Buying commercial property is different than buying a home. Your approach to commercial real estate is completely different.
You aren’t looking for the perfect home that you want to live in. You are looking for a return on your investment. This search takes time.
However, it doesn’t have to be hard. Here are some things to consider when buying commercial property.
Decide Why You Want to Invest in Commercial Real Estate
There are many reasons to get into commercial real estate. You may have your own business, and you want to buy a place instead of renting. If you can also rent out other units in that building to other businesses, that would be even better. You will be able to make some money instead of putting all that money every month toward the mortgage.
Consider the market conditions of the area you are researching. For example, the market may be struggling in one area like Los Angeles while booming in another area. Do your research and consult with brokers and commercial property managers in the area to understand the market conditions.
Establish Financing Options
Just like any pre-approval for a home purchase, the same process is expected for any commercial asset you purchase. Understand your financing options before you begin your search.
When you do find the perfect property, if your financing is in place, it is much easier to complete the deal.
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Don’t Go Through the Process Alone
Unless you plan to get started as a real estate manager yourself, it’s important you hire a commercial real estate professional to help you through the process. Their knowledge will ensure a smoother process.
He or she will be able to help you figure out what you are looking for, how much you can afford, and how much profit you should expect to profit from the investment property.
You should consult with a commercial real estate lawyer and an accountant as well. They can offer additional insight based on their experience and your specific needs. Additionally, if the property requires significant work, you may want to consult a construction expert.
Location is Key
Location, location, location. While you may think this mantra only applies to residential real estate, you are wrong. In fact, it may be even more important. You need to find the perfect location with the foot traffic and attention that makes sense for your needs.
If you are looking for a property for your business, you need to think about your customers. You don’t want a location that is difficult to find. Nor do you want a location where the foot traffic is not substantial enough for your needs. Additionally, based on the type of asset you are purchasing, you need to ensure adequate parking. Parking needs to be easy for everyone accessing the space. Finally, you may also want to be close to public transportation. Again this need is dependent on the asset type and the need for access. If this is an industrial space, access to public transportation might not be necessary.
Do Your Analysis
Buying a piece of commercial property isn’t like buying a home. Commercial real estate is about making the numbers work. It’s a business decision. You make your final decision only after looking at the numbers and conforming clean property records.
Because of this, it is important that you run the numbers. Make sure the profit is there. And you must stress-test your analysis. Stress-test for increased interest rates, increased taxes, and increased vacancy. Understand the impact of any potential change. Know where your break-even point is. Understand what repairs are imminent and what repairs are necessary in the future.
For a retail building, understand the likelihood of filling all the vacant spaces based on current market conditions. Or will your occupancy sufficient to cover your expenses if you have a rough few months?
Before you get started in commercial real estate, you need to figure out your ultimate goal as well as the type of asset you want to start with.
Once you figure out what you are looking for, then determine your financing options. And know how much you can afford. Finally, there is no point in buying a property if you aren’t going to make any money off it.
It helps to know the right people. They can make or break your commercial real estate business. A good real estate professional (who is familiar with commercial real estate) will be your greatest asset in your search. However, a lawyer, an accountant, and a construction professional can also lend additional expertise.
Commercial real estate can be a great investment as long as you choose carefully. You really need to think about your goals and what you are looking for before you get started. However, it might be the best thing that you have ever done!
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