When discussing commercial real estate properties, this typically means mixed-use buildings, apartments, warehouses, offices, industrial spaces, and retail structures. If you have invested in residential properties in the past and are interested in commercial property investment, you may be looking into some of these options. However, before diving in, headfirst, it is essential to know that investing in commercial property is much different than residential property.
Keep reading for some actionable and helpful tips to ensure your first commercial real estate investment is successful and profitable.
Figure Out if Commercial Property Investing is the Right Option
If you decide to invest in commercial properties, you must take time to get to know the options and conduct other due diligence. Buying a commercial property involves complicated real estate transactions and a complete understanding of if the property is going to help you achieve the financial goals and needs you have.
Some things to consider before making an investment include:
- Cash flow
- Value add
- Holding time
Considering the factors here can help you figure out if the investment you are thinking about is really worth it.
The Commercial Property Proforma
Before investing in any commercial property, you need to read and analyze the property proforma. This is the financial analysis for the property you are considering.
Some of the parts of the document you need to look at carefully include the property’s gross revenue, operating expenses, and vacancy rates. All these factors are going to impact if you can earn a profit on the property or not.
Investor or Loan Considerations
In some cases, working with an experienced commercial real estate investor can offer an array of benefits. If you don’t work with another investor, it may be necessary to secure funding from a bank. This is often tricky, but there are tools out there that are designed to help you find a loan or loan product that will make your dream of commercial property investment come true.
In some cases, you may find you can secure financing or pre-approval before even looking at properties. However, many commercial loans are based on the value of the property, so keep this in mind and know that it is not always possible.
While investing in your first commercial real estate property is exciting, don’t let your excitement cloud your better judgment. Be sure to look over and consider all the loan offers you may get and find the options that have the right or best terms. Keep in mind, the “best terms” are somewhat subjective since this is going to depend on your situation. The key is to review all the offers you get to find one that works for you.
Are You Ready to Invest?
Remember, once you invest in commercial property, you are responsible for the upkeep, maintenance, and tenant needs. If you are busy or have multiple properties, hiring a property management company to handle this will make sense.
As you can see from the information here, there is a lot to consider when investing in commercial real estate. While this is true, you can get started with the tips here.