Whether as an investment or as a new home for your business, buying commercial real estate takes knowledge and a strategic approach to navigate through all the ins and outs of closing these deals.
While bearing some similarities to buying residential real estate, commercial properties carry additional layers and can even require more legal and financial experts. It is an expensive undertaking, one where due diligence plays an extremely important role.
Location, location, location
The oldest adage in real estate does apply to commercial real estate and not solely because of resale value. In this case, location can determine a business’s foot traffic or tax implications. There could also be by-laws associated with certain areas and environmental issues can be regionalized.
A new set of metrics
Buying a home is engrossing and comes with its own lexicon and metrics in which to measure the worth of a home and all the associated costs. Commercial property not only uses many of the same metrics but it also has additional ones to assess value.
If you intend to buy commercial real estate, you should be comfortable with Net Operating Income (NOI) and cap rate.
A strong, thorough strategy
Part of successfully investing in commercial real estate is implementing a strategy that will minimize risks and surprises. It should reflect market trends and anticipate any potential dips. It should also contain a projection for how the investment could grow or shrink in value based on external factors.
Ask yourself the right questions
Once you’ve decided to pursue the purchase of commercial real estate, you should ask yourself the following before even visiting the first property:
- Do you want to buy or lease the property?
- Is this a business venture you want to pursue alone or as part of a group of investors?
- How much money are you willing to invest upfront?
- Can you commit the time needed to effectively run the property?
- Are you more comfortable working with a property manager or a property management company?
Buying commercial real estate comes with inherent risks but it can be very profitable and rewarding. Do your homework and partner with trusted experts who can guide you through the process.