Whether you are a first time investor in commercial property or an old hand at property investing, it never hurts to review the basics. Here are a few tips to help you ensure that your investments have the right potential to meet your profit goals.
Take Your Time
Any real estate transaction takes time, but commercial property investment takes a lot longer than residential transactions. If this is your first foray into commercial property investing, you may be surprised at the pace. Although it’s hard to be patient when you’re excited about an investment opportunity, rein in your enthusiasm. Taking your time to learn everything you can about a property can mean the difference between a successful investment and a loss of capital.
Part of taking your time should be identifying and nurturing key relationships with other commercial property investors, bankers and private lenders, real estate brokers and municipal or other government officials. When you are ready to invest in a specific property, any or all of these relationships can help you by identifying choice properties, arranging financing, helping to create partnerships or providing a “heads up” on any possible factors that can affect the profitability of your investment.
The due diligence on a commercial property goes well beyond those for a residential property transaction. You need to examine existing leases, zoning regulations and potential changes, transportation options, work force availability and demographics, environmental factors — possible pollution from past building occupants – and of course the property’s physical infrastructure. If you’re not familiar with any of these matters, be sure to hire the best professionals you can find, and be prepared to walk away from a property based on their findings. You may lose the cost of their services, but it will save you money in the end.
Identify Tenants You Hope to Attract
Before you even consider investing in specific properties, you should spend time learning about the area and the potential opportunities, including who the other investors in the area might be, potential zoning changes, environmental concerns and anything else you can dig up that might affect the desirability of a particular property or area.
We all know that location is key for residential real estate, but it’s just as important for commercial properties. Verify that the neighborhood is attractive to the types of tenants you hope to attract, and make sure that you can easily offer the right mix of amenities to attract them. You don’t have to identify specific companies or organizations up front, but at least have a general idea of what you hope for so you can evaluate the factors that are important to that type of tenant.
Once you have a particular type of tenant in mind, make sure that the neighborhood is attractive to that type of tenant. For example, if you are considering a small business or high tech incubator office building, you will want to be sure that there is plenty of parking and that the building is in close proximity to universities or other sources of startup ideas. For retail space, you will want to be sure that the building has easy access, display windows and adequate parking for customers and tenants. You’ll want easy truck access and loading docks for deliveries and customer pickups. Public transportation nearby is always a plus for any commercial property.
Factor in Capital Improvements
You will need to keep the building in good repair in order to attract and retain desirable tenants. Work with a reputable building inspector to ensure you know the real condition of the roof, the plumbing, the wiring and other important parts of the building infrastructure. If you don’t have the cash to make repairs as needed, you will have difficulty keeping tenants in place and happy, so make sure you have ample reserves to cover these items as needed.
Infrastructure includes everything from the building’s wiring and plumbing to parking and proximity to public transportation, neighborhood demographics and zoning that may restrict possible tenants. Tenants won’t find your property desirable if it doesn’t meet their needs, so make sure you consider the property from a potential tenant’s point of view as well as your own.
Balance Rent against Outlays
Make sure that you have planned for all your expenses, including cleaning or maintenance of common areas, trash removal, utility connections and building security. Don’t guess at what these items will cost. Ask to see current expenditures and get proposals from other firms to be sure the current rates are realistic. When you have everything you’ll be responsible for as the building owner, balance that against current and possible future rents to ensure that your cash flow is sustainable. Novice investors sometimes overlook some critical factors, or are shocked at the difference between commercial and residential fees for similar services.
Weigh Liquidity to Leverage
One key to profitable commercial property investing is leveraging financing to enable you to enter the market without accumulating and risking the entire capital investment required. Higher leverage comes with higher payments and may even dilute your ownership, so don’t go overboard. On the other hand, you will be on the hook for any repairs or capital improvements the building needs, as well as the on-going operating expenses, and you will need cash to accomplish these items.be certain you hold back enough operating capital so that you can pay for unexpected expenses and to tide you over until your cash flow stabilizes.
Keep Your Eye on Your Goals
Always remember that commercial property is an investment. If a property will not return a profit then it’s not a good investment. Don’t let emotion and excitement sway your judgment. Run the numbers with your trusted team of advisors, plan for contingencies and make sure that you can survive even the worst-case scenarios.
Serene Chua : (+ 65)98-199-199
B.Sc(NUS)Hons / CEHA-Certified
Email : email@example.com