential investing. Commercial property investing involves retail space, offices, warehouses, hotels, multifamily apartments, etc. Many investors graduate from single-family homes to multifamily apartments as a natural progression into the commercial niche.

There are many upsides to commercial real estate investing. This is a look at investing on Main Street rather than a skyscraper in Manhattan. This is where you’ll find both motivated sellers and sellers interested in finding creative financing solutions. Mom and pop stores, as well as owners of small strip malls, and owners of small apartment buildings often have their retirement savings tied up in these commercial properties. When it’s time to retire, it’s time to sell.

Alternative Commercial Property Investing

Consider whether you’d rather manage a single mortgage on a commercial property with 40 units or 40 mortgages on 40 different single-family properties? Or consider a small office complex. Going forward, medical facilities will remain strong commercial property investing opportunities as baby boomers progress through their golden years. The transition of baby boomers into senior citizens also makes multiunit senior housing attractive.

I’m not big on the retail market but across small commercial properties, tenant demand is strongest for those at 5,000 square feet and below. The space in the 5,000 to 7,500 range is also worth considering. Lease terms are typically between 36 months and 60 months. Providing much more stable cash flow than one-year residential leases.

Commercial property investing is still about location, location, location. It's always critically important that you understand the numbers and situation of the local market and industry that you are considering investing in.

Commercial Property Investments – You Don’t Need Big Cash to do Big Deals

Commercial property investing often involves seller financing. Especially for mom and pop operations when the seller needs a reliable retirement income. However, sellers don't always see it this way. When they put their investment property up for sale, they envision an "all cash" sale. Yet, these are more sophisticated people with business experience that most residential sellers don’t possess.

What do you think happens when your creative financing solution fills the seller's cash needs while also getting you into the investment property for zero down? I'd say that's a win-win situation that motivated sellers will go along with.

The key is knowing what the commercial property seller is planning to do with the cash and how much they need for that purpose. Rarely do sellers need everything they want to be paid at closing and/or they have other options they can fall back on.

When your motivated seller accepts 15% cash (meeting their real cash needs) and carries the 85% balance, you can be in the driver's seat of a commercial property investing deal as the new owner at zero down. Once you establish and agree to pay cash meeting the seller's needs, you have the option of finding private money to finance the cash portion and have the seller carry the balance of the financing....

Using Private Money to Finance Your Commercial Property Investing

Another critical piece of commercial property financing is knowing there are still billions of dollars in private money sitting on the sidelines today. Many individuals that were trounced by the last stock market plunge lost 40% or more. They aren't buying into the Wall Street's hoopla again anytime soon.

These individuals have $100s of thousands and even millions sitting in bank CDs or money markets collecting a miserable 1% interest or less. These people are searching for secure investment opportunities paying 5% to 7% interest. Anything above the inflation rate looks good to them.

What if you offer them a senior lien position to finance the cash portion of your investment? A mortgage where the property is worth 110% more than the loan is for. It's easy to see highly secured loans are much more appealing than a 1% CD and with nearly zero risk to them.

That's called coming up with win-win, zero down, financing. A Private money loan for the 15% cash price with the seller financing the 85% balance to give him or her a steady retirement income from installment payments.