3 Things To Consider in a Commercial Real Estate Investment
Property investment offer exciting opportunities and potential for major profits. Commercial property is a unique type of investment; it differs in myriad ways from residential investments and has additional obligations, but has unique potential for revenue generation. There is much to consider in any type of property investment, but if you are interested in investing in commercial real estate, below are three details to think about.
1. Is the Property in Good Condition?
When examining a commercial property, do all due diligence to determine the attractiveness of that particular property. Realistically, you will want to do this before even looking at a particular piece of real estate for sale. Get to know a city, town, or neighborhood, average prices, types of business, and areas of significant commerce.
Once you have honed in on a specific piece of commercial real estate, consider any and all relevant details of the property:
- What types of businesses currently inhabit the building?
- Have the current tenants occupied the property for a long time, and is there any significant history of vacancies?
- What is the structural condition of the property and grounds, including parking areas?
These and other questions will help to determine the appeal of a given property. Speaking to tenants and neighbors will be even more helpful.
2. Are You Prepared For the Obligations of Ownership?
The process of managing a commercial property can be a major business unto itself. You will be required to deal with any structural issues, respond to complaints from tenants, mitigate disputes among tenants, and tend to all structural upkeep for the property. This may be reasonable for some, but for others may impose an undue burden. You may want to consider hiring a property manager if you wish to spend time on other business.
3. How Will You Fund the Purchase?
There’s no way around it: commercial real estate is expensive. Moreover, it can often be more difficult to get a loan for commercial property than residential property. You’ll need a solid fiscal plan, and most likely, a strong financial profile. Many loans will be short-term and will require refinancing after a brief period. It’s a good idea to thoroughly discuss with an accountant or financial professional the attendant details of any loans.
In short, purchasing commercial property can be exciting, and over time, highly profitable. Because it is a unique type of investment, it’s important to do all due diligence prior to any purchase.