Education is prior and after the transaction, let’s see what you should do first
1) Choose your niche and become the expert
- Educate yourself and focus on what you want to do (multi family, office, retail, industrial, hospitality). Education can be books, discussions with other investors, podcast or a job in relation with CRE
- Before diversifying, become an expert in one asset or sub-asset class.
- Find the strategy that is right for you depending on your goal :
- Land banking: buying land in the path of development for future appreciation
- Development: re-imagine what could be built on raw land
- Fix and flip: buy a property and make the necessary repairs and upgrades to sell at a profit
- Wholesaling: finding a good deal, putting it under contract and sell the contract to somebody else for a fee
- Owner-occupied: the property purchased will be totally or partially used to run your business
- Value-Add purchase: the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat
2) Learn how to underwrite CRE investments
- You must know the math around the deal and run your simulations to have an estimated return on investment.
- Make sure the inputs make sense and are up-to-date (rent per sq/ft, taxes, operating expenses).
- A professional certification may be useful (eg. CCIM in the US).
3) Build your A-Team
- You need to have a team of professionals on your side that have fiduciary responsibility to you:
- A broker that specializes in the asset class you focus. Get on their email lists for regular updates. Underwrite every deal they send to you and tour the properties, ask their opinions about the properties and numbers
- An attorney that specializes in CRE to review and negotiate purchase and sell agreements, loan applications as well as reviewing zoning restrictions or land use issues.
- A contractor that works regularly on CRE properties to walk through the properties with you to estimate repairs
- A property management company. The property manager can walk through properties with you and assist with the due diligence. Make sure to include the PM fee when you underwrite the deal even if you plan to self-manage at first.
- Relationship with commercial lenders. Commercial lenders have specific underwriting criteria so if several lenders deny your loan application, you must have a bad deal. Make sure to have a solid presentation when you apply for a loan
4) Practice and bid on properties
- Underwrite one deal every day.
- The numbers must make sense and match your investment criteria (minimum return-on-investment or cash-on-cash return)
- Make at least one offer per week (letter of intent)
- If you do not do so, it means you are not looking at properties and you may miss good opportunities (eg. the seller has a loan coming due or have another asset under contract to fund)