If you’re beginning the search for a new commercial real estate investment, there are some critical factors to consider. These tips will give you a solid foundation to begin your journey to buying a property that will deliver the results you are looking for.
Allow more time for due diligence than you expect
Finding the right commercial property for your needs requires research, research, and more research. Unlike in a residential real estate purchase, the success of your commercial investment will largely depend on the financial performance of the property so it’s best to get as much information as possible before you make a decision.
Take care of your financial considerations before starting the process
In commercial real estate, it’s best to take care of your financing plans before you even begin looking at potential options. For most commercial investment properties, you should expect to put down at least 20% as equity. Lenders will also evaluate your overall financial health as well as the income being produced by the investment property.
If you’re purchasing an investment property, prepare to deal with variable income
Buying a commercial unit as an investment property can be an excellent revenue source, but you need to be aware beforehand that your income from the property won’t always be consistent. It may take time to find a viable new tenant after a business leaves, and you always run the risk of a tenant’s business going under during their lease term. During these times, you will still be responsible for mortgage payments, insurance, and taxes.
Develop a solid understanding of commercial property valuation
In the residential world, you’re probably used to evaluating a price based on square footage and neighborhood comps. In contrast, commercial properties are valued based on several factors, most notably the net operating income. The NOI is the net income after expenses, but not including any debt payments, for a given property. The NOI does not tell the entire story, risk factors such as the tenant credit worthiness, length of the base term, competition, and much more need to also be considered before deciding to purchase an investment property.
Turn to partners you trust to help guide you through the process
Whether it’s your business partners or a real estate agent, it’s crucial to work with experienced and trustworthy people as you complete this investment. At the Parker Group, we want to help you find a commercial property in the Greenville area that will enable you to exceed your investment or business goals. Our agents will work with you from start to finish to help you find a site that works for you and position you for success thanks to our full line of development consulting services. Contact us today to learn more about how you can make your commercial real estate dreams into a reality.