There are many ways to invest … and one way isn’t necessarily better than the other. Real estate is nuanced. It’s always a good idea to broaden and expand your expertise into different markets.
That’s why we’re THRILLED to talk to our returning guest, Tom Wilson, about commercial real estate investing. His engineer’s mind can deconstruct this intimidating topic into bite-sized pieces … the perfect size for inspiration!
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your seasoned host, Robert Helms
- His underseasoned co-host, Russell Gray
- Tom Wilson, a long-time friend of the show and expert in commercial real estate investing and syndication
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Add more commas and zeros to your thinking
Commercial real estate investing feels more advanced because the deals are bigger. But the truth is that it takes nearly the same amount time to learn how to do big and small deals well.
One of the beauties of commercial deals is that you’ll get more leverage. And, this will put you on the road to adding commas to your thinking and diversifying your real estate knowledge … a must in dealing with a changing market!
Of course it takes time to get educated on a new market. Many commercial real estate deals are funded through syndication. Jumpstart your education by joining forces with people who know their stuff.
“I think the best thing I’ve done over the years is to adjust to different markets and asset classes as they’ve progressed,” says Tom Wilson, an expert in commercial real estate investing and syndications. “It’s awfully easy to get really comfortable in something that has worked before.”
Since Tom has a background in engineering, he approaches problems from a research and numbers perspective. But even he knows the value of bringing in the experts.
“I got some advice early on: Don’t try to do everything yourself,” Tom says. “You can accomplish more in life if you gather experts around you. I like to constantly be learning from others.”
Understand tenants and leases
One of the things that can initially seem foreign to new commercial real estate investors is what tenants look like in a commercial building.
Just like families live in residential areas, businesses make up your tenants in a commercial real estate deal, but with a few key differences:
- Leases are longer for commercial deals. It’s not uncommon to see a commercial lease for 15 years or longer on a single-tenant building. You know that businesses are going to stick around in one location for a long time.
- Maintenance is handled by the tenants. These leases are called triple-net leases, which essentially means that the tenants pay all real estate taxes, building insurance, and maintenance.
“Many of us who have had rental properties understand about turnover, tenants skipping overnight, having to do evictions. These elements are rare in the commercial arena,” Tom says.
With the right expertise, managing commercial can be much easier. The tenants are higher-quality, and you have lower turnover in your buildings. And, you’ll likely know well in advance before a vacancy happens.
When you’re looking for a commercial space, you need to know who your tenants are. This is even more crucial when you have a single-tenant space.
“It’s important to do a deep dive into the tenant’s financials and the market they’re in,” Tom says.
With big-name brands, remember that there may be low risk, but there’s also low returns. However, the tier below that offers a real opportunity for some good deals, as long as you’ve done your homework.
Know the market
Just like there’s diversity in the types of residential properties, the options for commercial real estate are just as rich. And, e-commerce has definitely caused a bit of a shift in the commercial real estate space.
“You still need to get a product to the door,” Tom says. “You’ll need more distribution centers and smarter distribution centers. We need more last-mile distribution centers.”
Not only that, but the increase in demand for these industrial distribution locations have removed some of the supply for other commercial properties, which means the market for industrial and commercial real estate is healthy.
We also know that brick and mortar stores aren’t going away. You can’t get your hair or nails done online. You still drop off and pick up your dry cleaning, and your pets go to the vet!
And, commercial real estate doesn’t stop at brick and mortar stores or even distribution centers. Large manufacturing plants, refrigeration, R&D, and many other options are out there for types of commercial real estate.
No matter where you choose to crack into commercial real estate, here’s a few nuggets of wisdom from Tom’s long resume of commercial real estate deals:
- Get educated enough to ask tough questions.
- Surround yourself with people who know more than you do and don’t feel intimidated.
- Delegate and spread out responsibility so each person has a manageable piece to take on.
- Stay rational when the stakes are high.
If you’re ready to take on commercial real estate, Tom has prepared a special report packed with important details on how to be successful in this niche. To get your free copy, email us at [email protected].
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