For most, transitioning to commercial real estate investing is the next level for many investors. Commercial real estate properties are oftentimes much larger deals and include a larger variety of property types in comparison to traditional real estate investing. To invest in commercial real estate, it is important to know the proper guidelines when investing in this asset class. 

The first guideline to follow is understanding the different commercial real estate types there are and which you’d like to get involved in. Each commercial asset type is its own niche with additional details that must be researched. There are generally 5 overarching commercial real estate types to invest in. The list includes office, retail, industrial, multifamily, and special purpose. Determine which niche you’d like to work on and identify all the variables that go into investing in the specific asset type you are interested in. 

Next, investors should understand the difference between investing in residential versus commercial. Residential real estate is valued based on comparable while commercial real estate properties gain their value by square footage along with total revenue generated by the asset. 

Understand the different verbiage used in commercial real estate investing and how does it impact the deal you are analyzing. Three important terms to be known are net operating income, cap rate, and cash on cash. Net operating income is the calculator that equals all revenue and costs from a particular property. Generally, net operating income gives investors an idea of how much they can make from an investment. Cap rate is used to calculate the value of income-producing properties. Essentially, the cap rate provides investors with an estimate of future profits or cash flow. Finally, cash on cash is a metric that provides investors with a rate of return on their commercial real estate transactions. This metric is often used by investors that are using financing to purchase their property. 

Avoid improper valuations. Investors should be aware that each commercial property is different and there are different variances between different assets. Make sure to do the proper research ahead of time and double-check everything has been accounted for. Missing one detail can mess up the entire valuation and potentially your opportunity to earn a profit. 

Hire the right team. Too many investors try to handle the process of purchasing a commercial property on their own. By having a team established including a good agent, broker, lawyer, and contractor, you can be advised to make better decisions when scouting new investment opportunities. By having an extra set of eyes working on your deal, you are more likely to uncover additional details about the deal and get additional feedback from an expert that can help you make a good judgment of the deal. 

Several of the many guidelines have been listed for investing in commercial real estate properties. By doing your research first and aligning with a team of experts, you can find success investing in a commercial investment property and begin generating an income from the asset.