Investing in real estate can be a highly profitable venture. Investing in commercial real estate can bring even higher rewards than residential real estate if done correctly.
One of the reasons for this is that the leasing arrangements made with commercial units tend to be higher and the duration of the leases tend to be much longer. Another is that tenants of commercial properties tend to treat the premises better and actively maintain and clean their spaces. They also may pay for renovations to meet specific needs that can increase the value of the space.
So, as you can see, commercial real estate investing can be a revenue driver. That being said, there are still risks attached. In order to mitigate these risks and make the most of your investment, here are some top tips to consider when buying commercial real estate:
1. Get To Know Your Real Estate Market In Your Community
If you aren’t sure how the market is in the area you’re going to invest in, you’re taking a big gamble. In order to invest wisely, you need to have a grip on the market and find people who can give you insight into commercial properties in the area.
You can talk to real estate agents, developers, and even business owners in the area to see if the location is desirable from a business standpoint or if there’s anything to watch out for. Another thing to consider is if there are any government regulations you should be aware of, zoning or hidden costs that might be tied to investing in any certain area.
2. Know The ROI On The Property
Before you make any big commercial real estate investments, it’s a good idea to calculate the potential return on investment you’re planning on getting. Try to estimate the yield you would get on it in the future as well as what you’d cash flow monthly from leasing out the space.
3. Understand Real Estate Terminology
Commercial real estate has a lot of industry terms that are important to understand. These terms can help dictate the sale of the property or the value of the investment. For instance, you’ll want to make sure you understand phrases like gross operating income, net operating income, cap rate, cost of occupancy and much more.
4. Do Property Research
Lastly, make sure you do background research of the properties you’re looking to invest in. Do they have a clean past or lots of baggage?