How do commercial real estate investors create considerable net worth overtime?
Are the CRE investors lucky or do they know how to time the market? What is the secret to success for most CRE investors? Well, knowing about your industry, market and sub-market is always important. Education and experience are also very important. Furthermore, having a team of professionals and experts will help tremendously. I would also add that looking at CRE investment as an art and science could be another factor. But the main factors that help improve an investor’s income, property value, and ROI are few and not very complicated.
When successful CRE investors choose a property to purchase, they make sure that it fits in their investment formula. They typically already have a certain expectation as to what their ROI and cash flow will be. But in addition to that, they do the following:
- They get favorable financing with a reasonable margin to increase their ROI vs if they buy the property all cash.
- They make sure leases have annual bumps, and if not, then they plan for it.
- They make sure leases are NNN or they plan to update them into NNN leases once they come due for renewal.
- They fill vacancies.
- The pay down the loan and build equity overtime.
- Once the property value increases due to the above, they refinance, cash out, and purchase another property!
- They repeat the process!
It seems simple, but once you combine these actions above, the results can be powerful!
