Tips for Getting Started in Building and Managing Real Estate

Real estate is a popular investment area. You can hardly drive around any city these days and not spot a variety of building projects in progress, including new housing developments, apartment buildings and business complexes. If you are thinking of stepping into the real estate investment market, you undoubtedly want some tips to get you started off right.

Commercial Real Estate

Commercial real estate is an interesting type of property to own. As you drive through your or any other town, you may notice that the businesses you pass by are often clustered together, lined up along a single building with one shared parking lot. Sometimes there are several of these multi-business buildings within the same parking lot area. These are often referred to as strip malls.

As a commercial real estate owner, if you choose to invest in a strip mall then you may own one or all of the buildings sharing a given parking lot, depending on how the property lines were divided. Alternatively, you could choose to own stand-alone structures where single business would occupy each one.

In either case, businesses would lease a space from you, typically for quite a few years at a time. Your lessees would need to transform the space to fit their business’s needs, so your contract with them will need to include provisions allowing commercial tenant improvements.

Residential Real Estate

On the other hand, owning and leasing residential real estate is a bit different. The lessees of a residential structure are not typically granted any rights for making substantial improvements or changes to the leased property.

If maintaining control over property changes and limiting them sounds more your speed, residential real estate may be a better fit than commercial real estate. However, even if you limit the extent of the changes you are willing to permit a tenant to do, you may find that you need to take on changes yourself. If you do, you will need to consider short-term versus long-term goals for the renovations you pursue.

While many residential property owners choose to install the least expensive materials and equipment in their rental renovations, because this appears to save them money, the long-term costs could add up to far more than they bargained for. Cheap equipment, such as faucets and toilet seats, can break down quickly even with normal use. The toilet seat could crack or the faucet could develop a constant leak because it won’t turn off fully anymore. You may find you are spending a lot of money repeatedly sending techs to your rentals to repair or replace the equipment. Similarly, cheap countertops and cabinetry could mar easily and result in unsightly chips, cracks and staining. Even if cosmetic damage of this nature isn’t something you can or would try to repair, it can take your rentals from feeling like luxuriously updated spaces to run-of-the-mill and worn out. It may not take long for your property to look like it already needs renovations again.

Savings in the short term can seem appealing until the long-term consequences begin to reveal themselves. Tenants, particularly if they have kids or pets, can be quite destructive even if they do not mean to be. Even the non destructive tenants can find themselves forced to make frequent repair requests if the equipment is subpar. Looking at your investment from the perspective of what will hold up best over an extended period of time may seem more expensive in the short term but may save you money in the long run.

New Builds in Real Estate

One final area to consider is building your own properties to lease. Many of the same considerations as above apply. In addition, though, you are taking on the substantial risk that you could struggle to find tenants once you have completed your build. This is an important factor to take into account as you evaluate whether to buy pre existing structures, which may have already established enough popularity to prove they will be successful investments, or build your own. If you prefer to build, be sure to thoroughly evaluate whether and where your build should exist. Preleasing may be one option at your disposal for helping you mitigate your risks.

Regardless of what you invest in, take a thoughtful approach for your long-term goals and costs. Your risk tolerance, goals and means will all help you determine which kind of investment is right for you.