Investing in real estate is attractive for many reasons: properties tend to appreciate in value, they bolster existing portfolios, and they offer a strong hedge on your riskier investments.
While it’s an excellent way to shore up your portfolio, real estate can be difficult to acquire. Property deals are often multifaceted, complex, and lengthy, and financing can be difficult to obtain from risk-averse lenders.
For those seeking to make some moves in commercial real estate, this list of dos and don’ts will provide some helpful ways to navigate this appealing landscape.
Do: Consider real estate as a way to diversify your holdings
The real estate markets are doing well, with commercial real estate coming through with a strong showing in 2017. Real estate offers an opportunity to savvy investors to diversify their portfolio with more stable assets to back up their riskier bets. For investors that hold mainly stocks, recent volatility in the markets makes real estate an attractive investment option. Moreover, it’s a good rule of thumb even in the most certain of economic times to diversify your portfolio, rather than putting all your eggs in one basket.
A mixture of liquid cash, high growth prospects, and stable long-term investments is a winning combination, and real estate tends to appreciate overtime and provides a true store of value. By placing a share of your net worth in real estate, you’ve got a strong foundation from which you can grow your other investments with confidence, and something tangible to fall back on if your other investments go south.
Do: Explore your financing options
Purchasing real estate is often not cheap, but lucrative opportunities don’t wait just because you need financing. Many buyers’ first stop is a bank, where they often find that lending standards have tightened quite a bit in recent years. Luckily, banks are not the only option; direct private lenders such as Kennedy Funding Financial can offer even larger loans and faster turnaround times, so you can quickly take advantage of lucrative opportunities.
“A direct private lender shouldn’t be thought of as a last-ditch effort,” said Kevin Wolfer, CEO of Kennedy Funding Financial. “You can secure your loan faster by coming to a direct private lender right away.”
Bridge loans, a form of private money which allows for short-term financing backed by the property as collateral rather than personal credit, are uniquely positioned as a useful tool in this regard. Favored by those who need funding to bridge a gap, bridge loan requirements tend to be far more flexible than banks. By leveraging this type of financing, you can extend your purchasing power without over-burdening your own credit, maximizing your investment potential in the long-term.
Do: Gather the three core documents: title, environmental report and appraisal
When it comes to investing real estate, hard facts are what truly matters. Lenders need to know if they are providing funds for a worthwhile, successful investment. That’s why traditional and private lenders alike require a clean title, a clean environmental report, and an accurate appraisal to move forward. Even the most flexible of lenders will not bend when it comes to receiving these documents.
Working with a reputable and trustworthy appraiser provides the basic facts any lender needs to determine what the property is truly worth. Conducting a title search is an imperative component of the commercial lending process. If a property has a lien on it, whether voluntary such as a mortgage or involuntary such as a tax lien, it becomes much harder to secure funding. The same goes for an environmental report: a contaminated property costs exorbitant amounts of money to clean up and could tank your investment. By being cooperative with your lender and providing all items necessary from the get-go, you’ll ensure a smooth funding process.
Don’t: Blindly buy a property without doing your due diligence
You’ll want to be sure you really understand the investment you’re making, which means going beyond the boundaries of the property and examining the surrounding neighborhoods. Just like you wouldn’t invest in a stock that appeared strong in an industry that you expect has little future, you won’t want to invest in a nice property in an area that is dilapidated or undesirable. When it comes to real estate, they say “location, location, location” for a reason, and the same is true for investment properties.
That said, there are exceptions to the rule, like if you’re considering launching a redevelopment project and want to purchase large swaths of real estate to refurbish. In this case, commercial bridge loans become an attractive option once again. Securing financing for these types of projects will help you get going where conventional lenders cannot, meaning you can not only acquire properties more easily, but also boost their value through a redevelopment project.
Don’t: Rush through the planning stages
It can be exciting to make a big investment. Excitement is all well and good, but it’s important to keep a level head and avoid making any reckless moves. Planning is key in everything, and the same goes for investing in real estate, especially if you intend on building out or refurbishing the property you purchase.
Lenders are going to want to see a plan, so establishing a step-by-step procedure from acquisition through project completion is key. Luckily, lending partners like Kennedy have closed billions of dollars’ worth of similar deals and can help guide you through the acquisition component of the process. Moreover, future financing for your redevelopment project could be available through the same partner, meaning you’ll be able to develop a rapport with your lending partner for the duration of the project.
When you’re ready to expand your stakes in the commercial real estate market, it’s important to do your homework and find the right lending partners to help you achieve your vision. Commercial real estate can be a critical component to a healthy portfolio and making sure you follow the proper steps from start to finish can ensure your success in the market. If you stay informed and wield the many tools that are at your disposal, a winning commercial real estate strategy is within reach.