I like the attitude!!!
This is the hardest thing for most residential investors to grasp.
There’s only 2 ways to get into commercial real estate…
Start with a HUGE pile of money and just buy for appreciation. These types of people usually have other sources of income such as dividends of businesses and they just want a place to park a large sum of money were it won’t disappear one morning when they check their stock quotes. They put big money into these buildings and buy for a percentage return on their invested dollars. It takes DEEP pockets to do it this way.
BUILD THEM!!! This is the only way I could have ever got into this.
My first building was that burned out house I told you about. It was a nice tie-in for me because I was very comfortable with the costs associated with that type of rehab. The house was in a commercial zone so I converted the building from a single family home to what looked like an office building when it was finished. I use a lot of DRY-VIT on these projects. It can make a single family home look like a commercial building in about 1 week. (Check Dry-Vits web site for pictures) Great product. I worked for them as a field service rep for 3 years. LEARNED A LOT!!! I have also spent almost my entire adult life in the construction business. Everything from single family spec homes to $100 million Bridge projects that spanned a local bay. So I know I am coming at this with a lot more experience than the average investor, so bear with me if I make some assumptions that maybe I shouldn’t.
Another problem residential investors have breaking into commercial is they have NO EXPERIENCE when it comes to CHANGING the use of an exsisting building. If you buy and rent homes it’s cut and dried. It’s a home, you know what it will rent for, you know what the market is, and it has ONE USE. In commercial, a single building can have dozens of uses. The KEY to buying is actually exploiting those uses. I look for buildings that are zoned for as many uses as I can get. This opens up options for you as an investor. Remember me telling you to “find the tenant first” this is why. With these properties you can reconfigure them to suit a tenant. A single family home is a single family home. That’s it…DONE.
What you have to do starting out is this…First, how much CASH do you have? Notice I didn’t say funds. CASH is CASH. Funding can mean LOANS. You WILL need 6 figures in cash to do this. Now before you throw up your hands, 6 figures in cash is about 2 or 3 flipped homes. I would start there. Your going to learn estimating, scheduling, project management, and permiting processes, it a great education that should pay you NICELY. Take that money (if you don’t have 6 figures now) and THEN start looking for a SMALL property that you can CONVERT from it’s current use to something that will generate BETTER numbers. This is what makes commercial so difficult for new guy’s. It’s also the reason you see veteran residential investors move into commercial. They have paid their dues and learned the skills needed to do this by buying and selling homes. It’s not a giant leap to go from rehabbing 6 to 8 homes a year into rehabbing one commercial property. Most of your contractors will be completely capable of doing that type of work and you’ll find that commercial is actually EASIER to build out. Think about the bathrooms and kitchens in a home, they are the two most expensive rooms in a home. Now think about the bathrooms in a commercial building? A TOILET AND A SINK!!! NONE of my buildings have kitchens in them. The problem for residential investors is LEARNING to take a building and CHANGE it’s use. They have NO experience at this. It can be learned, YOU can do it. It’s not in a book somewhere like renting homes is. YOU HAVE TO DO IT or know someone who has.
You hit it on the head…this is a get in the trench, roll up your sleeves business. The only other way is to come in with millions of dollars and just buy something as a place to park that money. That system works, it’s done everyday. But…it’s like buying a Duesenburg or fine art. Your not making MONEY on it until you sell it and hopefully you picked the right item. I don’t have that kind of money so I build this stuff because it is INFINITELY less hassle than renting homes to MORONS.
Find that small building or home that you can CONVERT. You drive by this stuff everyday. My lawyer just purchased a small single family home (1800 sq. ft/ Cape) he converted it onto an office duplex. The front yard and back yard was paved over for parking, he used DRY VIT (your welcome Rich) and he has a beautiful commercial property that generates $1500 per SIDE. Show me a 1800 sq. ft. single family that you can rent for $3000/month triple net??? His costs on this thing were dirt, he got the home through a bank forseclosure. It WAS a single family home BUT the area was ZONED FOR BUSINESSS$$$$$$$$$$$!!!
A simple application to the zoning board to add in office use to that designation and BINGO,
OLE JED’S A MILLIONAIRE!! (well not really, but he’s not renting to maniac, loser, scumbags) TRIPLE NET BABY, TRIPLE NET!!!
I hope that helps you. Get out there an find the stuff that can be TURNED into commercial property and I think you’ll see the numbers start to add up!! But you WILL need cash reserves.
How much cash are you bringing to the table?? The answer to that question will help ME, help YOU.