Commercial real estate | Investing from scratch

For many, the attraction of investing in commercial real estate is there, because the sector is perceived as an interesting tool for building long-term wealth. But is it possible for a neophyte? It is possible, but only if you do it the right way. Here are some basic rules suggested by industry experts.

Start at the beginning

Although commercial real estate may seem attractive, it is better to get your hands on the residential multi-tenant sector, explains David Tardif, real estate broker at Royal LePage. “This is the right gateway for a beginner investor, and the web is full of forums where you can learn about how the market works and talk to people who have experienced it. he says. A good way to prepare is also to have a broker provide you with the inspection report produced as part of a transaction that has been carried out in order to familiarize yourself with the important elements to consider, he adds.

Take action

First, don’t hesitate to talk to a lot of people about your project, suggests David Tardif. This is to gather as much information as possible. Then, be accompanied by a broker. “And ideally that broker would be an investor himself,” he says. You will be able to benefit from his experience not only as a broker, but also as an investor. Finally, contact groups such as the Corporation of Quebec Property Owners (CORPIQ). You will find the best resources to support you throughout the rental cycle. CORPIQ is a non-profit organization that supports, defends and represents owners of rental properties throughout Quebec.

The strategy

First, establish your down payment. “It’s an investment, so you have to know where you’re going,” says David Tardif. But also, you have to have a long-term plan. “Real estate is more about capitalization than cash flow (cash flow),” he says. The idea is to grow the capital. “Even if the first investment is only a break-even, that is to say that the income will only make up for the expenses, it will not be bad”, he nuances. Plus, buy what’s right for you, suggests Tardif. “Investors are often the entrepreneurial type who likes to get their hands dirty,” he says. If this is your case, do not hesitate to buy a building that will require renovations. “It’s often the most profitable way to do it,” he concludes.

To dive into the commercial

When you feel ready for commercial, here’s what to remember, says Eric Langlais, commercial real estate broker. It’s always better if the building serves more than one tenant because of the risk you could run if he were to leave. “The key to success is having at least four tenants, none of whom will occupy majority space,” he says. Also, it is always preferable that the leases do not all expire at the same time. “This will prevent you from ending up with an empty building”,
he adds.

The leases

There are five types of commercial lease. Be sure to choose the one that suits you best. As a general rule, make sure it’s long enough, suggests Langlais. “The shorter it is, the higher the risk,” he says. The length of the leases provides stability that maximizes financing. For example, in commercial real estate, the loan amortization periods are 15 to 20 years, and the amount of financing varies between 65% and 75% of the value. “If the leases are short, the creditor will require a 15-year amortization on 65% financing. It will be harder for the investor,” he warns. “Longer funding ensures better cash flow to deal with the unexpected, while allowing the investor to pay himself an income”, he concludes.