Residential and commercial real estate have some common similarities, but the differences are pretty significant. Making a living in commercial real estate is generally much more demanding than in residential markets.
Each deal generally demands a significant investment of your time. It can be a juggling act as one significant deal closes only to have another suffer premature death throes, sending you scrambling in two directions simultaneously. That said, a career in commercial real estate can be highly rewarding and profitable.
The Most Fundamental Difference
Consider that you're selling a home to a couple. The wife is in love with the kitchen, and the husband is excited about his new garage workshop. The greatest part of your job has already been accomplished when you help them locate the home. They fall in love with it on their own.
That's not always the case with a commercial buyer or lease client. A great deal more is involved in the way of financial analyses, market demographics studies, and environmental research is in typical commercial purchases or lease decisions.
A commercial client is usually much more concerned with area statistics, data about the property's location, and the demographics of the local population and businesses.
The Average Work Day
A commercial real estate agent's average daily activities can be quite different from those of a residential agent. You'll likely find yourself dealing with:
- Cold calls to business managers and owners
- Studying lease payments for office complexes in the area
- Calculating the breakeven ratios for one or more commercial properties
- Interpreting current leases for prospective multi-family buyers
- Reviewing reports of population growth for likely patients for a medical rental complex
- Reviewing a cap rate report for the prospective buyer of a small shopping center
- Studying newly published local market data from the Chamber of Commerce
- Visiting hot commercial properties to find out what differentiates them from others
The rewards can be worth the effort required, but thoroughly compare your desires and abilities to the requirements for commercial real estate brokerages.
Big Commissions, but Fewer of Them
Yes, commercial real estate can deliver very fat commission checks. Some small re-zoned houses and buildings might be more in the price range of luxury homes, but prices quickly rise into the millions of dollars when you start working with shopping centers, malls, industrial properties, office complexes, and other retail properties.
The trade-off is that it can take many months to a year or more for a commercial property deal to move from initial interest to the closing table.
One of the first things all agents must learn is to calculate their take from a deal. These deals are due diligence intensive, so you can't make up for the time factor by doing too many more deals simultaneously. You're limited as to how many deals you can work on at the same time—at least if you're going to do a good job.
Don't Be a Guppy in a Shark Tank
You might be a shining star in the residential market, doing lots of deals and rolling through closings at a rapid pace, but a significant portion of your sphere-of-influence database will no longer be delivering business if you switch to commercial.
You're basically starting over with building the contacts and prospects that generate deals. The commercial real estate practice involves a whole new sphere of influence and a very different property evaluation process for buyers.
Some agents who make a "cold turkey" switch, killing one income stream and transitioning to another with a longer closing cycle, can be shocked at the outcome. Some actually switch back because of income stream pressures. A better approach might be to gradually transition, and perhaps find a mentor to help you get your feet on the ground in commercial real estate.