In commercial real estate investing, there’s no asset more valuable than experience. The more investments you’ve made, the better you understand how to evaluate a purchase, how to manage a property, and when to sell a property and move on.
No resource can replicate decades of investment experience. But you can train yourself to think like an experienced real estate investor by understanding your goals and holding fast to your plan to achieve them.
Step 1: Understand Your Goals
Start by thinking deeply about your long-term vision for real estate investing by considering where you’ll be in 10, 15, and 20 years. In 2030, what do you hope your finances will look like? Will you still have another career, or are you hoping real estate investing will allow you to retire early? How about in 2035 and in 2040?
These aren’t scientific or financial projections — at least, not yet — but they can help you understand your endgame. Real estate investing is a tool to help you achieve your financial goals, and placing it in that context can help you set more specific goals for your first 10 years.
Step 2: Develop Your Real Estate Knowledge
Once you’ve determined your goals, you need to know every step it takes to get there. Before you start investing, make sure you have at least a working knowledge of how commercial real estate works. You should know how to analyze a property for cash flow, how to identify an under- or over-valued property, and have a broad understanding of the economic factors that drive the real estate market.
A professional real estate firm like WindWater can be an invaluable partner at this stage. WindWater aims to work as closely with real estate investors as they want, which means we’re happy to answer your questions along the way. But the more you know coming in, the more quickly we can zero in on your goals and the properties that will help you get there.
Related Webinar: Leveraging Technology in Real Estate
Step 3: Buy Your First Properties
There are a variety of ways to start investing in commercial buildings, all of which have unique pros and cons.
Flipping a property is purchasing a building at a low price, investing in renovations, and then selling the property for a profit.
House flippers often preach the “70% rule,” which says that an investor should estimate the value of the property after renovation, subtract the cost of needed repairs, and then spend no more than 70% of that value on purchasing the property. For example, if a flipper estimates that a renovated home could sell for $300,000 after $60,000 in repairs, they should purchase the home for no more than 70% of $240,000, or $168,000. Note that the 70% rule is certainly not set in stone, especially since real estate markets vary widely from place to place.
Some investors pursue a value-add strategy, which is similar to flipping in that it starts with buying an underperforming property and investing in renovations. The ideal value-add property has a low price per square foot, lots of potential for modernization, and low rents for its location, so that increased rents post-value add won’t seem out of place.
In both flips and value-add projects, it’s essential that investors understand the real cost of renovations. Get several estimates and tack on 10% to 20% for contingencies and overages. Remember to account for possible delays in your own cash flow projections.
If the prospect of renovation makes you uncomfortable, consider a rental or a buy and hold property.
Rentals are straightforward: Purchase properties in areas with well-established rents or with leases in place and start collecting returns. In the case of residential real estate, many investors use the 1% rule to determine whether to pursue a property: A rental property should return 1% of its acquisition cost every month, which means that a $100,000 property should return $1,000 each month. Commercial properties are a lot more complex, but can be more financially rewarding.
Buying and holding is a strategy for investors who don’t need to see immediate returns. These investors buy property in up-and-coming areas, hold on to it for a few years, then sell when property values have risen.
Step 4: Sell Your Properties
Selling your investment properties is all about timing. Most simply, there’s your own timing: If your portfolio is overflowing and you’re struggling to manage it, unload something.
Then there are the broad economic factors: How fast are rents or values rising in your market? How is demand evolving? What will interest rates do this year?
Finally, however, there are the specifics of the property itself. Experienced real estate investors know that the best time to sell is when a property has maximized its value, meaning it has generated years of satisfying returns but will still attract investors when it hits the market again. Understanding what you want out of each property will help you determine when a property has maximized its value for you. A real estate professional can help with the rest.
When the time comes to sell a property, every investor wants a quick sale that fetches a high price. Selling investment properties is all about effective marketing.
Catch potential buyers’ eyes by making sure your property shows up in their search results. WindWater’s MPO Score is a new real estate tech resource that can help sellers understand how well their assets are being marketed online. We score each property based on search, presentation, and the accessibility of relevant information to understand how likely investors or brokers are to pick up the phone and inquire rather than scroll to the next listing.
Beyond the specifics of each property, real estate investors need to effectively market themselves. Brand yourself and your firm, if you have one, using professional images, high-quality visual branding and content that educates readers. Again, WindWater can help with this.
Why bother with digital marketing? Because the ROI is significant. WindWater has found that when we help investors market their properties, we can reduce time to lease from six months to as few as one or two. We have a proven track record of selling properties in two to three weeks of listing.
To learn more, join WindWater for a webinar about How Successful Investors Sell Their Property. These tools were developed by our team of experienced commercial and residential real estate investors with other investors in mind. Let us help you take the next step toward successful real estate investing.