Buying a commercial property can be a lucrative venture, however, it is also a complex undertaking that is underlined by a myriad of risks. A number of factors need to be scrutinized before investing in commercial real estate properties, including the type of property, analyzing the risk and benefits of the investment decision, and determining a reliable plan to protect your investment.
As each property has unique challenges, it is wise to hire a team of experienced professionals, to help you finalize your investment deal. The following guide will help you take an informed decision.
Analyze the risks: A thorough risk analysis of the potential investment decision and undertaking a due diligence is essential before making a decision. Buyers should review the following risks:
- A commercial property requires a larger down payment and the overall investment is costlier than a residential property.
- Investing in a commercial property can affect the liquidity of your business. Also, it’s not easy to sell real estate, particularly during the period of depression.
- Commercial properties can lead to an unexpected slump in cash flows, due to sudden expensive repairs, or default in the payment of rent from tenants.
- It takes a longer time to find a tenant for the commercial property, as most properties attract long-term leases of three to five years or more. Thus, it leads to disrupted cash flow and increased expenses during the vacancy period.
Find a great location: When it comes to commercial real estate investment, location is the key. A great location will help you better manage the risk. Everything from zoning allowances to an option to expand the property, to available properties in the neighborhood will determine the growth forecasts of your investment. A commercial real estate appraiser can help you determine the benefits of investing in a particular location, factoring tax benefits such as depreciation, or calculating the cost of renting versus leasing.
Understand your investment strategy: A commercial real estate investment typically takes, at least, eight to ten years to reap any benefit, and earn a significant return on investment. If you are looking for avenues to make money swiftly with a minimum time requirement, commercial real estate may not be your best bet.
Arrange finance: Since, buying a commercial real estate entails a significant cost, most buyers will need a reputable lender to secure a loan. Choose a lender with extensive experience in funding commercial real estate transaction, as it will help you effortlessly deal with the necessary paperwork and the many rules and regulations. A reputable lender will also help to shortlist the best funding opportunity that limits your risk exposure and is in unison with your risk appetite.
Hire a commercial real estate appraiser: Before going forward with the purchase, it is critical to determine the value of the commercial real estate. With a commercial property appraisal, you can receive a professional opinion of the property, and base your decision on facts and evidence.
The process of the appraisal process involves collection and analyzing information about the property, researching into appropriate market areas, and using the facts and statistics to the analysis the data and opinions of value. A trained appraiser will exercise sound judgement, put analytic skills into practice, and provide objective, impartial judgement pertaining to a property. Thus, it becomes critical to hire commercial real estate appraiser who has significant experience in dealing with commercial properties.