If you think investing in commercial real estate is same as investing in residential property, rethink. In real, there are number of differences between these two types of property investment. You need to be aware of these before you buy.
Commercial real estate is a great way to invest to become wealthy and can provide a passive income stream for retirement. Following these commercial investing tips and building a strong network greatly increases your chances at success.
- Location & Connectivity:
Consider the long term impacts before investing. Beside the immediate cash flow, you need to understand what is likely to happen to commercial real estate in the surrounding area in the coming years. Is it located in a city where the core infrastructure has been neglected for years? If so, businesses will slowly begin locating elsewhere in the years ahead.
- Background Check of the Developer:
Before investing in any real estate project, an investor should always check the background of the developer. Make sure that the developer has built projects in the past successfully and also you try to visit those projects. That will give you an insight of his experience and expertise.
- Quality Check:
Commercial Building Inspection is not the same as a basic home inspection. Most people offering Commercial Building Inspections have no formal training. Investors want to know the true condition of the property they are purchasing. No one wants unexpected surprises or expenses. The investor stands to gain in terms of faster capital appreciation, better tenant retention and higher rents. Buildings with LEED gold or platinum ratings, more elevators, higher ceiling heights, better views and nicer looking lobbies have more rental value. One can look for multinational tenants who look for quality and are even ready to pay premium for that. It is also good to keep in mind that such properties are more liquid and quickly saleable. Too often buyers are only concerned with the cost of the inspection, not the quality of the inspection. With the rising costs of both labor and equipment, the cost of your commercial inspection is miniscule compared to your future cost is something is not identified or noticed.
- Analyzing Demand Versus Supply Dynamics:
Investor needs to analyze the area before deciding to buy a commercial property. Every city has its own micro-market & each of these has their own stock and upcoming supply. If the annual supply over the next couple of years exceeds the previous demand, then the rents would come down. The higher supply would affect both old and new buildings. While tenants in the old buildings will renegotiate rents and clauses, the new buildings will have lower rents.
- Diversification of investment:
Having a diversified portfolio of investments reduces risks. If you’ve had success as a residential investor, keep some on your holdings in residential. The commercial and residential sectors don’t always run in the same business cycle. Whether investing in stocks and bonds or real estate, smart investors always strive for a diversified portfolio.
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