Investing in commercial real estate properties has many benefits. With the acquisition of the best assets as an investor, you can enjoy excellent returns, predictable cash flow, diversification and tax advantages. It is really an amazing way to build wealth.
Are you thinking of investing in a new business space? If you are having second thoughts about this because of COVID-19’s impact in the market, you should know that while the industry slowed down, it was never frozen nor stopped by the lockdown. Ongoing negotiations, as well as new projects and sales, continue to push through. By making intelligent investment choices this 2020, we can face all the challenges and keep up with new trends effectively.
Here are some tips that can help you in your journey as a new real estate commercial investor.
1. Prepare for upgrades and repairs.
One of the most important things you must understand as a newbie commercial real estate investor is that each property has its own lifespan. Before acquiring a commercial space, make sure that you have long-term plans when it comes to handling repairs and upgrades. Soon, you would need to spend some money to upkeep your building. Will you be able to afford roof replacements and electrical system upgrades?
2. Acknowledge the risks involved.
Before investing in any business space, acknowledge the risks involved in the process. Part of this is the fact that some potential tenants may refuse to occupy that property.
3. Prepare yourself for extended timelines and lots of other challenges.
Some commercial investors set unrealistic timetables with regards to renovations, leases, and other things. Whether you like it or not, increasing rents, introducing new systems, changing management, renovations and new constructions all take time. Prepare yourself for these challenges. Just in case delays occur, adjust your contingency costs and plan of action. In addition to that, brace for fluctuating asset performances due to market cycles, economic factors and other aspects.
4. Learn more about the area you are investing on.
Familiarize yourself with the entire neighborhood. Check what other individuals think about that location, as well as the pricing. Reach out to other business owners who are leasing business spaces. Ask for their advice.
5. Review your finances, and income generation goals.
Before taking any huge step with regards to your commercial property investment, assess your finances first. Determine what type of space you are qualified to buy. Also, what are your income generation goals? You should have all the necessary details at hand before hunting for that perfect business property.
6. Understand different market cycles.
How to acquire the perfect investment? Understand how commercial real estate market cycles work. Even in the real estate world, nothing lasts forever! The GDP, unemployment rate, and the economy’s health all contribute to a commercial property’s profitability. You also need to familiarize yourself with the different market cycle indicators to make well-informed investment decisions.
7. Finance with a non-recourse loan.
In a non-recourse loan, the guarantor or borrower is not personally liable for repaying the loan’s outstanding balance. This type of financing is usually utilized on long-term commercial real estate deals and is placed on performing stabilized assets.
8. Familiarize yourself with usage and zoning laws.
All commercial property investors must familiarize themselves with different usage and zoning laws. You wouldn’t want to invest in an expensive land deal only to learn later on that that property is not zoned for commercial use. Put property zoning as one of your top concerns when dealing with business investments.
9. Work with a reputable professional.
Are you thinking of resorting to the DIY approach when it comes to commercial real estate investing? While it’s completely possible to end up with good investments alone, learning and working with a reputable real estate professional is still beneficial. Their skills and knowledge can lead you to the best properties, and even help you land a deal that is not yet available at the open market at the start of your search.
10. Understand different real estate terminologies.
At some point, the real estate professionals you are working with will blurt out jargon and financial terms you know nothing about. How can you invest a big amount of money in a process that you don’t fully understand? Research common terminologies such as “net operating income,” “capitalization rate,” and “debt coverage ratio” before searching for a business space.