Myths and Questions about Investing in Commercial Real Estate
Like any complicated business, commercial real estate investing has its share of myths and questions. Knowing this information brings forth some valuable truths that will rescue you from the trappings of confusion.
The following are some pretty common misconceptions about investing in commercial real estate:
You must start off in residential real estate to get into commercial real estate. There's no rule, rhyme, or reason stating that you must first invest in residential real estate in order to make the leap into commercial real estate investing. These fields are two different animals, two different languages, and two different consumers. It's like comparing apples to oranges.
Only the rich need apply. As you can probably imagine, this myth is just that: a myth. It isn't true that you have to be rich to get involved with commercial real estate investing. You can be as creative in your financing here as you can be when investing in homes.
This game is only for big-time players. In commercial real estate it doesn't matter where you start, and it doesn't matter if you only want to devote part of your time to do it. Having a full-time job or being a single-parent doesn't matter either.
Commercial real estate investing is riskier. Compared to what? If you compare it to stocks, do you have control over the companies you own stock in — in areas such as income, expense, debt, management, and insurance? Probably not. However, you do have these five controls in commercial real estate investing. If you compare it to residential real estate investing, what happens if you rent out your single-family home and the tenant moves out? What's your monthly income then? The answer: Nada. If, on the other hand, you own a 24-unit apartment building and one tenant moves out, what's your monthly income? Answer: 23 paying tenants worth of rent! What's more risky?
Commercial real estate is too complex for simple folks. Again, this isn't true. Remember when you got your new smartphone? You had no idea how to use it. It seemed too complicated, and it had entirely too many buttons. But there was a manual to get you started. After that, through repetition and practice, what seemed much like a puzzle is now fully understood and appropriately used. Getting to know commercial real estate investing is the same concept. You have quite a few things to master, but it isn't rocket science.
Real estate, like the rest of life, does have risks. If it didn't, it probably wouldn't be as fun. And it surely wouldn't pay off with the incredibly strong rates of return that it does.