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Investing in Commercial Real Estate

August 4, 2008
URL: http://www.entrepreneur.com/article/196042

In my previous article, I talked about buying residential foreclosures. In the final installment of my series, I'm focusing on buying commercial real estate. Many people start out investing in residential real estate simply because they're more accustomed to buying homes, but commercial real estate can be a great way to balance your portfolio. You just need to bone up on the different rules and terms in the commercial market. So get ready for a primer on buying commercial properties.

Residential Vs. Commercial
Following are the differences between commercial and residential real estate investments.

Now, here's one similarity: A common mistake people make is thinking that commercial real estate doesn't go into foreclosure. It does. Many of the same rules that Bill Nazur and I wrote about in our book Finding Foreclosures apply to commercial real estate as well. Banks don't want to own commercial property any more than they do residential, and you can find the properties using the same methods as residential units.

Doing Your Homework
As with any investment, it pays to do your homework. Find out what the vacancy rates were with the previous owners. Talk to storefront managers and find out what they like--and don't--about doing business there.

Are they planning to renew their leases? What did they like about former management? Is business booming? Are any residential properties being built in the area? Is the site properly zoned? Are companies like Lowe's and Home Depot moving in--a sign that there may be more demand for storefronts in the area? Is the population's median income at least at the national average, and are people maintaining their income levels? How are the current store owners doing financially? Have they been behind on rent before? Be sure to ask to see the sellers' cash flow statements, too.

Once you take the time to understand the ins and outs of commercial real estate investing, it can be extremely rewarding both financially and personally. So, what are you waiting for? Start rounding out that portfolio.

Part 1: If You Can't Flip It, Rent It
Part 2: Offset Your Investment Portfolio with Foreclosures