3 Tips For Sound Commercial Property Investment
A successful commerical property investment can be a profitable and sustainable source of revenue. This said, it is important to consider the many intricacies involved in purchasing commercial property, to ensure you are well-prepared for this sort of investment.
Know the Local Real Estate Market
Any profitable commercial property investment begins with an understanding of local market conditions — vacancy rates, average rents, purchase prices for similar properties and other relevant information. Knowing the market will also help you better understand how your investment will appreciate over time. Are property values expected to grow in the next several years? Will any planned future developments in your city or town affect the desirability of your property? Is the city planning a tax assessment? Before looking at specific properties, you’ll want to know your region well.
Thoroughly Research Potential Properties
A number of questions are bound to arise in any propsective property investment. The first might be: what is the present condition of this property? For instance, a commercial property might be “value add,” meaning it requires some work before it can be viable as an active commercial property. While this might require significant initial capital outlay — for structural improvements, landscaping, or other maintenance — it may potentially offer a high rate of return once renovations are completed.
On the other hand, you may be looking at an established property with reliable cash flow, perhaps with multiple tenants and few or no vacancies. This sort of investment may appear simpler, but comes with its own set of questions: is the property being responsibly managed, or will you need to do this yourself, or employ a new property manager? Are the current tenants reliable? What are the current lease terms?
Get Your Finances In Order
There are more than a few variables in commercial investments, including in how you finance any project. You’ll likely want to work with an accountant or consultant at an early stage. In addition to considering your own assets and credit score, you’ll need to assess a number of details — interest rate, amortization period, and time span — offered on any loan.
You’ll face a related set of questions when it comes to financial arrangements with tenants. For instance, consider whether a “double” or “triple net lease,” in which a tenant has greater obligations for the rented property, makes sense for you.
Investing in commercial real estate may sound complex, and should not be treated casually. But with sound research — and assistance from experienced professionals — a commercial investment can offer a lucrative and rewarding opportunity.