Risk, Reward, and Rollout: Commercial Real Estate Investing
Having a sound game plan when it comes to identifying and closing deals is crucial for anyone looking to get into commercial real estate investing. Part of that game plan is understanding the three R’s of commercial real estate which could help you avoid sub par commercial real estate deals. These are risk, reward, and rollout.
- Risk: Savvy investors are good at managing risk. Some questions that one would want to ask themselves while analyzing a deal would be; How much of my money will be at risk? Will I personally be liable for the debt that is used to finance the deal? In what ways could this deal affect my life’s goals and relationships negatively, or positively? Will the deal take up a lot of time?
- Reward: The more the rewards outweigh the risks in a deal, the more likely an investor will enter into a deal. Some questions one might ask are; What is the potential profit that can be earned from the deal? When will I see that money? Will it come in the form of cash at the closing from a refinance? Will it be in the form of cash flow over time? Or will it be long term equity that I will tap into at a later time? How likely is it that the deal will be profitable? What has to happen for there to be cash in hand?
- Rollout: Will I be able to use this deal as a framework for future deals? What contacts and relationships will this deal provide me with? Will it lead to more deals down the road? Can I leverage this deal into a much bigger one?
Thorough analysis in answering these questions will give the investor a good outline of whether or not to pursue a potential commercial real estate deal.
Contact the specialists at HML Investing today for further information regarding commercial real estate investing.