You can ask any real estate professional about what type of property you should try and invest in and you’ll likely get a unanimous vote of confidence in commercial property. What’s more, you’ll probably stand on the receiving end of an extremely long monolog about how commercial property is both safer and more profitable than its residential counterpart.
And, you know what, they would be right. Commercial property comes with so many added extras from that ramped up cash flow, there is the attractive economies of scale, the chance to employ talented property managers, the wide range of choice, big tax benefits and, of course, the bigger payoff at the end.
The question is, how do you know what is a good investment and what may turn out to be a failure. Well, that is all down to the evaluation of certain criteria. Luckily for you, there is a map that you can follow to land a successful investment, a sort of blueprint, that just requires tracing with your finger.
Think Like A Pro
If this is your first time venturing into the commercial property business, then it is important you drop the novice act and think like a professional. You may have had some success in residential property, but this is a completely different game. As such, you need to know what will determine the amount of income, which means knowing all about the usable square footage and that terms of an agreement last longer in the commercial realm than the residential, both of which will greatly affect the amount of income that comes flowing your way. It’s not all great news, though, because those who need a line of credit will usually have to stump up 30% as a down payment, which is quite a hefty chunk.
Have A Plan
There are certain questions that you can ask yourself before committing to a purchase that will help you understand what you can get. As such, always ask yourself how much you can realistically afford, and then follow this up by shopping around for mortgages. You’ll want to know how much you are going to pay over the full duration of your mortgage agreement if you are going to come up with a robust plan. Then it is a matter of asking yourself certain informational questions like how much you will earn a month/year, how much of your commercial space do you need to fill in order to cover your costs, and is it worth looking for a broker of net-leased investment-ready properties. Of course, it is also worth asking yourself how many tenants are already in the property and paying rent and how much work will need to be done in order to keep them there, or allow you to raise the prices without risking your relationship? All of these will help you make a more calculated decision.
Know A Good Deal When you See One
You want to know what separates a professional from a wannabe, their exit strategy, which makes their experience more stress-free. Quite simply, the best deals usually tend to be the ones you can walk away from with a tidy profit in hand. To do this, though, you need to have a sharp eye for certain things, like how much work needs to be done to the property, and how much value will that work add to your investment. It is also worth looking at whether your commercial property can be divided up into multiple properties. Multi-family properties will make more than single homes in the residential market, and the same stands for commercial properties. Another great thing to note down is any planning requests that have been made in the area, and any changes in the law that may be coming into force in the near future. All of these will give you a better exit strategy to work to.
Some Sellers Are Better Than Others
You are going to be investing in a commercial property that means you are in the business of investing, and only one thing can boost your chances of success, the right customer. As such, you will want to find a customer that is willing to sell their property below the market value. Bricks and mortar are always a great investment, but we all know that the best deals come from great deals, and that is motivated by the seller. As such, it can be a waiting game. But finding that someone that has a reason to sell below the market value will be your golden ticket. It could be they want a quick sale, or they are setting up shop elsewhere, or this was their retirement nest egg – whatever. The bottom line is this if they don’t have a reason to sell – a motivation – then you are going to have a really tough time at the negotiating table. Trust us on that one.
The Main Types Of Property
As with residential property investment, there are also main areas within commercial property. These are typically broken down into offices, industrial buildings, warehouses and retail premises. But there are other areas of investment available to you as well, facilities such as leisure, sporting and medical. These are businesses that all rely on people coming through their doors, so when it comes to the actual purchase of a commercial property, there are certain questions you should be asking yourself. The first is obviously to do with location, location, location. This is always the key because prime location will dictate your success and your revenue. The second thing to consider is whether or not the premises itself will attract tenants. Another key area of careful consideration are to with any external factors, and whether these will positively affect a tenancy. The more they work in your favour the easier it will be to raise the rent. External factors include things like planning proposals, the possibility to expand and other commercial businesses in the area that will attract business to you. For example, if there is an IKEA nearby, your popularity will go up. The last question you need to ask yourself is about future-proofing.
