Commercial real estate investment means investing in income property such as a commercial office building, apartment complex, retail or industrial property, an educational building or land that you intend to build a commercial building on or that is zoned for a commercial building. It is a good idea to decide what type of commercial real estate you wish to purchase and do your due diligence before you make your investment. You will also need to decide how you will finance your purchase. There are commercial real estate lenders that loan money on commercial real estate. Another consideration is whether you are going to hold on to the property or rehab and flip it.
What You Should Know About Commercial Real Estate Investment?
Buying commercial real estate is a business that can earn you substantial income and long term wealth. Investing in commercial real estate is a safe investment, but you need to do your homework and educate yourself. You should think about whether you want to purchase in an urban, suburban or industrial area? You might want to join an investment club and/or take real estate seminars or classes, buy books or read information online. You should think about how much time you intend to spend finding the properties and maintaining them.
It is recommended that you work with a commercial real estate agent that specializes in the type of commercial real estate you are interested in buying in a specific area. The agent will be able to give you information about what properties are available and the market rental rates, the operating expenses, etc. Owning commercial property can be expensive. There are operating expenses that must be taken into consideration such as property improvements, cost of borrow- ring, real estate taxes, expenses for the common area maintenance and vacancy factors.
A real estate property appraiser can help you with the property value. You will also need a property inspector to let you know about the condition of the property and what types of expenses you can expect to incur. This way you can crunch your numbers to make sure the investment makes financial sense.
Benefits of Owning Commercial Real Estate
Commercial property enables you to gain equity and cash flow. You are in charge of management decisions even if you use a property management company. Major decisions are up to you. You build long term wealth. Your money is invested in a relatively safe investment environment. Of course, real estate goes in cycles and property values can go up and down. If you buy low, you are protected more from losing all your equity.
Assessing the Value
One way to value commercial real estate is by determining the income less the vacancy factor to get your effective income minus your expenses (do not include mortgage interest), repairs and reserves for your expenses. You can then divide the number by the cap rate for the property. Before you spend money on a commercial appraisal, which can range anywhere from $1,500 to 15,000 depending on the type and size of the property, you should get an estimate of the income value to make sure the property is worth investing in.
If you are interested in buying the property, rehabbing and flipping it, you can figure your ROI or return on investment by taking the amount you paid for the property less the rehab costs and what you sold the property for to get your profit. Buying a commercial property foreclosure or short sale is an excellent way to buy low and sell higher at or above market value after rehabbing the property.
Commercial real estate investment requires having a sound business plan so that you have a model to follow, doing your homework and educating yourself about your target area. It is important to have team of real estate professionals and helpers behind you such as a commercial real estate agent, a property inspector, appraiser, contractor, mortgage broker or lender and land surveyor so when you do find a property, you are ready to assemble your team and analyze all the data to make an intelligent business decision.