Commercial property investments present many desirable benefits, such as regular income, a high ROI, and tax advantages, just to name a few. However, no savvy real estate investor reaches the top of their game overnight. It generally takes some time before you start to enjoy these benefits.
If you’re toying with the idea of investing in commercial real estate, take note of these six universal rules for success:
Before investing in commercial real estate in Melbourne, New York, London, Paris, or other popular cities, it’s essential to know that no two commercial properties are the same, no matter how much they may appear to be on the surface. Every investment opportunity comes with unique benefits and challenges.
Unlike residential properties, commercial properties are split into multiple categories, such as office, retail, and industrial. There are also several sub-sectors, such as hotels, self-storage, and land. Then, of course, there are differences from state to state and country to country.
Explore your options, weigh the pros and cons of each asset class, and ensure you’re well-informed about all commercial options before signing on the dotted line.
Even the most skilled property investors don’t go into a property deal without involving other experts. While you might know the type of property you want, you might not have a firm understanding of property law or what to look for in a building report.
Don’t be afraid to enlist the services of as many professionals as possible, such as local lawyers, property experts, accountants, and construction experts, to ensure you’re making a sound purchasing decision.
A property you own in one area might be in hot demand, while a similar one in another area might not be. Before making a purchasing decision, research your area’s market supply to determine if there is demand or oversaturation. Skipping this step might result in the purchase of a property you struggle to lease out in a timely manner.
You often hear that there isn’t a perfect time to buy, but some times are certainly better than others when you have a firm understanding of how market cycles work.
Market cycles are influenced by the GDP, unemployment rate, and the health of the economy. When you can identify the peaks and troughs, you’ll be in a much better position to purchase at a low price and sell for a high price, as opposed to the opposite.
When you purchase a house to live in, desirable features like its style and paint scheme may ultimately lead you to sign on the dotted line. However, commercial real estate investors must take a different approach.
A property doesn’t have to be aesthetically pleasing to be a worthwhile investment. Instead, it just has to have money-making potential and desirable lease prospects.
Commercial property ownership might not always be smooth sailing, and there may come a time when you need to cover unexpected costs like renovations or repairs. Ensure you have a contingency budget of at least 5% or more to mitigate those costs and avoid undue stress.
Commercial real estate can be an exciting adventure that sets you up for lifelong success. However, there will be a lot to learn along the way. When the time comes to make your first commercial property purchase, don’t underestimate the value of considering the universal rules above.