Posted on: 20 July 2017Share
Getting into the investing world of commercial real estate is a great way to build a stable income for the future and grow as a landlord. But, it's also a little different than residential real estate.
So, how can you navigate the process of buying a commercial property? Here are 4 steps to take for any size deal.
Learn the Metrics
Educate yourself about how commercial real estate investments are calculated and valued before you start shopping. You'll need to know, for example, the importance of Net Operating Income (NOI) and what it means for your ability to generate good returns. Understanding how to calculate the "capitalization rate"--the real value of an income-producing property-- and the "cash on cash" return on your investment will both help you find a good, stable property with future potential.
Research the Location
As with all real estate, location is one of the key measures in finding a great property. But, you'll be focused on different factors when assessing a commercial property. Take the time to check out the neighborhood to determine whether it's growing and gentrifying, how the foot and car traffic is, what other types of businesses are thriving, and how it will appeal to your target pool of customers (or their pools of customers).
Work with an Attorney
You may be able to strike residential real estate deals on your own, but you're wise to have a qualified real estate attorney on your side in commercial transactions. Why? For one thing, it's likely to be a much larger monetary investment and you need to have confidence in the offers, contracts, financing, and contingencies. Look for a business attorney with experience in the size or type of property you'll be buying and a knowledge of the local area.
Finding the perfect commercial investment property is often not a one-and-done shopping excursion. You'll want to search for good deals in your chosen area through all means possible--including the internet, real estate brokers, and word of mouth. Look for sellers who are well-motivated to make a deal. And when you do pursue a property, be willing to walk away from it if it doesn't meet all your needs. Becoming too invested emotionally in one property can result in making a less-than-ideal choice.
No matter what type of income producing real estate you're looking for, following these few guidelines will help you find the best property and get the best deal for it. And then you can move forward with this exciting new chapter in your landlord career.