7 Tips to Remember Before Investing in Commercial Real Estate

National -

May 12, 2020

Planning to invest in commercial real estate anytime soon? You’ll be pleased to know that 2020 is a good year for commercial real estate investments. CBRE’s 2020 U.S. Real Estate Market Outlook says investors will enjoy increased capital flows, low-interest rates, strong customer spending, low inflation, and solid property fundamentals.

Investing in commercial properties has an incredible return on investment. However, commercial real estate properties often cost a fortune. Business owners looking to purchase commercial real estate turn to small business loans for financial assistance. But just like any other investment, buying commercial properties comes with certain risks. Successful investors conduct complete due diligence to see if the property is aligned with their investment strategy.

With that said, here are seven tips to remember before investing in commercial real estate:

1. Focus on Your Investment, Not the Acquisition of Property

For a certain investment to be profitable, it has to generate income that exceeds the actual cost of the investment. It’s important to remember that you’re acquiring property to make money from it, not for the sake of owning one.

Don’t purchase properties and have it sit for months. A good investment property generates returns. Even if you own the most beautiful commercial property, it doesn’t make sense to keep it if it doesn’t make a profit.

2. Check the Location

“Location, location, location.” This famous real estate adage isn’t famous for nothing. Location is one of the most important factors you should consider when investing in commercial property. There’s a huge difference between buying a commercial property in Montana and buying one in Los Angeles. Make sure to evaluate your investment capacity. Are you going to purchase a property in a heavily populated city? Of are you going to invest in a developing area? There are different strategies when it comes to finding the perfect location for your property, so make sure to plan carefully and choose an area that offers a strong return.

3. Know that Certain Risks are Involved

Before you invest in commercial real estate, it’s important to be aware of the risks involved. However, a smart investor does his or her part to minimize investment risk. Prior to purchasing a property, analyze the market trends, building history, and the location of the property. In this way, you’ll be able to make a wise investment decision that will benefit you and your company in the long run.

4. Protect Your Property

Buying a commercial property is undoubtedly a huge investment. With that said, it’s crucial to do everything you can to protect yourself from potential liability or legal issues associated with purchasing commercial property. Here are a few questions to ask to ensure your property is free of any liability:

Is your commercial property legally protected?
Are your other commercial properties protected?
What is the legal history of the real estate you purchased?
Are your investments separate?

To ensure full protection, make sure to consult a reputable commercial real estate lawyer.

5. Thinks of the Type of Commercial Property to Purchase

When it comes to commercial real estate investment, investors can choose from a variety of commercial properties like medical, leisure, industrial, and retail. Before you begin your search, it’s important to weigh your options to determine which type of property works best for you. For instance, industrial properties typically offer a lower rent per square foot compared to office buildings. On the other hand, medical-focused properties are more regulated. To ensure the success of your investment, make sure to carefully understand each type of property sector.

6. Have Sufficient Financial Capital

Having access to working capital is the most important element of a successful commercial real estate investment. If you’re penetrating into the market with sufficient funds to invest long-term, you will more likely to be successful in your endeavors. There are different ways to generate capital to invest in commercial real estate. One of the most popular options is applying for business loans that support real estate investments. Commercial bridge loans, SBA CDC/504 loans, and SBA 7(a) loans are the most common loans investors apply for.

7. Understand the Market

Keep in mind that investing in the wrong place and time can lead to a loss on your investment. For this reason, it’s important to thoroughly research the market you want to invest in. Check the market parameters, including your competitors, the total amount of investment in that particular sector, as well as long-term gains and potential growth. You can hire a consultancy firm to research the market for you, or you can work with a local commercial agent who’s familiar with the area.

Don’t Rush – Take Your Time!

While the thought of owning a new property can be exciting, buying a commercial property is a huge undertaking. Be sure to take your time, follow due diligence, and seek professional advice before finalizing your decision.

It’s also important to ensure that you have sufficient funds to purchase and maintain your property. They offer different types of loan programs depending on your needs.