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Commercial real estate can be a smart investment

On Behalf of | Oct 1, 2020 | Commercial Real Estate |

A diverse portfolio is a goal for many investors. Along with homeownership, stocks and IRAs, it may make sense to look at commercial real estate. Buying residential rental property is appealing for some, but others see opportunities in purchasing commercial properties. The advantages include larger parcels of property with renters who sign longer contracts for more money than the average apartment. However, there are risks unique to this format, such as businesses going under, longer gaps between occupancy, and trends in building design and retail locations.

Research is always an essential part of the process for fact-based investors, and so is working with a knowledgeable real estate agent. There are also some other considerations to identifying opportunities and determining if the property is the right fit.

Issues for buyers to weigh

Each commercial real estate investment is different, but other factors to weigh include:

  • Pick a type of property: There are many different options (mixed-use, retail, warehouse, office space, residential), so it makes sense to focus on a type of property. Investors should think about where the greatest need in the market is and the amount of capital needed to achieve their goals.
  • Identify applicable regulations and zoning: Some buyers want to avoid hazmat issues or high-maintenance situations, want or don’t want the potential for rezoning, or other matters that can create significant headaches.
  • Consider the financial risk: Review other comps in the area, the properties’ profits and losses ledger, utility bills, tax obligations, and maintenance history.
  • Hire an engineer: Large and expensive properties can have structural issues, outdated HVAC, flooding, or other problems that should be considered when making an offer or negotiating.
  • Check the title: Closings go a more smoothly when the title is in order.
  • Work out financing ahead of time: Have a team of investors onboard or identify likely funding sources ahead of time. This enables agile investors to seize opportunities before competing buyers even recognize the potential investment.

Legal guidance often necessary

Potential commercial property buyers and owners often need the help of a real estate law attorney who understands the commercial market. These legal professionals can help structure deals, determine potential risks, and resolve disputes between buyers, sellers and even renters. Their services protect or increase the property’s value and minimize the stress involved in this type of investment.