Flipping Commercial Real Estate
3 Questions to Ask Prior to Investing in Commercial Real Estate
1. What is my time horizon for this investment?
An investor time horizon relates to the duration the investor plans on holding an investment property. Some investors prefer short horizons or "flipping" while others may choose to hold a property for up to 30 years. Typically time horizons are classified into three categories:
- Short = 1 to 2 years
- Medium = 3 to 5 years
- Long = 10 to 30 years
Your time horizon is very important and effects many factors including: mortgage options, interest rates, tax rates and exit strategy, just to name a few, and thus should be determined prior to investing.
2. How active do I plan on being in my investment?
The time and effort you are willing to devote to your commercial real estate investments can greatly affect the types of properties you should evaluate for acquisition. Multi tenant buildings including office properties, retail centers and multi family properties can take a considerable amount of time to manage and lease. If you prefer to spend less time on your investments consider single tenant properties and properties that are leased "triple net". These properties leave most of the responsibilities of ownership to the tenant and free you up for other obligations.
3. How much equity do I have available for investment purposes?
Prior to investing you should determine how much equity you have for this investment and future investments. The amount of equity will effect:
- Your loan amount
- Loan-to-value ratio
- Your interest rate
- Your loan fees
- If you need to view only those properties with owner financing available
- Your ability to purchase multiple properties and diversify risk
- The price of properties you should evaluate for potential purchase