Are you considering investing in commercial property? If so, take a look at our newest post to see what you should consider before making your purchase!
Many investors choose to invest in commercial property as they look to expand their portfolios. While this can be a lucrative endeavor, there are a few things you should know before making any purchases. Keep reading for more information about what factors to consider when buying commercial property!
Explore Your Options
There are several types of commercial real estate properties to consider. You could choose to buy a building that houses a restaurant, or one that holds many boutique retail stores. You could choose to purchase an office building or even a large apartment building.
You may be partial to some industries over others, but at the end of the day, you should always go with what the numbers are telling you. Don’t rule out owning a restaurant just because you dislike cooking! It’s crucial to remember that not all businesses will do well in every location, so always keep an open mind.
The Location
The placement of your building is one of the most crucial aspects to think about when picking a property. If the company using the space relies on foot traffic, this will ring especially true. The location should be close to other successful businesses, is in plain sight, and is easily reachable. Anticipate any changes that could come to pass which would positively or negatively affect your property value down the line—it’s key for making sure your commercial investment prospers!
The Numbers
Unlike with a residential property loan, you’ll not only need to calculate your expenses, but also gauge your potential profits when getting a commercial real estate loan. To start, check out recent commercial sales in the area and see what rent is being charged to get an idea of the market rate.
The difference between your rental income and the expenses for the property is referred to as cash flow, and you’ll want to keep that positive. To figure out the capitalization rate, divide the net operating income by the current market value. Most investors want to see this number at 10% or higher.
Organizing all your costs beforehand is essential for a fruitful investment. This full analysis should include utility bills, insurance, taxes, and maintenance fees. For example, how much will the property cost you if it’s unoccupied for a month? It might seem like a lot of laborious work at first, but doing your due diligence upfront is key to setting yourself up for success down the road.
A Strong Team
No matter what types of real estate investments you make, it’s important to have a strong team to support you. Your ideal team should consist of:
- A patient and knowledgeable agent to help you out with any stressful real estate transactions.
- An accountant can help you keep your books in order and make sure that your business is profitable.
- A lawyer to help you understand what legal steps you need to take and any possible roadblocks.
- Trustworthy contractors who will perform repairs at reasonable prices.
- A property manager who will be in charge of managing repairs, screening tenants, and much more.
- Professional buyers and sellers with whom you can collaborate on the best commercial property investments in your area.
- Other investors with whom you can network and learn.
Having a team of experts on your side will make all the difference in your investment success. These are the people who will get things done, making sure everything is handled correctly and according to the law. You’ll turn to them time and time again to help you with your investments, commercial or otherwise.
An Exit Plan
Be prepared and have an exit plan for your commercial property investment in case you ever need to sell fast. Maybe profits aren’t where they should be or maybe you want to reinvest elsewhere quickly—regardless of the reason, always being ready will give you the best chance at success.
Owning commercial real estate is a great way to expand your portfolio, create financial security, and build wealth. If you have never made a commercial property investment before, our team can help guide you through the process and provide insights about the local market. With years of experience buying and selling both residential and commercial properties, we can help save you money on commissions and other associated costs!
If you’re interested in investing in commercial property, our team can help you choose the right purchase! Give us a call today at (877) 864-3926 to get started.