How to Buy
Commercial Real Estate in Canada
Residential real estate can be a great investment, but it isn’t right for everyone. For some people investing in commercial real estate makes more sense. You can have multiple streams of income coming in, all from under one roof. Here’s a look at how to buy commercial real estate in Canada.
Residential real estate focuses on the personal use of real property. It revolves around the wants and needs of a homeowner, and their family. Property is purchased for individual use, most often to provide housing for families. Property types can include, single-family homes, town homes, and condominiums.
Commercial real estate focuses on the business, or investment, use of real property. The main goal for the end user is a return on investment, or any kind of business or industrial use of the real estate to generate a return or income. Property types can include, multi-family, apartment buildings over 5 units, office buildings, retail shopping plazas or malls, or industrial and manufacturing property.
The most common type of commercial investment is the multi-family or apartment building, where a single investor, or group of investors, own and manage several residential units inside one building, or complex, in order to generate cash flow and a return on investment
Here are some helpful tips about how to buy commercial real estate in Canada.
- Sit down with a commercial
real estate professional, or coach, for direction and advice in the market
place based on your personal investment goals.
The best experience and education you can get is the everyday experience and knowledge that comes from owning and operating commercial real estate. Outside of actually operating the property, the next best thing is to watch and learn from an experienced professional. Contact a professional in your market area and offer to take him/her out for lunch. You’ll be surprised how willing most professionals are to share their knowledge about how to buy commercial real estate in Canada (or more specifically the area you’re looking to invest in).
By far the most important move you can make will be carving out a long-term, and mutually beneficial, relationship with a Real Estate Investment Advisor (REIA), who has the experience and vision to build a profitable real estate portfolio that aligns with your personal and investment goals. As a qualified advisor, the REIA will handle everything from direct coaching, personalized investment strategies, and master planning of your portfolio. Your REIA will hunt down and negotiate lucrative real estate deals, and continue coaching the investor in applying affective property management techniques after the property closes.
The REIA will also carry a powerful network of supplemental advisors to compliment the investment real estate transaction. The very first recommendation will likely be a mortgage broker, especially with a commercial transaction.
- Assess your personal
resources. How much cash do I have? Where is it coming from? Are you working
with any partners?
Financing is super important. Commercial lenders care much more about the property than you. Commercial lenders look for the property to be financially self-sustaining and to produce enough monthly profits to service debt and be sure there is enough cash left over for repairs and unforeseen expenses. All they want to see from you is good credit, enough cash for a down payment, and some additional net worth (approx. 25% of loan amount) to be sure you can back up the property.
- Decide on an investment
strategy by finding the right property that will help you achieve your
financial goals.
- Who will be managing the
property? You, or a professional property manager?
This is a key decision you’ll have to make. You’ll have to weigh out the amount of work it takes to manage the property, verses the cost for a property manager. It largely depends on the property, and what works best for you. This decision could largely impact the type of property that will work best for you.
- Patience is key in the
market place. It can take 3-6 months, or more, to find a good commercial
property that makes sense.
There are many factors that will make some properties a poor fit for your commercial investment. Remember this is a game of numbers. Never attach yourself emotionally to the property. After analyzing all data, if the ROI you are looking for is not present, it’s time to move on and continue your search.
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