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Jun
04

Tips for Investing in Commercial Real Estate

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Many people hear about investing in residential real estate and the profits can be substantial. However, commercial real estate investing involves working with companies rather than individuals. But deals with commercial real estate ventures are more lucrative, even though the risks are also greater.

  • Find a commercial real estate deal. You can invest in office buildings, restaurants, or strip malls. Find an area that you are somewhat familiar with.
  • Research and learn about the risks. Do not go into commercial real estate investing without understanding the pros and cons. You will need to learn about local laws and zoning rules. Tenant turnover can also be a problem. Commercial tenants can leave at the “drop of a hat.”
  • Determine the supply and demand. Do market research to find out if there are similar properties and what unique offerings does you investment have.
  • Use real estate investment trusts or brokerages. Commercial real estate investment involves a great deal of paperwork and upkeep. Use REITs or real estate investment trusts that can help invest your money without all the hassles that are implicated.
  • Investing in commercial real estate can be beneficial if you partner with an experienced developer. Most developers know where the real estate deals are and have done market research on the area and project. Also, real estate developers are always looking for investors and capital. They will find you the best investment for your budget.
  • Do not invest too much for a business. Rules always need to be watched. For example real estate prices can vary in a short term, and long term property values are driven by rental standards. Look at the earnings ratio of your potential property to determine the best commercial investment value.

One of the best pieces of advice is “Don’t believe everything you hear or read.” Real estate agents want you to buy or invest in the property. They are going to tell you the best scenario which may not be the actual scenario. Ask for tax and property revenue records. The tax revenue records and property valuation records may be different; plan to invest somewhere in between the two calculations.

Measure the maintenance and upkeep records versus the rental payments. You do need to be aware that you will have maintenance costs. However, you can still make good money investing in commercial real estate. Statistics have proven that a good commercial rental property usually has long term tenants that pay their bills.

Above all, do the math. Find out what the investment would be minus costs for depreciation, maintenance, taxes and so on. And get professional help with this project: an accountant to go over the balance sheet, and an attorney to go over the investment documentation, for starters.

Categories : Articles/Tips, Blog

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