A Client-Focused Approach to Business and Real Estate Law

Preparing to enter the commercial property market

Many people in California may be interested in exploring the potential of commercial real estate as an investment venture. Commercial property offers different opportunities than residential real estate. Contracts tend to be bigger and longer, and the profits can be substantial, especially in a desirable or growing market. However, the market can also seem confusing, especially for a newcomer. In order to get a head start in the commercial real estate field, it can be important to expand your knowledge about how properties are valued.

Commercial property may offer greater value

Unlike residential real estate, the value of a commercial property is directly tied to the square footage available for use. Leases are longer for most businesses than they are for residential rentals although apartment buildings and other multifamily structures may also form part of a commercial real estate portfolio. Because many commercial properties are rented by businesses, the cash flow involved can be substantial. At the same time, the cost of entry into the market is higher than for residential real estate; most lenders want to see that you have at least 30% cash to put down.

Keep an eye on finances

One of the keys to making money in the commercial property field is recognizing a good deal or a property that is undervalued. At the same time, it is important to watch out for potentially costly damage. By evaluating the net operating income (NOI) for a commercial property, you can evaluate your expected income from the property and subtract necessary expenses. Make sure to keep all of the costs of running a business in mind to ensure a positive NOI.

Commercial real estate investments can be profitable, long-term holdings that provide substantial value and appreciate in value. When concluding a commercial property transaction, a real estate attorney may represent your interests in negotiations.