Although there are umpteen possible reasons to invest in commercial real estate, there is still an element of risk involved, which requires thorough scrutiny. For those who have yet to delve into the industry, it may seem a perplexing and intricate mix of legal jargon. However, with the right information at hand, the risks associated with commercial property investment can be handled easily. So for those who would like to get into this business, this article will weigh down the pros and cons of this type of property investment.
Several tips on how to best avoid the most common pitfalls.
There are numerous commercial property types available, but a common problem is finding tenants. This is where you will need to tread with care. Therefore, to find tenants, it is important to assess the nature and kind of products and services your potential customers will be offering. Based on this, you can ascertain the kind of tenant to look for – a resident, non-resident or owner/occupier.
A lot goes into determining whether a prospective tenant will benefit from the services you offer. Firstly, you need to check their credit history. It is crucial that you do not invest in commercial property types that require credit checks. In case your potential tenants do not have good credit standing, it would be better not to invest on them, as it would be a waste of time, money and effort. On the other hand, commercial properties that do not require credit checks usually have a short list of tenants, so you can select the ones most suitable for your business.
Another aspect that requires a closer look is the net lease structure. Net leases are where a commercial property owner signs a long term lease with the owner of the property. Usually, these long-term leases have a clause that states the owner has the right to withdraw from the lease at any point of time, without paying any penalties or costs. If you do not want to be taken by surprise, it would be better to check the net lease before signing the deal. This is because such clauses are often there in all kinds of commercial property investment deals, and if you do not know about them, you might get trapped.
When looking for tenants for your commercial properties, it is also necessary to see what kind of investment you will be able to secure. For example, you may opt to secure a long-term lease with a lower rent, which means you will have higher returns over a shorter period of time. In order to secure better returns, you should check out properties that have been sold in the recent past, as they are more likely to have higher returns than unsold commercial spaces. The same goes for investing in industrial spaces because if you buy industrial spaces from the past, the future ones are most likely to be cheaper.
Finally, when looking for an investment, you should also try to determine how much risk you are willing to take. In other words, you should evaluate your capacity to incur financial risk on your part in order to earn higher returns. Thus, if you are only interested in making small profit margins, it would be more profitable for you to invest small amounts of money in a short-term lease, and gradually build up the profit as your business grows. On the other hand, if you have bigger plans like purchasing huge commercial property investment properties, you should consider taking larger risks in order to earn bigger returns. However, you will need to bear higher risks when you are investing in the commercial real estate investment industry, as the risks involve higher returns if you are successful.
Finally, it is also important to evaluate the rental income that you will be able to get from your investment. If you are looking for potential tenants to lease your commercial property investment, you should consider only those tenants who can cover your operational and maintenance expenses. In addition, you should also consider the rent rates that you will be able to get from your tenants, especially when you are looking to rent a large commercial property investment property. You should also check if you can get all the rental income that you expect to get from your tenant. This is essential so that you can calculate your returns more accurately.
It is also advisable to hire a realtor who can provide you with more information and resources on how to make the best out of your commercial property investment. When looking for a realtor, you should keep in mind that they will be dealing with different clients, and thus, it is better for you to select one that is well-experienced and knowledgeable about commercial real estate investment. Also, do not forget to check their credentials or background, as this is an important consideration in ensuring that you will get the best service possible. These tips will help you make the best out of your investment, and will ultimately lead you to a better future.