What’s holding you back from investing in commercial real estate? Discover the 3 myths that stop people from getting started and watch me bust them so you can finally break through and begin in investing in commercial real estate:
Myth #1: You Must Find a Bargain Deal
Many people believe they need to find a deal that is super cheap, in a booming market and where the owner is extremely desperate to sell. Now, those are all great things. Who wouldn’t want a deal like that? But these bargain deals are rare finds and if you’re only looking for that type of deal you will miss out on opportunities. What are the consequences of having this mindset?
- It will take years to find it.
- Your future in this business is on hold.
While you are waiting, you’ll miss out on:
- Cash flow
- Tax write-offs – which is important if you are still employed with aW2 job, giving you more cash flow in your personal life
- Appreciation – natural appreciation, but also a forced appreciation
- Principal pay down – the tenant is paying down your mortgage every month creating more equity in the property
Myth Busted
Find a Good Deal: If you’re not looking for a bargain deal, then what are you looking for? You are looking for a good deal. What is a good deal?
- Good cash flow
- Good location
- Rent up sides, so you can force the value up
- Not overpriced
- Good management
This is the kind of deal we teach the students in our Protege Program to find. We focus on creating wealth as quick as possible and that is done by buying good deals.
Think Long Term: When investing in commercial real estate you need to think long-term because this is where wealth is created. It is quite typical in commercial real estate to hold a property for five to ten years. So, if you buy the right deal and you can hold on for five to ten years, you will likely be successful.
Dig Deeper: To take a closer look at what a good deal looks like, watch my video called the Secret to Commercial Real Estate Success. In that teaching, I break down the technical parts of a good deal.
Myth #2: Don’t Go into Debt
The belief that debt is bad is a myth. The truth is, if you are afraid of using your credit and debt in this country, then your potential for success is extremely low. Look at the wealthiest people in the country right now, like Elon Musk and Jeff Bezos. All the acquisitions they’re doing with their company and personally are done using their credit. They’re using debt to create their massive fortune and we do the same thing in commercial real estate. We leverage, we use debt very smartly.
Part of this myth is the belief that having no debt eliminates your expenses. It seems like a smart thing, but for a property, it’s just not true. You still need to pay taxes, insurance, repairs, maintenance, capital reserves, utilities, and property management. You have all these and other expenses.
Myth Busted
Use Debt Wisely: There is such a thing as good debt and bad debt. Good debt would be buying a 40-unit apartment building by putting down 25%. A good use of your money is leveraging it and getting a loan for 75%. That’s a wise decision in many ways. In my opinion, bad debt is when you go to Mexico or Hawaii and you put it on your credit card, and you don’t pay it off after 30 days. That makes no sense whatsoever.
Take Smart Risks: To bust this myth you need to take smart risks. There is no such thing as a commercial real estate deal that is a hundred percent risk free. There is no business that is absolutely risk free. What you need to do is learn how to use your credit, your debt smartly to mitigate your risk.
“You got to go out on a limb because that’s where the fruit is.” Mark Twain
Dig Deeper: I have a video called Debt-Free versus Commercial Real Estate Investing. If you are contemplating buying a property all cash or leveraging it, this video will equip you better to make a wise decision and bust this myth.
Myth #3: There’s Always a Loser in a Commercial Transaction
With this myth the false belief is that you can’t create win-win deals in commercial real estate. Either the buyer or the seller is going to get screwed. This is so far from the truth.
Myth Busted
Commercial real estate is a relationship-based business: If you have the attitude that someone is going to get screwed, you’re not going to be very successful because not many deals are going to come your way and you’re not going to close on good deals. Long ago my mentor told me,
“You can’t do a good deal with a bad guy.”
This is so true. Here’s what we teach in our protegee program; let’s not do it your way or my way, let’s do it the best way. And why do we do that? Because you reap what you sow. Or to put it another way, what goes around comes around. This is a truth of life and it applies to commercial real estate as well. Through your commercial real estate relationships that you nurture and develop deals come, money is raised, problem are solved, and wealth is gained. Opportunities will come to you if you take care of your relationships and you don’t have this mythical belief that someone has to lose.
Dig Deeper: To help you create win-win scenarios and negotiate win-win deals, I have a teaching for you to watch called 3 Persuasive Negotiation Tactics. It gets down to nitty-gritty and teaches you how to negotiate with the seller so that you both win.
I have a non profit organization with a 501c3 status-how do I get a property to house and shelter homeless women. My daughter is living with me with two kids and pregnant; she desperately needs affordable housing for her family- where can I find properties to meet the need for homeless women?
Valuable information. I want to know after receiving approval for a bank loan or government back loan which could be 75 or 80 percent LTV and you don’t have the remaining 20 or 25 percent, what advice you give on raising the difference needed to satisfy purchase price of the property?
Watch this video: 6 Ways to Raise Down Payment Money for Commercial Real Estate
Excellent advice Peter. I know some things about CRE investing but not everything. I never liked the fact that the loans are always short at 5-7 or 10 years with 5-7 more likely. It worries me bc what if I cannot refi. But it’s about property appreciation and rising rents which will help ensure getting new financing. But that’s what scares me.
There are government backed loans for multi-family that can be fixed for much longer than 10 years.
I want to purchase RV storage storage units. Are you offering classes?
Watch this video: How to Invest in RV Storage
Very good information.
Very informative and helpful information 👍
I guess a large down payment is not a myth. I would guess it takes a lot more down payment to finance a purchase of a commercial property versus purchasing a single family rental property which I own one of.
When buying commercial real estate (as opposed to wholesaling), it’s no myth…there is almost always a requirement for a large down payment; even if you are structuring creative financing. However, there are ways to raise that money, as described in this training: 6 Ways to Raise Down Payment Money for Commercial Real Estate
Great info well said
Very good advise!🙏
Well Said Peter.