I was once asked by my barber how I would define financial freedom. I pondered it for a minute and realized that for me, financial freedom was the flexibility to go to the barbershop anytime, any day of the week. My life isn’t controlled by a nine to five job and I don’t have to deal with the stresses of corporate life. To me that is financial freedom and that’s what I achieved investing in commercial real estate.
Do you currently own rental houses, but would you like to upgrade from residential to commercial real estate? And if you did upgrade from to commercial real estate investing, what life changes would you make? In this post discover 5 reasons why you should upgrade from houses to the more stable income of commercial real estate investing as well as 5 how-to steps to make it happen.
The Fear Factor
Even though you might find upgrading to commercial real estate intimidating, don’t let fear dictate your destiny. Don’t let it stop you from playing a much bigger game that you ought to be playing. We all have events in our lives that are intimidating. For me, the first day of kindergarten, leaving for college, investing in commercial real estate at a young age and asking my wife-to-be out on our first date were all terrifying. However, if I didn’t overcome the fear and go through them, I wouldn’t be where I am today.
Overcoming Your Fear Factors
The same applies to you. Some of you may have your own fear factors that you need to overcome so that you can live a bigger life. How do you deal with your fear factors? You gain knowledge because fear dissipates with knowledge. By gaining knowledge with a coach or mentor, so you can make knowledge-based decisions, leading you to a life a financial freedom.
5 Reasons to Upgrade Houses to Commercial Real Estate
#1: Residential Rentals Don’t Provide Enough Income for Retirement
Most of the wealthy people I know achieved wealth through commercial real estate. They may have begun with single family homes but investing in commercial real estate is what provided enough income for them to retire.
#2: More Stable Cashflow
Many of my students owned residential rentals before they enrolled in our program. They came to us for mentorship because with residential investing the cashflow was too low and unpredictable. It didn’t provide enough for them to leave their job. With commercial real estate, the cashflow is higher and a lot more stable.
#3: People Need a Place to Live
Apartment buildings are the most popular asset today and have been since I started over 20 years ago. In fact, most of the deals in our company are apartment buildings. I’m not certain how much longer it’s going to last, but it’s good today and will probably continue. With seniors downsizing and millennials unable to buy homes, the need for apartments is greater than ever. These trends are causing the apartment business to continue to boom.
#4: You Can Force the Appreciation
With commercial real estate, we can force the value of the property up simply by raising the rents and raising the net operating income. In commercial real estate, the value of a property is largely determined by the income generated at the property. Therefore, the higher the net operating income on your commercial property, the higher the value.
This is unique to commercial real estate. With a single-family home, if you raise the rents, the value remains the same. This is because the value of a home is determined by what other properties are selling for in your neighborhood, not the income generated by the property.
So, if you’re good at managing your commercial property, raising the rents and maintaining expenses, you can increase your wealth.
#5: One Good Deal is All it May Take
I’ve said it before; one good commercial deal is all it may take to give you financial freedom. I have a video called How to Turn 2 Houses into 34 Unit Apartment Building that highlights this perfectly. It’s about one of our students who took his two single-family home rentals, sold them and upgraded to a 34-unit apartment building. If you watch this video, you can see the process he went through and what the net effect was on his cashflow and equity.
5 Steps to Upgrade from Houses to Commercial Investing
#1: Get Educated
For some of you, the rental that you’re considering selling or pulling money out of to do a commercial deal is your life savings. So, you need to be extremely careful, especially if you’re older. You may only have one chance, so don’t do it alone. Instead get educated and get coaching, then you can start making knowledge-based decisions, which will also help you dissipate the fear factor.
#2: Choose One Commercial Asset Type
As I’ve mentioned in previous posts, I don’t know anyone who’s extremely good at investing in apartments and also an expert at investing in retail. So, if you want to invest in apartments, focus on apartments. Or if you want to invest in office buildings, become an expert investing in office buildings. Whatever you choose, choose one and focus on that. I’m a big believer in the power of focus. In fact, I have an acronym for FOCUS: Follow One Course Until Successful.
Of course, you can have varied investment properties. However, to be an expert and to be well known in that category, you need to focus on one, especially if you’re a beginner.
#3: Calculate Your Money
If you were to sell your home or refinance it, how much do you have for a down payment? If you can pull out $250,000, then you could buy a commercial property worth something north of $1 million. A strategy to defer the tax in this transaction is with a 1031 Exchange. It’s an IRS tax code that enables you to sell your single-family home and take all the profits into your next commercial property. If the value is greater, you can defer all the taxes and pay no capital gains taxes. To learn more on this topic watch my video called the 1031 Exchange Step-by-Step Case Study.
#4: Build Your Team
Teamwork makes the dream work. You need to build a solid team of advisors, agents, lenders, property managers, attorneys, and contractors to help you make knowledge-based decisions.
#5: Take Knowledge-based Action
After you have completed steps one through four, the fifth step is to take knowledge-based action. What does it mean to take knowledge-based action? It means you need to make offers. That’s where you’re going to learn and there’s no higher form of learning than jumping in and getting started.
Again, don’t do it by yourself, you need to get help and get educated. I’m not throwing you into the fire with nothing. Remember, before you make an offer, you complete one through four must-do action steps and analyze it with your team, run the numbers and check out the market.
