When looking to get started in real estate investing, focusing on commercial real estate is a great opportunity. Warehouse spaces can be used for a plethora of different businesses but not only that they can be used in other ways like indoor sports centers or for holding large equipment. This makes these flex spaces very versatile, unique and a great investment.
However, as with any decision you make, you need to do your research and make sure you understand the fundamental aspects of how this type of investing works. This will ensure you are making the right investment and help to increase your success rate. Coming from an investor that understands the risks involved in such an undertaking, here are a few points to consider when investing as a limited partner in commercial real estate projects:
- One of the first things you need to research is if the sponsor has done projects that are similar to the one you want to invest in, and what is their success rate compared to other projects they have done. Make sure to have a good understanding of the projects in detail and their outcome.
- Generally, when investing in commercial real estate, the timeline for your return on investment to mature is 4 to 10 years. Be aware of this and make sure the project you are investing in has a similar timeline. Ask for a projected timeline to ensure you are on the same page when it comes to the schedule.
- Another thing to understand is whether the investment opportunity is open to accredited or non-accredited investors. What this means is whether or not you need to have a certain amount of net worth or income to invest in the opportunity, or can anyone invest. With the decrease in regulations, anyone can invest a little bit of money in real estate opportunities.
- You only make money on the money that you actually invested. This means that your investment needs to be significant enough to where 30%-40% over the next four to five years is a good return on investment for you. Understanding your financial position and goals is key. Consult with your financial advisor or CPA before getting involved or committed to a project.
- Your return on investment should be 10-15% annually. One thing you need to watch out for is people who over promise. Anyone can tell you they are making 20-50% a year on paper, and this will be via a pitch deck. So when you are investing as a limited partner make sure you do your due diligence on the front end and know exactly what you are getting into. HOW CAN THEY DO THIS? Request a prior year’s statement to confirm that they are on track with the figures they mention.
Overall, the best thing you can do as a new investor in the commercial real estate space is taking proactive steps to make sure you are fully aware of all of the details. Avoiding obvious pitfalls from misinformation will be the best way to make sure your investment is a success. Doing your due diligence in the beginning will make all the difference! Keep these points in mind when investing in your next flex space.