Success In Commercial Real Estate Means Thinking Big But Starting Small
I’ve talked in past articles about setting lofty goals and not being afraid of big commercial real estate deals, and there is indeed truth to this. I honestly feel there are few goals that can’t be attained with the proper approach and dedication. That said, sometimes the best way to get big is to start small and commercial real estate, fortunately enough, offers such opportunities.
I bring this up because I work with many investors who would just as soon jump from owning a few single family homes to owning a 100-unit apartment complex. Is this doable? Of course. Is it realistic? That is more questionable. I always admire the gumption but I think investors who do this are often guilty of wanting the prize without having to first win the fight.
My suggestion here is twofold. First, commit yourself to running numbers effectively for cash flowing properties. If you can do this well for a 4-unit building, the same effort for a much larger building is only with different numbers. My point is that many investors seem disinclined to view income properties the way they need to be viewed, as income producers.
Many residential investors are flippers, making the bulk of their income from buying and selling real estate. The income production is a secondary issue. Transitioning immediately from that format to a large apartment building can be disastrous, since the numbers analysis is largely different. A small commitment to learning how to properly analyze cash flowing rental property I feel is necessary precursor to getting into larger deals like apartments. It will also make your investments more profitable in the end.
Second, don’t be afraid to take baby steps before running a marathon. There’s nothing wrong with buying a couple of 4-unit buildings and getting used to owning them before graduating to larger buildings. While I don’t buy into the idea that the best way to manage property is to manage all your own units personally, I think some trial period of owning cash flowing rental property is beneficial to getting your feet wet and preparing you for bigger and better things to come.
The sky’s the limit with commercial real estate (sometimes literally) so don’t be afraid to take a little time to get used to the business and what it takes to be a good owner of rental property. Not only will the experience benefit you, but you will also likely have a greater net worth and better portfolio to put forth when it does come time to go after those larger deals. Smaller steps now can lead to leaps and bounds later.
By: Dave Lindahl
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