5 Things to Consider Before Investing in Commercial Real Estate

Investing in the commercial real estate is a lot different from doing business in the residential sector. The sales cycle is usually longer and the rules are different. Nevertheless, it represents an interesting investment opportunity for any investor who wants to expand their business and gain access to a bigger pool of potential clients. Here are 5 things to consider before taking your first move:

1. It Takes Time:

You don’t have to forget everything you’ve learned about the residential real estate, but you have to understand that there is a whole new experience awaits you. Learn to be patient as everything will typically take longer. Finding new tenants and renovating your property takes time but the leases are longer. If you are waiting for a permit for a new building, it might take months or even years. It is very important to discuss your investment with the local authorities before buying a commercial building. This way you can learn about all the needed approvals and asses the time needed to have all your papers ready. You will have to accept that you will spend time trying to learn about the new vocabulary like the capitalization rate and vacancy rate.

2. Study the Market:

You have to understand the market you are trying to invest in and take your time to study it well. You should visit various properties and see how they are different with respect to their prices, location, and allowed uses. You should also keep on an eye on the legal implications, competition and vacant properties in any given area. Certain properties that are located near hospitals or universities will sell faster and will have a higher return on investment. By building the right investment portfolio, you will be able to diversify your investment.

3. Assessing Risks:

Assessing risk in commercial real estate investment is a whole different story. The success of 2 similar residential buildings in the same area is easy to predict but commercial buildings are different. There is a range of risks that will be inherent to your commercial building based on a number of factors including the allowed uses, for example.

4. Think About your Financing Options:

You can get your finances supported by banks, credit unions, and mortgage brokers. Each type of financing has its pros and cons. You should discuss the interest rate up front to make sure that you are picking the right choice.

5. Ask for Expert Advice:

Buying and investing in the commercial real estate is not an easy process and you will probably need to hire an expert to help you. The experts you hire should have experience related to the type of property you are trying to invest in. Make sure that you contact a reliable commercial real estate investment company that will assign you tax, law, and accounting experts to help you make the right decision.

As tempting as it may be, investment in the commercial real estate sector is not for amateurs. You need to make sure that you’ve hired the right people to provide you with the best advice.

What are the Differences Between Residential and Commercial Real Estate?

If you think that residential and commercial real estate are the same then you need to think again. Residential real estate brokers and commercial real estate agents work in property, but this probably the only thing they have in common. If you have been investing in residential real estate, then you might be thinking that you are qualified enough to experiment with the commercial market. Here are a few differences that set the 2 worlds apart:

1. The Market Has Different Segments:

The market for residential real estate is made up of people who are looking for a new living space, regardless of its type, location, and size. But the commercial real estate market is divided into 4 different groups. These are industrial, office, retail and hospitality. Each group has different needs and concerns. This is why you are probably going to find highly specialized investors who work particularly with one of these segments.

2. Residential Real Estate is Easier to Finance:

People usually think about entering the market for commercial real estate because it yields a higher income. The lease agreements are usually longer and you are going to make a lot of money by leasing your property. However, investing in residential real estate is less complicated. It involves less paperwork and is definitely easier to finance. This is why you need to make sure that you are working with a reliable real estate broker before getting involved in any deal.

3. You Can Get Rid of Non-Paying Tenants Fast in Commercial Real Estate:

Residential tenants are protected by a system of rules and laws. Some tenants misuse and abuse the system and might spend a long time without paying any rent. All this time, the landlord is enduring cost and is unable to get them evicted. But it is different if you are investing in commercial real estate. If your tenants are not paying the rent, they will move out and you will be able to rent your unit fast.

4. It is All About Teamwork:

In commercial real estate, the bigger the network you have, the more successful you will be. You will be able to know a lot about the hottest deals just because you know the right people. You need to work with a trustworthy team of brokers, agents, lawyers, and lenders in order to succeed. Finding the right deal takes time but it is totally worth it.

5. Properties are valued Differently:

In residential real estate, properties are usually valued based on the comparison with other similar properties. But it is a different story in commercial real estate. Properties are based according to the income that can be achieved from an investment point of view. This income is affected by a number of industrial and financial standards.

If you have been investing in the residential real estate, you need to take these differences into consideration before shifting to the commercial market. Make sure that you are hiring reliable advisors who will help you find your way.

Acquiring Tampa Commercial Real Estate

Tampa has become one of the sunshine state’s most valuable cities. It sheer commercial importance simply cannot be denied. This is something that all entrepreneurs should take note of. If you are among the smart ones, then you should probably use it to your advantage and consider investing in key Tampa locations.

Of course, the last thing we want to do is to give you the false impression that real estate acquisition is an overly simple affair. The truth of the matter is that it is a complex process that will require your full attention. That being said, our main goal is to make things easier for our readers.

Know the Lingo

As any entrepreneur would tell you, every industry has its own language. The real estate industry is certainly no different as it has its own vocabulary. It makes full use acronyms most people not working in the commercial real estate will surely find strange and unfamiliar. That being said, you should make it a priority to familiarize yourself with these terms. At least, if you want to make things easier for yourself.

Listed below are a couple of commonly used real estate terms worth your time.

  • Capitalization Rate – Commonly known as Cap Rate, it pertains to the property income divided by its total value. This will surely come in handy if you are looking at the prospective returns on your investment.
  • Loan-To-Value – LTV refers to the ratio between the money you are asking from the bank or lender and the total value of the property you are looking to purchase. This is vital if you are looking into the different financing options available to you. It will also give you a concrete idea with regards to the value you need to have upfront.
  • Cash on Cash – This compares the property’s annual income and the amount of money you have actually put into it. This will help you make a projected trajectory and timeframe with regards to when a specific property will actually become profitable.

Do Your Homework

It should go without saying that not all properties are the same. Some will inevitably fit your needs much better than others. That is why you should make it your priority to really look into the fine print. If possible, you should go to the sites and assess the properties yourself. Keep in mind that there are a number of different factors that you need to take into consideration before actually making a purchase or a lease.

  • Price – Like with any other business venture, your budget should always be figured into your plans. Look at the capital you have on hand and the possible sources of funding available to you.
  • Location – The location of a particular business can determine whether it will succeed or not. That is why, when it comes to real estate, you are not only paying for square footage, you are also paying for its location.

Real estate deals are rather complex affairs. Beautiful as Tampa may be, its real estate market is certainly not exempted from this rule. With that in mind, we have come up with a few simple tips that you should always remember.