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Common rules for commercial real estate investments

Real estate investors in Texas sometimes start with single family residences that they rent out. When an investor feels confident with that kind of property, he or she may move on to multi-family projects and into other areas of commercial real estate. For those who are unsure of the process of moving into multi-family and commercial investments, there are some general rules to consider.

Real estate experts suggest that a new investor in a multi-family property consider living in one of the units at first. If the property has four units or less, owner-occupied financing can be available, with a smaller downpayment. This may generate a lower debt-to-income ratio and establish the owner for a quicker follow-up investment.

Another recommended rule is to find the right professionals to join in one’s organization. The team an investor builds will typically include a broker, a commercial real estate attorney and a lending institution. Their experience will assist the new investor to get a solid foundation in the business.

In addition, when buying a property, the investor must do all the necessary due diligence. This can include inspections of the different major systems of the property, and obtaining detailed paperwork regarding income and expenses for several years. It is important to know the vacancy rate in the neighborhood, and even to talk with tenants directly. 

That will help to get inside information on the condition of the property and possible future problems. In addition, all paperwork regarding tenants’ payments and leases must be obtained, including a record of security deposits. One must value the property based on the income it generates and the calculated return on one’s investment. Vacancy rates must be factored into the analysis.

The Texas investor will want to evaluate the nature of the property and the neighborhood. This helps to predict typical problems. One should not buy a lower-rated property if he or she does not want to deal with the common problems associated with such properties. Investors can also avoid major problems by using a commercial real estate attorney to check zoning and building laws, and to set up leases and establish legal compliance regarding a variety of other issues.

Source: U.S. News & World Report, “7 Tips to Invest in Multifamily Property“, Kayleigh Kulp, Dec. 4, 2017