Buying commercial real estate property is a complex process for which there is no one-size-fits-all strategy. It is important to understand the potential risks a business faces when buying versus renting a commercial real estate. Some points to consider if you plan to invest in commercial:
- Commercial property is valued differently than residential property: income is directly related to its usable square footage.
- Setting parameters is a top priority in a commercial real estate deal: size of rental space, how much you afford to invest, if there are tenants paying rent.
- You should look for motivated sellers who are ready to sell bellow the market value, having a pressing reason thus willing to negotiate.
- To assess a good commercial real estate deal, there are key metrics you should get familiar with like Net Operating Income, Capitalization Rate, Cash on Cash, etc.
- Undertake extensive research before signing any contract, to anticipate risks in the future related to location and neighborhood, potential loss of liquidity as it is not always easy to sell real estate or unexpected situations that may compromise your cash flow in time like expensive repairs or tenants stopping to pay their rent.
- Surround yourself with the right commercial real estate experts like accountants, lawyers, real estate or mortgage brokers, even engineers, appraisers, environmental analysts for the upcoming phases of evaluation, to help verify the condition of the property, its prior use, and any potential liability issues.
- Always keep in mind that location is crucial – it has to be convenient for customers, workers, suppliers, or even to offer access to rail, highway or shipping lanes if case. But there are also other aspects related to location that can affect future cash flows like allowable uses, physical condition, available parking, limitations on interior or exterior, opportunity for expansion.
- Any problems identified in the initial phases could be regarded as an opportunity to renegotiate with the seller if the real estate property is kept on the short list.
Contact us if you would like us to assist and navigate you through the buying process!