Commercial property, like any other investment, requires a lot of research and knowledge in order to be successful. This is especially true when it comes to first-time buyers. The reason is simple: you’re playing with big money, big potential and big risks. Without due diligence and wise investing, instead of maximizing your return and minimizing your risk, you might lose it all. Don’t let that happen.
First and foremost, this means understanding the various tips, benefits and pitfalls associated with purchasing commercial properties. But before getting too far ahead of ourselves, it’s vital to go over the basics of commercial property investing. At its core, commercial properties include any buildings used for business purposes, from shops and warehouses to flats and offices. And unlike residential property, which often carries a lease of 6 months to a year, commercial properties typically have significantly longer leases, ranging around 10-15 years. So, on top of the fixed-rate loans that aren’t subject to changing rent, commercial investments also bring other advantages, such as tax breaks and the freedom to be the arbiter of important business decisions.
With all that said, here are 10 important things every new commercial property buyer should keep in mind before entering the market:
1. Determine your investment budget and return goals
Commercial property investing covers a broad range, from small shops to large corporate headquarters and everything in between. When sitting down to plan your first investment, it’s important that you are sure the exact amount you can afford to invest and, if the worst-case scenario arises, lose.
Once you know that, it’s time to start making preliminary plans about what kind of property you can get within your budget and the realistic ROI you can expect. Don’t get too caught up in this yet though, just be wary of the risk and reward involved in commercial property investing at your level. And try to take away a basic grasp of what affects returns—such as location, type of building, infrastructure, socioeconomics and the skill of the available workforce in the area.
2. Understand the current state of the commercial property market
If you want to make an informed commercial property investing decision, it’s vital that you learn the various ins and outs of the current market. This means examining the latest trends, from property value changes in certain areas to burgeoning technologies changing the commercial property landscape.
3. Research and consult experts
If you’re a first-time commercial property buyer, you will sometimes be in over your head. It’s just the reality of the situation. When this happens, the best thing you can do is put the necessary time and research into understanding all the moving parts of commercial property investing.
But even due diligence occasionally fails. In these situations, don’t be afraid to contact experts and professionals who have years of experience investing in commercial property. They’ll put you on the right track.
4. Learn the lingo in advance
Like any specialized market, commercial property buying carries its fair share of jargon. To save you some valuable time, we have a great rundown of the most common commercial property terms every first-time buyer should know.
5. Know what type of property you want to invest in and where
When it comes to commercial property, the location and type of property you are looking to invest in will go a long way in determining your potential returns. So always take supply and demand into consideration.
Whether you want to invest in a block of flats near public transport links or refurbish a disused warehouse in an up-and-coming neighborhood, the old property cliché holds true, “location, location, location.”
6. Make sure the property is right for your business
Let’s say you’ve located a property that piques your interest. It’s a good sign but don’t jump in straight away. Stay cool, calm and collected and scrutinize whether the purchase makes sense for your business in every single way possible. Analyze legalities such as planning laws and building regulations as well as commissioning a professional property inspection. You don’t want your hard-earned cash to go to waste because overlooked something.
7. Set realistic objectives
As with any other investment, having your feet planted firmly on solid ground is essential because, let’s face it, most people go into investing expecting too much, too soon. Don’t fall into this trap. The best plan when buying commercial property is to always keep your goals in mind, know how you’ll finance your purchase, study the market religiously and remain patient. By doing this, when the right opportunity arises, you’ll be ready to pounce and reap the rewards.
8. Get your financing in order
Depending on your financial situation, you’ll want to consider strongly whether purchasing or leasing makes sense for you. For most people, leasing will be the more realistic option, which means you’ll need to locate funding options. These can range from banks, credit unions and mortgage companies to more creative funding strategies like earn-outs.
9. Examine your own skills and experience
Commercial property is a complicated process that often requires the expertise of those with sufficient know-how of the industry. But that doesn’t always have to be the case. If you have years of experience investing in the stock market, flipping houses, or anything related, don’t let the skills you bring to the table go to waste.
10. Harness all possible ROI avenues
Compared to residential property investments, commercial properties have much more room for potential. In fact, it’s not surprising to see commercial investments yield as much as 10-15% growth annually, while residential properties typically only accumulate around 1-4%.
On top of that, commercial buildings offer many more ROI possibilities than single-family homes, one of them being advertising. Your business can and should sell billboard and signage space as well as cross-advertise with other local businesses to generate more revenue.
In short, if you put in the time and effort necessary to understand wise commercial property investing, there’s no reason you can’t significantly increase your bank account. But always remember research, location and finances come first, and when in doubt, consult an expert.