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.