Before you get involved in commercial real estate, it’s important to know how you plan on making money from deals. Entering the market with an understanding of what you plan to do with your property in the future can help you make the best decisions now. In this post, we’ll cover strategies for turning a profit in commercial real estate. There are many options out there, but these are the most popular among investors.
Flipping Real Estate
Shows like HGTV’s “Flip or Flop” have boosted people’s interest in flipping real estate. While the reality is not as glamorous as the shows make it out to be, investors can reap lucrative returns from an intelligent bought-and-sold property. For those out of the loop, flipping a property means purchasing it at a heavily discounted rate, making improvements, then selling it for profit. At it’s heart, flipping property is nothing more than the stock market strategy of “Buy Low, Sell High.”
Flipping real estate requires a very active involvement with the building. Any investors who pursue this strategy should attempt to make improvements and flip the property as quick as they possibly can. The longer you hold onto it, the more your eventual profit will be eaten away by the holding costs associated with taxes, utility bills and more.
Buy and Hold
Buy and Hold isn’t the flashiest real estate strategy, but it can offer consistent, safe returns for those who watch the market. Buy and Hold investors purchase properties with the intention of renting it out to tenants and perhaps selling it in the future if demand rises for that property type.
One of the obvious advantages of pursuing this strategy is your mortgage payment will be met in full every month by your paying tenants. The longer you hold, the more profit you’re likely to make when the time comes to sell the building.
The wholesale approach to commercial real estate is much more hands-off than the previous strategies. Wholesale investors go on the lookout for great real estate deals, acquire the contract then sell the contract to another buyer. Those who take part in wholesale real estate usually never own the land, they’re more of a middleman between sellers and buyers. Generally, wholesalers will make anywhere between $500 and $5,000 depending on the size of the deal.
The wholesale strategy has very little start-up costs or fees and therefore can make a good first step for those looking to enter the commercial real estate market. Wholesalers often end up with a strong network of people in the real estate industry after working at it for a few years.