#1 Choose your Niche
Do you like office buildings, shopping centers, warehouse properties or possibly even duplexes or apartments? Start with a property type you like or may be familiar with as you begin this journey. Look for property types that will appreciate in value faster than others. Compare property types that require less risk and fewer management headaches
#2 Earn, Save, Invest, Create Margin
If you have no money you can still create amazing wealth in a relatively short time by investing in commercial property. Start saving as much as possible as fast as possible. Partner with others to get in the game. I have purchased 2 properties with none of my own money. When you have a little cash, invest in what you can afford. This will get you on the road to creating margin in your life.
#3 Read & Network
Read as much as you can, online or in books, on the subject of investing in commercial real estate. Join groups of other investors to see what they have done that works. You can buy investment property with little or no money down. Read about the ways to make this work for you. Learn about financing, meet with commercial bankers and understand the financing process and requirements in your market.
#4 Buy a Property Within 1 Year
Set a goal to earn, save, and invest in a property within 1 year. If you have a written goal and a decisive plan, you are more likely to achieve your objective. Create a pro forma so you can see how much you will need to have for a down payment, how much you will borrow and what the cash flow will look like for 1-5 years.
#5 Start With Income Producing Property
If this is your first commercial real estate investment start with a property that has existing income. Don’t buy land or vacant buildings unless you have a lot of cash and a great deal of experience. If the rental income covers your debt service and operating costs including real estate taxes, insurance, and maintenance you are on your way to creating amazing wealth.
Leverage is created when you can buy, and control, [for example] a $1 million dollar property by only investing the amount of a down payment i.e. $200,000. Conversely, if you want to buy another kind of investment like stocks, bonds, Treasury Notes, you need to invest 100% of the cost. So, if your $1 million dollar property increases 5% per year you would earn $50,000 the first year on appreciation alone. If you buy a $200,000 investment at 100% of the price, your appreciation at 5% would be $10,000.
#7 Return on Investment
New investors will often look at a property and only consider the cash flow as an indicator of the return on their investment. But if you look deeper, you will see there are actually 4 things that create the “stack” of return on a commercial property. These are appreciation, depreciation, cash flow and principal pay down. If you buy the right property, this “stack” of return on investment typically far exceeds alternative investment options.
#8 Refinance or Sell and Trade Up
So, how do you create amazing wealth by investing in commercial real estate? Here are a few ways. Once you own a stabilized income property, you can refinance that property and use the extra cash to buy another one. Then you will have all of the benefits in #7 above on TWO properties. Or, you can sell the first property and buy a bigger one using a 1031 tax deferred exchange.
With this method you defer any capital gains tax or depreciation recapture. Now, you will realize all of the benefits noted in #7 above but with much bigger numbers. You can do this over and over until you create a portfolio that generates enough cash flow and tax benefits for you to have a lifestyle with freedom and margin.