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Knowing The Risks And Rewards Of Commercial Real Estate Investing

Aug 17, 2007
Investing in real estate is one of the best ways to amass a fortune even if you only invest a modest sum of money. Commercial real estate investing involves big money, and it is not advisable to venture into it, if you are an inexperienced investor.

The investors must have a carefully thought out plan making sure they know exactly what they want and how they will use their skills and expertise to achieve these. IT requires a lot of planning, perseverance and patience to succeed. The investors must be clear what kind of property they want to invest in, the size of the property, and its location. They must understand the local market and the latest trends, in order to get a hold of the right kind of property at the right price. Once they select it, they must be able to value it accurately. They must know if investing in it will yield good returns and make financial arrangements or get other methods of financing such as using notes to buy the property.

Though some investors fear investing in this sector because they feel that, although the return on the investments are high, so are the risks. Many problems can arise to cause problems such as dealing with tenants. The most high-risk investments in this sector are the multi-tenant properties, these being either offices or retail shops.

Commercial real estate investing needs focus and careful consideration. You must carefully scrutinize all documents relating to the property and its operation. You must scrutinize leases, their extensions and modifications, mortgages, notes, the title policy, certificate of occupancy, contracts regarding maintenance of the equipment used, such as, escalators or elevators, its insurance policy, the extent of coverage, parking lot contracts, and the property's tax situation. Hire independent surveyors to gauge the condition of the building and its equipment. Hire a good attorney to guide you as you verify the lease structure, the title deeds, insurance policy, rent roll, tax returns, business licenses, utility bills and litigation history. Be certain you carefully scrutinize these things and know every tiny detail. Learn about the tenants, and if there are any associated problems, making changes in the purchase amount is necessary. Take adequate precautions, study all the information available about the property, and utilize the information to your advantage.

Additional Help
There are firms that offer their services and products to help new businesses to succeed in commercial real estate investing. This includes software geared toward helping real estate investors.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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