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3 things to know before investing in commercial real estate

If you've previously invested in residential real estate, you may want to try your hand at commercial property investment as well.

It's a great idea, and commercial property investments can be very profitable. However, there are some important ways in which commercial property investments differ from residential property investments that you need to understand before you take the plunge.

1. It pays to research.

Spend some time doing your research into the market and understand the varieties of commercial property you can invest in. A retail property, for example, presents vastly different concerns when you go to lease it out to tenants than the kind you might see with an industrial property.

You simply cannot have too much education going into commercial property investment. It might be wisest to focus on a specific type of commercial property to start with, and then branch out to other types of property later on.

2. Financing is harder to get.

Even though commercial properties have the potential of producing greater income, banks can be hesitant to provide financing. For one thing, commercial property often comes with a much bigger price tag than the average residential property.

You may need more of a down payment than you expect to get a bank's approval. You can also expect a bank to go through your financial records very carefully, so be ready with plenty of documentation.

3. It's a very calculated decision.

When you buy residential property, you generally expect to like or even love the property (especially if you ever intend to live there). Your personal feelings about a commercial property as less important.

You have to operate strictly according to the numbers. If the property offers a good return on your investment, you don't need an emotional attachment to the place.

Whether you're just beginning to invest in commercial real estate or negotiating your first commercial lease with a tenant, an experienced real estate attorney can help protect your legal interests.

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