I find it fascinating to observe a newbie CRE investor in action. You know you’re dealing with a newbie because they openly admit they’re novices and say something like, “Please can I ask you one more question,” which leads to ten more questions.
For the most part, I don’t mind answering their questions. Generally, those who have an abundance of common sense and humility do just fine as first time real estate investors. But to increase their chances of success at real estate investing, I have six suggestions for them to consider.
1. Overcome the fear of failure.
Hey, I get it. It’s scary the first few times you invest in commercial real estate. A lot of that fear could be eliminated or at the very least significantly reduced, if the newbie investor does their homework before he or she buys their first property.
But even if you have these five questions answered in spades the newbie CRE investor needs to adopt a mindset of “You either win or you learn.” In everything we do, we either win (we make the right decision) or we learn an important lesson so next time we have a better outcome. Winston Churchill said it best when he said, “Success is not final, failure is not fatal: it is the courage to continue that counts.” And that is particularly true in CRE investing. Sometimes your CRE investment is a home run, and sometimes you learn what not to do so next time is a success.
2. Focus on one market and one property type.
The fastest way to become a seasoned real estate investor is to become an expert in one property type and in one market, or better yet, one submarket. Don’t try to understand all the nuances of each property type. Instead invest all of your time and effort in learning the peculiarities of the property type of your choice. To become an expert quickly, focus on one submarket. If apartments is your focus, then devote your energies to knowing all about the apartment market in your defined geographic area. What demographic factors influence this market? How have rents increased in the past year? What is the current vacancy rate in this submarket? How is the market trending? Seek out the answers to these questions and you’ll soon become a market expert.
3. Don’t attempt to do this by yourself.
You need a team of knowledgeable advisors. There is absolutely no need to invest in CRE based solely on your expertise. How foolish would that be! Here’s a list of advisors you should consider:
a. Real estate broker b. Mortgage broker c. General contractor/handy repairman d. Property management company e. CPA/accountant f. Real estate attorney g. Insurance agent
Do an honest self-assessment of your CRE skills and experience. Wherever you fall short, hire someone to fill in the gap. For example, if you’ve never managed a property before, at the very least hire someone to do it for you until you think you’re ready to try it on your own.
4. Stay the course.
Investing in commercial real estate requires “staying power.” Investing in CRE is typically a long-term hold of several years. Don’t expect to buy and flip like some residential investors do. When I invest I expect to own the property for 5 to 10 years, or possibly longer. Staying power also requires that you have working capital set aside for those unexpected expenses, typically capital repairs or tenant improvements needed to get a space ready.
5. Treat everyone with respect.
Your reputation is everything. How you treat people eventually catches up to you. Do you treat your team of advisors respectfully? How about your tenants? Do you treat them like you would like to be treated? Do you have a win at all costs mentality when negotiating on the purchase or sale of your properties? Or do you try to negotiate in such a way that both sides feel like a fair deal was achieved?
6. Be a person of integrity.
It only takes one shady transaction to stain your reputation. The real estate community is surprisingly small. If you’re caught doing something unethical the news gets around very quickly. Once your reputation is tarnished, it takes years of consistently doing the right thing to ever have the chance of rehabilitating your good name.
Over the years I’ve been fortunate to have had many clients that I’ve enjoyed working with. Occasionally, I’ve had clients who are either unethical or treat me or others disrespectfully. The next time they contact me to use my services they seem a bit surprised that I’m not available. In reality I could be twiddling my thumbs and I wouldn’t work for them again. Life is too short to work for a paycheck. So treat everyone like you would like to be treated.
Those are my thoughts. What are yours? What advice would you give a newbie CRE investor?
About the author:
Doug Marshall, CCIM is a veteran commercial real estate professional of 36 years, 30 of which are related to financing apartments and commercial real estate. For the past 10 years he has also invested in rental properties. In 2003, he founded Marshall Commercial Funding, Inc, a commercial mortgage brokerage firm located in Portland, Oregon.
Doug Marshall is also the award-winning author of Mastering the Art of Commercial Real Estate Investing. Check out his book on Amazon!