Working for a living can be exhausting. So when there’s an opportunity to make your money work for you — maybe even earning you $250,000 a year or more—wouldn’t it make sense to check it out?
There a lot of ways to generate additional income, but when you in commercial real estate, it’s one of my favorites.
Here’s Why I Like Commercial Real Estate Investing
1. Great wealth is built in commercial real estate in 3’s.
It’s a process of generating cash flow + amortization (loan payoff) + appreciation in value.
If you’re going to purchase property, find out how much the current owners make on that property. Drive by the property an hour after opening time, and before closing, and during the early afternoon.
How busy is your building at those three times? If it looks active, you might have room to grow your rents.
If it’s really busy, check to see if there’s room to add on to the building to make more money.
Remember, the larger the property, you more rent that you’ll collect, larger loan you’ll pay off, and extra appreciation you can achieve.
2. How soon can you pay off the mortgage?
If you want to invest in property as a pure investment, and your mortgage payment is within 90% of the rent you get from your tenants, then you may want to find something with a smaller loan or save more money.
If you’re trying to use property as more than an investment, but as money to help your family in month-to-month living, consider what the property will do to your own present cash flow.
Just because you get $10,000 in rent each month doesn’t mean much if you pay $9,000 to the bank for the mortgage. Even though there are situations in which an extra thousand dollars a month would be a blessing.
Just ensure your investment is giving you what you need and want and you’re on track to build that $10,000 rental income into one that’s large enough to net you for $250,000 per year.
3. Start slow, pay off properties, and expand steadily when you invest in commercial real estate.
If you don’t own any properties right now, buy one and see how you manage. If you make $10,000 in rent and owe $9,000, can you add to the rental income by generating other income (vending, laundry, solar panels, signage rights, etc.) to increase your mortgage payment until the property is paid off?
The general rule when growing is that you should not expand too soon. Pay off as quickly as you can so you get rich, not your bank.
And follow through with your expansion by creating and following a business plan. Find out how much cash flow you can make off of one building—real income after mortgage, taxes, utilities, and other payments.
Then make a plan for how quickly you should add buildings to your portfolio. When you invest in commercial real estate, don’t expand too quickly.
Remember, the idea is to add $250,000 to your income each year.
Don’t get carried away and try to make that much money all at once. Start slowly and learn the business before you expand, and pay off the bank and focus on reinvesting in the property to collect higher rents, which will drive the value of your commercial real estate higher.