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Have you considered owning commercial real estate—such as multi-residential properties, self-storage facilities, or industrial spaces—to build long-term wealth, gain financial independence, or create a legacy for your family? With the right approach, commercial real estate can offer a lucrative alternative to traditional residential investments, paving the way for consistent cash flow, significant growth potential and immense wealth. We have five essential steps for buying your first commercial property and building a commercial mortgage portfolio.
Are you currently investing in single-family homes, condo units, or townhouses? Congratulations on setting the foundation for your financial future! However, if your current investments aren’t delivering the expected cash flow or paying out of pocket each month, it might be time to consider commercial real estate. Properties like multi-residential buildings, self-storage units, or industrial and commercial spaces often offer multiple income streams and higher returns. That is because there is a very high demand for these assets. We will provide insights on leveraging this opportunity to increase wealth with five key steps to help you transition to commercial real estate.
The advantages of commercial investments become apparent when comparing residential and commercial real estate. For example, condos and townhouses provide a single income stream, often burdened by maintenance fees that eat into profits. Even a single-family home with a basement suite has limitations, as income-based qualification rules cap the number of properties you can finance, regardless of income level. By contrast, commercial real estate qualification is based on the property’s income rather than your own, allowing for more substantial and scalable growth.
The primary advantage of commercial real estate lies in financing flexibility. Commercial mortgage lenders use the income from the property to approve your application, making it easier to qualify for a commercial mortgage than a mortgage on a condo, townhouse or detached property. By following these five essential steps and leveraging the guidance of experienced lenders, you’ll be ready to enter the world of commercial real estate, unlocking a new level of financial growth and stability.
Selecting the right property type and location is crucial when starting in commercial real estate. Certain property types offer higher cash flow potential and income stability than traditional residential investments.
Location Matters
For your first investment, try to choose a property within a two-hour drive of your home. Staying local allows you to:
With your property type and location defined, the next step is identifying and evaluating potential investments. Commercial properties differ from residential properties because they require specific financial assessments to confirm profitability.
Commercial properties have distinct metrics for evaluating profitability:
Consulting a commercial mortgage broker at this stage can provide valuable insight into how the property’s income will affect financing options, as commercial loans are based on property income rather than personal income. A commercial mortgage broker can help you understand the financing terms, negotiate with lenders, and ensure you get the best possible deal.
Once you’ve found a property that meets your criteria, it’s time to make an offer. Unlike condos and other residential properties, commercial real estate allows for greater flexibility in structuring and negotiating offers.
A well-structured offer should include:
Contingencies help safeguard your investment:
Due diligence is critical in commercial real estate. Unlike residential properties, where due diligence may be minimal, commercial properties require comprehensive inspection and financial review to confirm viability. This responsible approach can help you avoid costly surprises and ensure the profitability of your investment.
Due diligence typically takes at least 30 business days, which allows you to avoid costly surprises and confirm the property’s profitability.
The final step is securing funding and closing the deal. Commercial real estate offers more financing flexibility than residential, allowing you to structure loans based on the property’s income.
Closing Day is a significant milestone. Once the property is yours, focus on maximizing cash flow and managing the property effectively. Commercial leases offer more stability than residential rentals, with structured income and longer-term agreements.
If your residential investments have limited your cash flow, required high down payments, or posed qualification challenges, it may be time to explore commercial real estate. Properties like multi-residential units, self-storage facilities, and industrial and commercial spaces offer steady demand, positive cash flow, and financing flexibility. You can pursue a profitable and stable investment path by following these five steps and working with an experienced Sunlite Mortgage commercial mortgage broker.
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Here’s to achieving your financial dreams with commercial real estate!
