The total value of commercial real estate in the United States is estimated at around $15 trillion.
If you’re looking for an investment opportunity with a lot of potential returns, you definitely ought to consider buying commercial real estate.
Of course, buying commercial real estate is no easy feat. If you’re considering taking this approach, it’s important to know exactly what you’re getting yourself into.
Read on to learn more about commercial real estate investment.
You’ll also learn about some of the most important things you need to consider before you decide to buy commercial real estate.
Benefits of Investing in Commercial Real Estate
There are many reasons why you might want to consider investing in commercial real estate. The following are some of the greatest benefits of this particular investment strategy:
- More cash flow: Some types of commercial real estate investments yield a lot of cash and allow you to see returns much sooner
- Lower risk: All real estate investments are hard assets, which makes them more resilient to market fluctuations than things like stocks
- High appreciation of value: The value of your property can increase quickly with the help of things like good, proactive building management
- Tax benefits: There are lots of tax credits and perks available to real estate owners
Investing in commercial real estate also provides you with new educational opportunities. You get to learn more about different types of properties and investment opportunities, such as Opportunity Zone Funds and 1031 exchanges.
Tips for Buying Commercial Real Estate
There are definitely perks that come with being a commercial real estate investor. In order to experience these perks, though, you need to make smart decisions when you start buying commercial real estate.
Before you purchase a commercial property, be sure to consider the following factors:
The very first thing you need to do before you start shopping for commercial real estate is to make sure you have the financing necessary to purchase a property — any property.
Reach out to a lender to see what kind of funding you qualify for right away. This helps you know what you can afford to spend and it can help you to facilitate deals more quickly since you’ll already have the money ready to go.
Build a Great Team
There aren’t a lot of commercial real estate investors out there who work completely on their own. Commercial real estate investing is serious business, and it’s best to have a team behind you.
Find a great real estate broker who can help you track down the best properties. It’s great to have a real estate attorney and a certified public accountant (CPA) or financial advisor working with you, too.
Consider Your “Why”
Before you go ahead and invest hundreds of thousands of dollars in a piece of property, think carefully about why you want to do this. What is the purpose behind commercial real estate investing? What do you hope to gain from it?
Understanding your “why” will help you be more mindful when choosing investments.
For example, you’ll be less likely to take on highly risky ventures if your reason for commercial real estate investing is to make sure you have enough money set aside for your kids’ college tuition.
Demand vs. Sustained Demand
When you’ve found a property that seems like a good fit for you, think carefully about whether there will be a sustained demand for this kind of property.
How long, on average, will the tenants stick around? How much competition will you have in the area?
Ideally, you’ll only choose to invest in properties that have a high sustained demand. These kinds of properties will allow you to see higher, long-term returns.
Location, Location, Location
Location is key when you’re choosing a commercial real estate investment property (or any kind of real estate investment property, for that matter).
Pay special attention to the area in which the property is located and the other types of businesses that surround it.
Think, too, about the type of people who spend time in this area and consider whether they’re the type of people who might want to rent space in your building.
Consider Developer Trustworthiness
Make sure you have an experienced, trustworthy developer working with you before you invest in any kind of property.
If the developer lacks proper experience or engages in shady practices, the profitability of your property is going to suffer.
Consider their past performance and try to find someone who has experience working in the same sector as you.
Do Your Due Diligence
Be sure to do all of your homework before diving in and purchasing a particular property.
Run the numbers, consider the potential gains, and learn everything you can about the property and the developer.
Make sure this purchase is going to benefit your portfolio and won’t yield any serious financial losses.
What are the Risks?
Finally, when you’re investing in real estate, you need to consider the risks of buying a particular property. Be honest with yourself in doing this and don’t try to sugarcoat things.
Make sure that the contracts are robust and backed by considerable assets. It also helps to think about the worst-case scenario before you agree to a particular deal.
What’s the worst thing that could happen? Can you live with that worst-case scenario? Can you put parameters in place to protect yourself from it? If you can’t, it’s probably not a good investment for you.
Learn More About Real Estate Investment
As you can see, there are plenty of things you need to keep in mind when it comes to buying commercial real estate.
The commercial real estate investment process might seem a bit daunting at first. If you keep this information in mind, though, you’ll have a much easier time finding and purchasing property that best suits your needs.
Do you want to learn more about commercial real estate investment or real estate investment in general? Either way, we’ve got you covered.
Head to the Investment section of our website today to learn more about all things investment-related.