Written by Leslie Quinsay, Real Estate Investor
Thinking about taking the leap from residential to commercial investing? Many investors get started by investing in the residential market probably because it is familiar and easily understood. After all, many of us own our own homes and have seen equity build-up and mortgage pay-down first hand. With a good system for locating and analyzing residential real estate and with the help of experienced and reputable property managers this can be a good way to create long-term, sustainable wealth. However, achieving your personal goals and growing your portfolio sometimes means stepping outside of your comfort zone. For some of you this translates to adding commercial property to your portfolio.
Investors move towards commercial investing for several reasons.
-they have reached their peak with their current investing and want to grow their knowledge
-want more control over value of their property – ability to “force” appreciation
-highest and best use
-desire for properties with higher cashflow
-if leasing to businesses you are dealing with a professional and responsible tenant profile
-more landlord friendly environment
-allows for advanced, profitable strategies such as condo conversion
Entering the commercial market can be a great way to diversify and exponentially grow your real estate holdings. Many investors stay on the sidelines because of fear or a lack of understanding of the commercial market. They may also be bogged down by limiting beliefs such as, “I don’t have enough money to get into commercial real estate”, “I don’t have a team in place to handle a larger investment”, or “the commercial market is too complicated for me.” Whatever the reason may be, it often paralyzes an investor and prevents them from enjoying the benefits of commercial real estate.
Getting started in commercial real estate doesn’t have to be daunting. It can be as simple as starting with a small multi-family unit property. I started by purchasing a six-plex in Kitchener, Ontario (pictured below) for $513,000 which is now one of my best properties. With my single-family homes, a vacancy meant that I would have to tap into my reserve fund or carry the monthly costs until I got it rented again. With my six-plex, even if a tenant leaves I have others in place still making their payments which means that the property can still carry itself. Having six doors under one roof also means more efficient management because although I have six independent income-producing units, my manager only has to deal with one location. Acquiring this property took some research and several meetings with my support team and mentors. It also meant teaming up with joint venture partners who helped provide some capital and added to the strength of the mortgage application. Had I tried to do this alone it might have taken me longer to transition to larger properties.
Gross Revenue – $4,265
Expenses – $1635
Debt Service – $1,577
Cashflow – $1,053
|TIP: Start small and gradually build up to larger and more challenging projects. Having a few smaller projects under your belt will give you the experience and confidence you need to move forward with larger deals.|
Although the numbers can be larger and the process longer, the steps taken to locate and analyze commercial properties are very similar to residential investing. I highly recommend getting advice from others who are already investing in the type of commercial property you are interested in. A smart investor recognizes the importance of educating and aligning themselves with credible and experienced team members. In addition, if you aren’t ready to go about it alone, there are several ways to add commercial real estate to your portfolio such as joint ventures, limited partnerships or REIT’s.
In summary, make sure that adding commercial property to your portfolio meets your long-term investment needs. Before taking the leap, do your research, align yourself with investors, mentors or team members who can help you through the process, and have multiple exit strategies in case the need to free up your capital ever arises. As with everything else, success begins with taking action so don’t let fear of the unknown prevent you from enjoying the benefits of investing in commercial real estate.
Leslie Quinsay was awarded the 2014 Investor of the Year Award presented at the Toronto Investor Forum. She is a successful entrepreneur, real estate investor, and author. She has grown her real estate portfolio over the last 15 years by following a path and strategy that best fit her long-term goals. Today her portfolio is comprised of both residential and commercial property. She continues to invest and educate other investors through Coridian Capital and it’s online educational site www.pushpast.ca.