Much has been said about the advantages of commercial properties compared to residential real estate. The former sector has been recovering at a steady rate in recent years, and we are reaching the 2008 levels. Many are those who seek to tap the additional cash flow and take advantage of economies of scale. Still, we cannot say that everything in the garden is rosy. Investors must avoid fool’s gold, separate great deals from the duds, and rise above the cohorts of competition.
The first thing to do is to develop a deeper understanding of how the commercial property is valued. Namely, unlike individual homes, the income is directly linked to the usable square footage. The potential cash flow is more opulent and leases longer than on residential abodes. Yet, never take profit for granted. Investigate how many tenants are already paying rent and how much space needs to be filled. Furthermore, get to know handy real estate metrics like net operating income (NOI) that reputable commercial property companies use.
Money makes the world spin
In some credit environments, lenders like to see investors knocking with at least 30% down payment in hands. So, decide how much you can afford to pay and come up with a sound game plan. Shop around for mortgages and see how much you will have to pay over the life of them. The ballpark figure does not cut it: Utilize mortgage calculators to grasp the full financial picture and figure out the total cost. I would also advise you to take advantage of the rise of innovative financing models like REITs.
Recognizing an amazing deal is a fine art. The good news is that most lucrative deals tend to have some common characteristics. For instance, they enable you to envision an exit strategy. In other words, you are able to walk away from them with a smile on your face. Also, keep your eyes peeled for any maintenance problems and issues that require repair. This approach is paramount to assessing risk and finding real estate that will not end up being a money pit.
Strive to locate customers eager to sell under the market value. This scenario includes a motivate seller, who has a pressing reason to hand over the keys as soon as possible. Use the internet to search for deals, but do not make it your only weapon of choice. It pays off to read classified ads and hire bird dogs to pinpoint best targets. Another strategy to keep in mind is neighborhood farming. Namely, you scope out the surrounding properties, go to open houses, and talk with people to discover vacancies.
Knowing where to look is something that accounts for the bulk of the success. The vast horizon of investment opportunities unfolds before your eyes, and the scope of choice can be overwhelming. One thing to bear in mind is that although hot markets still drive global growth, it is expected to spill over into the smaller markets. Class A assets in large, established markets will likely undergo a modest decline, while the prices in smaller markets should climb. This is the result of the vibrant tenant demand and supply that supports the growth.
New streams of investments
Of course, stable markets like the U.S. always hold a slew of incredible investment opportunities. They are a safe harbor in volatile times. In addition, foreign Investment in Real Property Tax Act (FIRPTA) has introduced new sources of foreign investment. Interestingly enough, foreign investors look predominantly for the aforementioned Class A properties in top-tier cities. Chinese investors are becoming one of the chief forces in this department, and as a result, the prices in busy markets may go through the roof.
Some like it hot
Take your time to do the research and evaluate the properties. Refrain from back-of-the-envelope calculations and let facts and figures be your guiding light. There is quite a bit of legwork involved, so educate yourself and plan ahead of time. Even in the digital era, striking an outstanding bargain revolves around basic human communication. Find hot properties you could bet your bottom dollar on. Be a competitive player in a booming commercial real estate landscape and strike gold before someone beats you to it.
About the author
Lana Hawkins is a student of architecture and the editor-in-chief on Smooth Decorator. She enjoys writing about real estate trends and tips. Lana suggest checking Lifull website for more information on commercial real estate in Australia.