Commercial real estate investing can be incredibly lucrative—but there are key truths every investor must know before jumping in! Whether you’re a beginner taking your first steps or an experienced investor looking to diversify your portfolio, this video will equip you with game-changing insights to make smarter decisions and maximize your returns.
In this video, we cover:
- Can you achieve high rewards without high risk?
- Does buying when rates are low really get you the best deals?
- Why “use, use, use” is just as important as location in commercial real estate.
- The two cap rates every investor MUST understand to avoid overpaying.
- There are no bad commercial investments—only bad investors!
PLUS: Expert wealth tips to help you build long-term success in commercial real estate.
Truth #1: High Risk Equals High Reward—Or Does It?
One of the most common beliefs in investing is that high risk leads to high reward. And yes, it’s true that a high-risk investment can deliver significant returns down the road. But here’s the real question—can you achieve high rewards without taking on excessive risk? The answer is a resounding yes, and the key is long-term commercial real estate investing.
The Power of Playing the Long Game
Let’s take an example from one of our students, Chris. Over nine years, Chris invested in multifamily properties and storage buildings, and those investments have completely transformed his financial future. His commercial real estate portfolio allowed him to retire from his job at United Airlines, securing not just his own financial stability but also setting up his children and grandchildren for long-term wealth. Commercial real estate investing is all about patience and strategic planning. When you commit to long-term investment strategies, you reduce risks while steadily building wealth.
Wealth Tip: Buy and Wait
One of the best strategies for minimizing risk while maximizing reward is simple: Don’t wait to buy commercial real estate. Buy commercial real estate and wait. Timing the market perfectly is nearly impossible, but investing wisely and allowing time to work in your favor is how smart investors build lasting financial security.
Truth #2: It is ALWAYS a Good Time to Invest
A common belief among investors is that buying when interest rates are low will secure the best deals. While this seems logical, it’s only half true. Yes, lower interest rates can reduce borrowing costs, but they also trigger an influx of buyers into the market.
Why Waiting for Lower Interest Rates Can Backfire
When rates drop, investors flood the market, eager to take advantage of favorable loan conditions. But here’s the catch—this surge in demand inflates property values, meaning whatever “deal” you thought you were getting quickly disappears. If you’re waiting for the perfect moment when rates are low, you may find that the market has already priced in that advantage, leaving you with higher costs and increased competition.
As a general rule, if your Uber or taxi driver suddenly starts talking about getting into real estate, or if major news outlets report a booming market, you’re already too late.
What You Lose by Waiting
Waiting for the ideal interest rate means you’re missing out on several key advantages:
- Building Your Track Record – The sooner you invest, the sooner you establish credibility and experience.
- Cash Flow – Rental income starts working in your favor immediately.
- Tax Benefits – Real estate comes with significant tax advantages that you won’t access if you postpone.
- Mortgage Paydown – Your tenants essentially pay down your loan over time—even while you sleep.
- Forced Appreciation – Through smart upgrades and management, you can increase property value regardless of interest rates.
Wealth Tip: Start Now
Rather than chasing interest rate fluctuations, focus on finding good deals and creating value in your investments. Successful commercial real estate investors don’t wait for the perfect conditions—they build wealth by taking action.
Truth #3: It’s Not Just About Location—It’s About Use
We’ve all heard the phrase: “Location, location, location.” While this holds true for commercial real estate, it also operates by a different principle—“Use, use, use.”
The Power of Highest and Best Use
In commercial real estate, the key to maximizing value isn’t just about location—it’s about how a property is utilized to optimize returns. The term “highest and best use” refers to the most profitable way a commercial property can be used to unlock its full potential. Consider these two examples:
Example 1: Transforming Underutilized Land
Imagine owning a mobile home park with an adjacent parcel of land used for car storage. While this brings in some rental income, it may not be the most profitable use of the space. Suppose there’s high demand for self-storage in the area—you could secure a small business loan, develop the land into self-storage units, and significantly increase its value compared to car storage.
