12 Principles You Have To Stick To ... When Purchasing Commercial Real Estate

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  • Author Chris Lang
  • Published April 28, 2012
  • Word count 517

AS YOU will appreciate, being able to sleep through the night is one of the primary objectives for any Commercial real estate investor.

And that's what a great many property investors refer to as staying below your "Threshold of Insomnia".

There may be several things which might lead you to lose sleep. One is over-borrowing; and the others are producing a poor assessment of the market place and the property itself.

Allow me to share 6 Tips about What to DO ...

  • At all times maintain sufficient cash reserves, so that you can manage a few months' loan payments -- in the event you were to lose a tenant, or the tenant is just late in paying for some reason.And have a sharp eye on smaller things like all machinery and maintenance bills, which can easily mount up.

  • Make sure you have an investment strategy you're happy with, and then stick to it. In other words, set reasonable objectives and pursue them. More goals have been missed as a result of lack of planning, than through the plan itself failing.

  • Buy yourself a financial calculator, or access to a good software package. And learn to use it to develop a realistic projected cash flow, on an after-tax basis.

  • Always keep yourself up-to-date with various developments within the current market. Be sure you keep track of what is the news and regulations affecting property; undertake training; go to workshops; and read books on Commercial property. Practical knowledge will reduce your potential risks, and boost your profit margins.

  • Identify and retain a top-notch group of Consultants (real estate, legal, financial, construction, etc). The money you pay these people will be more than returned to you, because of the deals they can assist you to come up with.

  • Wherever practical make sure your mortgages to not require you to give a personal guarantee. Consistently endeavor to make them non-recourse mortgages.

And 6 Traps You might want to AVOID ...

  • Do not be influenced to commit a large proportion of your capital into risky opportunities. They may appear glamorous as you go in, however they are often painful on the way out.

  • By no means do deals on a handshake -- always put them in writing, for your own protection.

  • Avoid entering into joint ventures, without taking thorough guidance from your advisors.

  • Never spend funds from the sale of one property to finance yet another, UNTIL settlement on the first one takes place. Way too many "sure deals" have an weird practice of coming unstuck.

  • Steer clear of loans with variable payments. You will discover way too many factors outside your control, such as a unexpected surge in interest rates. Preferably, choose a fixed- rate loan. But at worst, have a 50/50 split between a fixed-rate and variable-rate mortgage.

  • Avoid properties that have substantial negative cash flows (where by your costs considerably go above the income from the property).The return on money may be higher; but you can leave yourself rather exposed -- much like share traders discovered, with their margin calls. Just be happy with neutral gearing; and then maximise your depreciation benefits.

If you would like to uncover even more insights ... I'd like to offer you access to this FREE video, where you'll walk through a complete Case Study AND learn even more Secrets for Success with Commercial Real Estate along the way.

For over 40 years, Chris Lang has been the nation's leading Adviser & Mentor ... for Commercial real estate Investors. You can also join his blog at http://his-best.biz

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