Before you buy a commercial property for your portfolio, make sure you know how to calculate your estimated profit. Adding commercial real estate investments to your portfolio is a great way to create passive income and build wealth. but it’s not as simple as buying any old property. There are specific things you should look for! Check out our latest post on the subject for more information.
Real estate investors usually start by putting their money into residential properties and later switch to commercial investments, including retail stores, office buildings, medical facilities, or large apartment complexes. If you’re thinking about getting involved in the world of commercial real estate investment, here are a few things you should know!
What Are The Benefits Of Commercial Property Investment?
Commercial property investments have a myriad of benefits compared to residential properties. Most notably, you will have more of a professional relationship with your tenants, and are likely to receive rent and maintenance reporting in an organized and timely manner.
Residential tenants might not report problems right away, but a business is more likely to speak up immediately. You may also have longer lease terms—some last for up to five years! This can help lower turnover costs and secure passive income for several years.
How To Spot a Profitable Investment
When you’re ready to invest, be sure to pick a lucrative commercial location. This will ensure not only demand for the space but also long-term success for your tenants. An ideal location is easily accessible and visible with plenty of foot traffic. Plus, when it comes time to sell, locations like these appreciate well.
To succeed in renting your property, do some research to find out how much other landlords are charging for similar properties. You don’t want to charge too little and have difficulty finding a tenant, but you also don’t want to overcharge and make your rental uncompetitive. Make sure there is high demand for rental spaces in the area by checking the vacancy rate; if there are few vacancies, that’s usually a good sign!
Keeping a commercial property vacant is an expensive mistake, and finding tenants for one can be harder than with a single-family rental apartment. To make your building attractive to potential lessees, it must always be in good condition! Many investors only purchase buildings that already have tenants in order to save on time and the expenses associated with screening new ones.
Calculating Potential Profits
While it’s impossible to know exactly how much profit you can make from a commercial property, there are some ways to determine an estimate of potential profits. Before making the purchase, commercial property investors conduct a real estate market analysis. They will need to take into consideration every expense they will face as the owner. You’ll need to make these numbers as accurate as possible and keep your estimated cash flow positive.
You’ll obviously want to achieve a high return, so you’ll have to do some calculations to see how the numbers work out. Capitalization rate is equal to your net operating income divided by the current market value. You should set your target for at least 10%, and there are plenty of investors that aim much higher. ROI in the range of 10-20% is ideal according to most experienced investors—though as always, the bigger the better!
What To Watch Out For
No matter how appealing the building may be, you should stay away from properties located in non-prime locations. These areas won’t attract the dependable long-term tenants that you desire for your commercial property rental. While screening for a good tenant, follow the same process as you would with a residential property rental.
To find the best commercial tenants for your property, be sure to perform background checks, credit checks, and reference verification. Although it may be difficult to replace a tenant later on, taking the time to find the right one from the start is essential for your success. Don’t rush this process—your success depends on it!
Our team is more than qualified to help you with your commercial property investments. We will guide you through all aspects of the purchase, from calculating potential profits and costs to understanding what to expect. If this is your first time purchasing commercial real estate, we can also assist you in securing financing and finding the perfect property for your needs!
If you’re considering investing in commercial real estate property, our team is here to help guide you through the process and answer any questions you may have. With years of experience under our belts, we will equip you with the knowledge you need to make a confident and informed investment decision.
If you’re thinking about investing in commercial property, we can help you determine your profit potential! Give us a call today at (877) 864-3926 for more information.