Example 2: Converting Residential Units to Short-Term Rentals
Now, picture an apartment building near the water with the opportunity to add four new units. Instead of renting them out traditionally, the highest and best use could be turning them into Airbnb units to capitalize on tourism demand. One of our students in Texas applied this strategy and tripled her rental income by converting part of her apartment building into short-term rentals. Her cash flow increased, her net operating income (NOI) soared, and the property value skyrocketed.
Wealth Tip: Optimize, Don’t Just Own
A successful commercial investor doesn’t just buy properties—they evaluate and optimize for the highest possible value. Whether it’s repurposing land, upgrading facilities, or adjusting rental strategies, understanding how to unlock a property’s full potential is a game-changer.
Truth #4: Every Commercial Deal Has Two Cap Rates
Here’s a truth that isn’t widely taught—but mastering it can prevent you from overpaying and help you find the best deals: every commercial real estate deal has two cap rates. Understanding these two numbers acts as a safeguard against bad investments, ensuring only strong deals make it into your portfolio.
The Two Cap Rates You Need to Know
- Your Deal’s Cap Rate – This is specific to your investment. You calculate it by dividing the property’s Net Operating Income (NOI) by its sales price. This gives you the cap rate of the deal you’re considering.
- The Market Cap Rate – This represents the average cap rate for similar properties in a given market. For example, if you’re investing in downtown, you need to determine what the typical cap rate is for that area.
How to Spot the Best Deals
The goal for smart investing is simple: Your deal cap rate should be higher than your market cap rate.
Example Scenario:
- If your deal cap rate is 6%, and the market cap rate is lower, then you’re buying below market value—which means you’re getting a great deal.
- However, if the market cap rate is higher than your 6% deal cap rate, you’re overpaying.
Wealth Tip: Avoid Overpaying
- Always compare your deal’s cap rate with the market cap rate before finalizing a purchase.
- Focus on deals where your cap rate exceeds the market average to maximize returns and protect your portfolio from bad investments.
Truth #5: There Are No Bad Investments—Only Bad Investors
This final truth is controversial, but it holds an important lesson for commercial real estate investors: There are no bad commercial real estate investments—only bad investors.
One Investor’s Trash Is Another Investor’s Treasure
A property that may seem undesirable or too risky for one investor could be an opportunity for another. Success in commercial real estate doesn’t just depend on the condition of a property—it depends on the vision and strategy of the investor behind it.
A Beginner’s Risk vs. A Developer’s Opportunity
Imagine a dilapidated multifamily property in your neighborhood—it needs new siding, landscaping, and extensive interior renovations. As a beginner, this distressed property could be too risky, and you would likely struggle and fail.
However, an experienced developer with resources might see untapped value. Instead of fearing its rundown condition, the developer focuses on the land itself—choosing to tear down the existing structure and build new units, dramatically increasing the property’s worth. What once looked like a bad investment becomes a profitable project with the right expertise.
Wealth Tip: Learn to Spot the Opportunity
Instead of dismissing properties, focus on developing the skills to identify distressed commercial properties. Understand what makes a property undervalued, what improvements could maximize its potential, and when a distressed property is actually a hidden gem rather than a risky mistake.
Beginner Investors: We have a video called How to Buy Distressed Commercial Property, where I guide you through the process of identifying and purchasing distressed commercial properties. I explain what they look like, the signs of distress, the underlying causes, and the steps to successfully acquire and revitalize them. If you’re just starting out, this video is a must-watch!
Every Successful Commercial Real Estate Investor Has a Mentor
One of the fastest ways to excel in commercial real estate is to learn from those who’ve already achieved success. Whether you’re just starting out or looking to scale, surrounding yourself with expert advice can be the difference between struggling through trial and error or strategically growing your wealth. Get your mentor here: Commercial Property Advisors Protege Program
If you have any comments or questions, text PETER to 833-942-4516.
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