A Millionaire’s Advice on Real Estate Investing
I went to a family dinner and found myself in the presence of a real estate investor, Derek. I immediately asked him about his top real estate investing tips and Derek was awesome enough to give me tips on both commercial and residential real estate investing.
Derek has a commercial building and has had restaurants, clinics, stores, and other businesses rent out his building. He also has two single-family home investment properties. I asked him to give me his absolutely most important tips based on his lessons learned.
Commercial Real Estate Investing Tips
1. First impressions are important
Don’t hesitate to spend money on a building’s upkeep. It’s crucial to maintain the building itself and the decor, because potential tenants are turned off by worn-out properties. An employer cares about their business’ image in front of their employees and customers. Keep in mind, tenants that care about the location and impression of a property usually have good business and as a result, pay higher rent.
2. Think of the bigger picture
Your building can grow a lot faster than you may anticipate and it’s important to prepare for that ahead of time. For example, every year, the number of cars on the street increases as does the number of employees that are hired by the renting tenants. Hence, parking can become an issue. When Derek expanded his parking lot, his tenants were happier, there was less chaos at the main entrance, and more people started coming to the building. One fix can do a lot.
3. “Maintenance is easy, people are hard.”
Respect your building and don’t rent it out just anyone. Find tenants that will treat the space like their own. A tenant who takes pride in their business and customers will preserve the space because it affects their personal interests. Picking low-quality tenants means more confrontations, more expenses, and an investor hates blaming themself.
As an example, Derek rented the first floor of his building to a restaurant-owner who wasn’t very motivated once business slowed down. As a result, the restaurant wasn’t maintained, the staff started slacking off, and business got even worse. The repairs were brutal.
New tenants came and opened up another restaurant. They were diligent, excited about their new business, and did an elaborate job with the interior design. When they experience slow days, they take care of deep cleaning.
4. Maintain good relationships with departments
As the owner of a commercial building, the same issues will continue to come up. Water, electricity, and licenses, just to name a few. Having contacts at different municipalities or departments might help you expedite certain processes and you could receive helpful feedback.
More importantly, the municipalities and departments keep investors up to date on future development plans, which helps give an idea of future demand. If demand is likely to go down, it’s time to sell. If demand is likely to grow, hold on to the property.
Residential Real Estate Investing Tips
1. The bigger the investment, the bigger the return on it
Derek believes the more money spent, the greater the returns. His experience in commercial real estate investing can vouch for that. At one point, Derek’s building was worth $2 million dollars. If you can go for a bigger investment, go for it, but that absolutely does not mean go broke or take out a ridiculous loan. Derek has one property close to downtown while another property is in the suburbs. His downtown property has appreciated much more than his other property and he has been able to raise the rent at a much faster pace.
2. Do thorough background checks
Whether renting out a commercial building or a residential investment property, do background checks on potential tenants. Look into their rental history to see if they have a history in constantly moving or in vandalizing or stealing from the property. One important real estate investing tip: don’t waive a background check just because the potential tenant offered the first month’s rent upfront.
3. Check out the area’s developments
Invest in an area that people are talking about. The location should be close to jobs, schools, restaurants, and shopping centers. Derek said tenants will overlook flaws in the investment property if the location is optimal. When the location is not favorable, tenants were very picky about the details in the property. Keep that trade-off in mind.
4. Know the laws very well
It’s important to know your rights as a landlord as an investor. You don’t want tenants or anyone else throwing lawsuits in your face. If you know you know the laws, you can better communicate with others without having to get a lawyer involved, initially.
After hearing Derek’s real estate investing tips, I realized all types of real estate investing follow the same rules. The quality of tenants is very important. Even if tenants are running their own business, damages can still occur and rent can still be delayed. Location is important for all players. A commercial real estate investor has to think about their tenants, employees working at the building, and the customers going in out of the building. Finally, looks are nearly everything! Tenants care about curb appeal, whether it’s their home or their office.
Special thanks to Derek for the tips!