Commercial property is considered anything that is used for business. It can include office buildings, warehouses, retail malls, manufacturing facilities, hotels, and large residential properties. When you invest in commercial property you make money through rental income and appreciation in the property’s value over time. Investing in commercial real estate can be profitable, but can also come with significant risks. Buildings don’t always hold value and tenants don’t always renew. You think you are ready, but where do you start?
Step One: Know Your Why
Take some time to determine what your goals are for purchasing commercial real estate. Some examples would be:
- Do you want to invest in a property that you will also occupy or are you interested in purchasing a property to diversify your portfolio?
- Do you want to buy a property that is 100% leased and doesn’t need any immediate improvements or do you want to purchase a vacant property that needs significant improvements at a lower price (value-add property)?
Step Two: Get Educated
Buying commercial property is complicated and it takes research, planning, and time. Eventually, you will need to call in the experts, but it never hurts to have a simple understanding of the process. This is not like investing in stock. Commercial properties will require your time and attention to stay on top of any issues. You need to be an involved participant for your investment to succeed. For example, real estate markets are cyclical so you need to determine where the market currently stands and when it is expected to change. Getting in at the right time is essential.
Step Three: Assemble an Expert Team
You know the old saying “You don’t know what you don’t know?” This is especially true when you decide to invest in commercial real estate. You need to surround yourself with specialists who have been there, done that, and can guide you through this new venture. These specialists
- Commercial real estate broker to help you analyze the market and find potential opportunities that meet your goals
- Mortgage broker to help with your financing needs
- Lawyer to review all documents associated with the transaction
- Accountant to advise you on tax-related issues and to run the numbers before you buy. They should also forecast your future returns.
Step Four: Find the Right Property
This is where a commercial real estate broker is essential. Their market expertise is invaluable as you search for your first property. If you have been thinking about purchasing a commercial property, give us a call. We would welcome the opportunity to discuss your needs and
determine if the time is right to start investing in commercial real estate.
Brian Smith, SIOR, CCIM, can answer any questions you have about investing in commercial real
estate. Contact him today for a complimentary consultation.