Investors searching for higher returns eventually turn their attention to commercial real estate. Despite higher capital requirements, commercial real estate promises greater returns in terms of generating larger profits, stability through long leases with business-owning tenants, and equity buildup.
While investing in commercial property may feel risky at the beginning, learning more about the ins and outs of the business, calculating risks, and looking into how investment goals can be attained will firm up resolve.
Preparation is crucial when investing in commercial real estate. To get a general overview of what goes into the investment process, read these steps and tips for buying commercial property:
- Be clear with your “whys”
An investor’s purpose and motivation should always inform any real estate investment. This kind of clarity is essential in commercial real estate, because it steers investors away from markets and properties that neither interest them nor coincide with results they want to see.
Investors who are aware of what they want at the onset lay the foundation for a process that saves time, money, and effort.
- Determine the direction you want your investment to take
Once you, as an investor, know exactly why you want to invest in commercial real estate, decide on the location and type of property that conform to your goals.
Commercial real estate encompasses retail stores, office space, apartment complexes, warehouses, and more. And each type brings with it a unique combination of costs and returns.
Since the location of a property factors into its potential profitability, investors need to understand the market trends in that area and how they may change for the duration of the investment. Take time to learn common terms used in commercial real estate. They will further inform investment direction and make it easier to understand how net operating incomes (NOI), cap rates, internal return rates (IRR), and debt service influence property valueand ROI.
- Partner with the right experts
Look for qualified real estate agents and attorneys who specialize in your target area and property type. Their expertise gives you insider knowledge into processes unique to your investment profile and steers you clear of unnecessary complications.
Pick a real estate agent who knows the market – from past developments and current conditions to future trends. A highly capable agent is worth their commission. They will negotiate on your behalf and save you the stress of doing it yourself.
Real estate attorneys, on the other hand, will provide the legal advice investors need for a successful deal. Commercial properties have to comply with a variety of zoning laws, and investors themselves must regularly take care of lease agreements, maintenance timetables, and title and property insurance. An attorney allows investors to operate in legal clarity, fully compliant with local laws and regulations.
- Make sure financing is in place
Whichever form your financing takes, ensure that it’s ready before looking at properties to avoid delays related to pending approvals.
Contact mortgage brokers and compare offers from several lenders to determine the size of investment you can afford. Commercial real estate loans typically have a term of 5 to 20 years, with a balloon payment tacked on at the end. If the maximum amount you can borrow is insufficient, consider entering a joint venture or partnership with other investors.
- View properties and conduct due diligence
Now that you’re clear on the why, what, and how of your commercial real estate investment, start viewing properties. Now is the time to keep your eyes on the prize, making sure your investment goals remain front and center, even if a tempting deal materializes (but steers you in the wrong direction).
Conduct your due diligence thoroughly.Being meticulous prevents unwanted issues from cropping up down the road and allows investors to obtain a full picture of a property’s return potential. Here are some aspects to scrutinize:
- Property title and survey
- Physical condition and environmental compliance
- Structural and mechanical inspections
- Governmental permits or approvals
- Potential delays relating to the property’s condition and zoning
Once a commercial property meets your investment criteria, make an offer and be patient. The timeline for completing the transaction on commercial real estate is often twice the number of days it takes to close on a residential property. Typically, this means anywhere from 60 to 90 days.
Be ready to negotiate the minute details of the offer through your agent, and start thinking about what you’ll need to start working on once the deal is closed – including lease agreements, property tax payments, and maintenance schedules, to name a few. Protect your soon-to-be-acquired assets with the right insurance. And lastly, clarify the ownership structure with other investors if you entered into a joint venture.
When done right, investing in commercial property for sale in Long Island diversifies and increases the value of your portfolio. Learn about the options available to you. Call me, Alexander Meskouris, at 917.741.4296 or email info(at)alexandermeskouris(dotted)com.