How to Get Started With Commercial Real Estate Investing 

We’ve received a lot of questions recently about investing in commercial real estate. It’s a good way to diversify a portfolio and find deals in competitive markets. 

While commercial and residential real estate have some things in common, they’re very different investment strategies. For investors with experience in residential real estate investing, getting started with commercial real estate investing can feel daunting. 

To help investors considering this strategy, here’s an introduction to commercial real estate and some tips for getting started as a commercial real estate investor. 

For more investing advice and the tools you need to manage investment properties, visit ezLandlordForms.com. 

What Is Commercial Real Estate Investing 

Commercial real estate investing involves buying properties that are used for business purposes. Some common types of commercial spaces are: 

• Office buildings 
• Retail and shopping centers
• Industrial spaces and warehouses
• Multi-family buildings with five or more units 

Commercial real estate investors purchase this type of property and then rent it using long-term Leases. Investors make money through monthly rental income and long-term property appreciation. 

How Commercial Real Estate & Residential Real Estate Investing Are Different 

While there are some obvious similarities between commercial and residential real estate investing, there are a few key differences that investors should be aware of. 

• The type of tenant. In residential real estate investing, tenants are individuals in need of housing. In contrast, commercial tenants are businesses with varied interests and needs. In commercial real estate investing, investors deal with business owners or corporate representatives. 
• The lease period. A standard residential lease is for 12 months. Most commercial lease agreements are for longer periods – most commonly three to five years. 
• Lease provisions. Many commercial leases include provisions requiring the tenant to pay property expenses and handle property maintenance. It’s common for commercial leases to include detailed provisions on usage, property modifications, and maintenance responsibilities. 
• Property management. Residential real estate investors are focused on day-to-day maintenance needs. Commercial investors are usually more focused on dealing with building compliance and staying current on applicable building regulations. Commercial investors also have to maintain any common areas and ensure all spaces are safe for tenants and visitors. 

Pros and Cons of Investing in Commercial Real Estate

There are some distinct advantages and disadvantages to investing in commercial real estate. Key pros to commercial real estate are: 

• Higher returns.  Commercial real estate often yields a higher return than residential real estate. Plus, it offers the opportunity for cash flow from multiple tenants in one property. 
• Longer lease terms. Commercial Lease terms are often a minimum of three years and can be as long as 20 years. This provides more consistency, stability, and predictability for investors. 
• Portfolio diversification. Adding commercial real estate to your portfolio helps diversify your investments, which means additional income streams and protection from changing market conditions. 
• Decreased competition. In most markets, there’s less competition for commercial properties than there is for residential properties. This can provide opportunities for investors to buy properties at a discount. 
• The option of triple net leases. Many commercial leases include provisions where the Tenant pays real estate taxes, insurance, and maintenance expenses. These are referred to as triple net Leases, and they are more passive than other types of real estate investments. 
• The value of commercial properties is directly correlated to rental income. This means investors can purchase a property with low rent, improve it, increase the rent, and increase the property value. 

Some notable cons for investing in commercial real estate are: 

• Increased volatility. Commercial real estate is sensitive to economic changes, and demand can change quickly based on market conditions. Market changes can quickly impact property value and rental income. 
• Increased regulations. Commercial real estate investors have to comply with local, state, and federal building and zoning regulations. This can make property management complex and difficult. It’s often necessary to work with a local professional to ensure commercial spaces comply with all applicable regulations. 
• Increased initial investment costs. In most instances, the initial investment for commercial estate is significantly higher than the required initial investment for residential real estate. 

Tips for Getting Started in Commercial Real Estate Investing 

Commercial real estate can be a good way for investors to grow and diversify their portfolios. If you’re considering getting started: 

1. Build a commercial real estate knowledge base. Start by understanding different types of properties, industry trends, industry news, and risks associated with commercial real estate. Podcasts, real estate investing books, and networking events are great ways to build a commercial real estate knowledge base. 
2. Create an investment strategy and investment goals. This should include the type of property you want to focus on, a target location, specific investment goals, and a financing strategy. 
3. Begin searching for the right property. There is no MLS for commercial real estate, making it harder to find the right property. In fact, many deals are done off-market. New investors should work with a commercial real estate broker or search public sites like Loopnet, CREXI, and CityFeet. 
4. Screen tenants thoroughly. Once you’ve acquired a property, be diligent about finding the right Tenant. This is particularly vital given the long terms of commercial leases. 
5. Negotiate favorable Lease terms. Commercial leases provide more opportunities for negotiation than residential leases. Maintenance, property expenses, and property modifications are all negotiable. Be prepared to negotiate these terms to ensure you get the best returns and management experience possible. 

Get the Tools You Need to Manage Your Investment Property 

If you’re getting started with commercial real estate investing, ezLandlordForms can help. Use our Tenant Screening, Commercial Lease Agreement, and Online Rent Payments to make it as easy as possible to manage your commercial property. 

Create an account today or chat with our team to get started.