Beat the Crowd when Investing in
Copyright © 2005 Peter Dobler
We all are thinking about it and some of us are actually taking action
and getting their hands on real estate investment properties. The longer
the NY Stock Exchanges doesn’t produce desirable returns the more people
are starting with real estate investments.
For most of us the obvious choice of properties are single family homes.
Although you can invest in real estate without owning a home, most
people follow the experience they made while purchasing their own home.
This is familiar ground and the learning curve for doing a real estate
deal of this type is pretty slim.
Of course there’s a drawback with this approach. The competition is
fierce and there are markets where investors are artificially driving up
the cost of the properties while completely discouraging first time home
buyers. If this is the case, the burst of the real estate bubble is just
a matter of time.
How do you avoid these situations and still successfully invest in real
estate? How do you get ahead of the competition and be prepared for bad
times in real estate investments as well? The only answer I have is
commercial real estate.
Why commercial real estate you might ask? Commercial real estate is a
solid investment in good and bad times of the local real estate market.
The commercial real estate I’m referring to are multi unit apartment
Yes you will become a landlord and No you don’t have to do the work by
yourself. You are the owner and not the manager of the apartment
building. The cost of owning and managing the building is part of your
expenses and will be covered by the rent income.
Apartment buildings are considered commercial real estate if there are 5
or more units. To make the numbers work you should consider to either
own multiple small apartment buildings or you should opt for bigger
buildings. This will keep the expense to income ratio at a positive cash
flow. Owning rental properties is all about positive cash flow.
With investing in single family homes it is easy to achieve positive
cash flow. Even if your rent income doesn’t cover your expenses 100%,
the appreciation of the house will contribute to the positive cash flow.
With commercial real estate the rules are different.
While single family homes are appraised by the value of recent sales of
similar homes in your neighborhood, commercial real estate doesn’t care
about the value appreciation of other buildings. The value of the
property is solely based on the rent income. To increase the value of a
commercial real estate you need to find a way to increase the rent
income. The formula on how this is calculated would be too much for this
short article. I listed a few very helpful books where you can find all
What’s another advantage to invest in commercial real estate? Commercial
real estate financing is completely different than financing a single
family home. While financing a single family home you are at the mercy
of lenders who want to make sure that you are in the position to pay for
the house with your personal income. Commercial real estate financing is
based in the properties ability to produce positive cash flow and to
cover the financing cost.
After reading all these information about commercial real estate you
want to go out there and dive into the deals. Not so fast. First, you
need to learn as much about real estate as possible. In commercial real
estate you’re dealing with professionals. If you come across too much as
a newbie you will waste these guys’s time and your commercial real
estate career ended before it actually started. Second, no commercial
real estate lender will lend you any money if you can’t show at least a
little bit of real estate investment experience.
What’s the solution to this? Go out there and do one or two single
family home deals yourself. It doesn’t matter if you make huge profits
to start off with. Most newbie investors are loosing money on their
first deal anyway. If you can manage to show positive cash flow with
your single family home deals you are ahead of the pack.
My advice, buy a small single family home in a decent neighborhood and
rent it immediately. This will keep your out of the pocket expenses at a
minimum and you will have rent income to cover for your monthly
expenses. Bonus, you gain experience as an investor and as a landlord.
Here’s another observation I made during my real estate investment
career. Most people like to analyze, learn, discuss and analyze some
more. They never actually got to do a real estate deal. They love to
talk about real estate investments, but never did it themselves.
My approach to real estate investment was simple.
- I bought some books about real estate investment.
- I read every single one of them.
- I put together a simple plan on how I want to get started.
- I started looking for properties.
- I bought my first investment property 30 days after I started reading
my first book.
- I made positive cash flow with all of my properties so far.
What is my point? You have to go out there and practice what you’ve
learned. The only valid credential in the real estate business is
practical experience. Having a couple of deals under your belt, you can
go out there and start looking at commercial real estate and even
impress seasoned investors with your knowledge. Because you made this
experience by yourself and you know what you’re talking about.
Book reference for commercial real estate investments:
Gary W. Eldred, PhD: “Make Money with Small Income Properties”
Jack Cummings: “Real Estate Financing and Investment Manual”
You will find these books and many more on my real estate investment
Peter Dobler is a 20+ year veteran in the IT business. He is an active
Real Estate Investor and a successful Internet business owner.
Learn more about real estate investments at
http://www.suncoastrenttoown.com or send a blank email to