Commercial Real Estate Solutions
Many investors are joining the commercial real estate industry since they have realized that it works and has numerous benefits. The commercial real estate industry is very lucrative. It does not matter whether you are renting out a property or purchasing property at low prices and reselling it when prices increase.
Many investors have realized that commercial real estate investments can supplement their incomes either through appreciation, federal tax benefits or cash flows. In fact, some investors only depend on commercial real estate to generate income. However, just like any other investment, an investor should not rush to invest his/her capital in real estate without a plan or strategy.
To be a successful investor, you need to invest in commercial real estate properties that are less risky and very profitable. A successful real estate investor must have the relevant skills, intelligence, experience or knowledge skills, and strategies so that he/she can make sensible, swift and sound decisions. With these skills, you do not only make huge profits but also have a stable career in the real estate industry. Buying a property is extremely exciting to investors.
However, investors forget that running and maintaining the property is the most important thing since it requires great effort. The more you know about real estate properties, the better, since you will be able to invest in profitable commercial real estate investments that have low risks.
The following are some solutions to investing in profitable commercial real estate properties:
Locate Properties in Prime Areas
The first thing an investor should consider when investing in commercial real estate is a location of the property. The commercial real estate industry has fierce competition. You must efficiently locate properties that are in prime and profitable sites so that you can be ahead of your competitors. The location of a property is essential because it influences and connects the local community, lifestyle, business and culture. Properties that are located in prime areas have higher returns than those located in areas that are not prime.
If you intend to start a business on your property, then it must be located in the area where they are many potential clients. If you intend to rent out the property, then the location of your property will determine whether you will find well-suited tenants. Properties which are centrally located have a high potential to bring in more returns. Profitable properties are located in areas with good social amenities, excellent transport systems, good private and public schools, and high employment rates or more employment opportunities.
Visit and Inspect the Property and Area
Before you invest in a property, scout the area so that you can know its potential to generate income and profits for long periods of time. Properties located in prime areas appreciate very fast hence you can reap high returns. The location of a commercial property affects the profitability of the investment in many ways. If the area has high crime rates, low employment rates and poor amenities, an investment will generate low income and profits since many potential tenants and businesspeople will keep off.
In addition, if you buy a property in an area prone to natural calamities such as earthquakes and floods, the profitability of your investment will reduce. Your commercial property investment should be located in an area with good transport systems, good schools, low crime rates and recreational facilities, among others. An area with these amenities will attract many tenants and businesspeople. This will increase the cost of renting a property thereby earning you significant profits.
Understand the Planning and Zoning Requirements in Your Preferred Location
Planning and zoning issues can affect the long-term returns on the commercial real estate property. This is because any alterations on the current zoning will make you incur many expenses especially if you are required to change the use of the property. Rezoning is a process that requires you to adjust some features of the property such as interior design. Rezoning is quite expensive. The solution to this issue is to hire the services of a real estate attorney who will help you establish if the land on which your real estate property stands will be rezoned.
Inspect Fundamental Utilities on the Property
For your investment to be profitable and successful, you must understand the fundamental utilities in the property. You should be aware of all issues regarding piping, electricity and other utilities required in the property. There is no investor who wants to purchase a property whose fundamental utilities are in a mess and require repair or maintenance.
As such, you should take time to inspect the property. This will aid you in establishing the age of the property, whether there have been any repairs on the electrical and plumbing systems, and the last time such repairs were done. This will save you a lot of money especially if you investing in a major project. Prior to buying a property, you should make sure you know what kind of repairs and renovations it requires and the estimated costs of doing these repairs.
Determine the Duration You Intend to Own the Property
To have a profitable investment, you should also consider the duration you intend to own the commercial real estate property. If you intend to own the property for a long period, you will be required to spend more money in repairing and maintaining the property since it is likely to suffer more damages in a 20-year period than in a 5-year period. However, there are high chances that the property will break even when you own it for a long time than when you own it for a short period. Additionally, the returns in long-term investments are higher than those in short-term investments because the value of the property appreciates with time.
Have Sufficient Capital
You also need to have enough finances when venturing into commercial real estate. Mortgage firms will ask for a large down payment and charge high interest if you have low credit ratings or many outstanding debts. The high interest rates will greatly reduce your profits and you will end up having fewer returns than you expected. Your investment will be profitable if the mortgage firm offers financing at low interest rates.
You can achieve this by paying off debts and settling large balances. When the mortgage terms are better, your investment will be profitable because the interest rates will not eat up much of the profits. In addition, you will have sufficient money left over to repair or maintain the property after you have bought it. It is also important to have finances to cover any unexpected costs that may arise before the investment starts generating income.
Scrutinize Financial Statements
You should also request all financial statements regarding the property. The financial statements will provide information on tax returns, expenses on utilities and the annual or monthly income. You should ensure that you understand all the details contained in the financial statements. If you do not understand the details, you should seek the services of a financial consultant who will help you to interpret the information contained in the statements. The information will help you to determine whether the commercial property is profitable or not.
Buy Cheap or Distressed Properties
A profitable commercial property will depend on the initial cost of the property. You can conduct a market analysis to determine the average selling price of commercial properties in the neighborhood. Generally, you can compare your target property with other similar properties that have been sold in the area. This way, you will be able to approximate the price of the commercial property in order to avoid overpaying.
As a general rule of the thumb, you should buy the property at a cheap price. As an investor, your main goal is to earn profits from your investment. In this light, you should ensure that your commercial property generates more income than the bank mortgage rate or than the cost of financing. This way, you investment will be worthwhile. You should consider buying distressed commercial properties such as foreclosures since you will buy the properties at a cheaper price.
The real estate sector is recovering from the effects of the recent economic crisis. As such, this is an opportune time to purchase profitable and less risky commercial properties which will reap more returns in future. You should ensure you purchase commercial properties when the market is slow because fast-moving real estate markets have higher property prices and bidding wars. Bidding wars from other investors and high prices may push you to overpay for the property.
Conduct a Comprehensive Commercial Real Estate Market Analysis
if you want to invest in properties that are profitable. If you are new to the real estate industry or do not possess enough knowledge or experience, conducting a market analysis may be difficult yet the analysis is a key solution in determining whether your investment will be profitable in future. When conducting a market analysis, you should consider the market trends of commercial properties in that area. You can start by researching on similar properties that have been sold near your target property.
The selling prices of these properties will help you determine the approximate cost of your target property. In addition, they will help you approximate the income you expect from your target property. If you face challenges acquiring information on properties in the neighborhood, you can seek the help of a broker or real estate agent who will provide you will the necessary details.
Understand the Local Real Estate Market Trends
A profitable commercial real estate property will depend on the local market trends. Before purchasing any commercial property, you should understand the market trends of real estate properties in that area. Market trends will give you information on the average prices of properties over the years, the median listing prices and the number of re-sales and foreclosures among other things.
If the average prices of commercial properties have been on the decline for several years, it may be risky to invest in that area since you may incur losses in the long-run. However, the decline may be due to harsh economic times. As such, you should not depend on one tool to determine the market trends in an area. A successful market analysis will show you if the local commercial real estate market is a buyerâ€™s market or a sellerâ€™s market or both.
Many investors are joining the lucrative commercial real estate industry because the properties are very profitable. Currently, the commercial real estate market is very large and has many buyers and sellers. If you invest in profitable commercial properties, you are assured of a regular cash flow, tax benefits and an increase in value of your properties. You can use the high margins from your investment to supplement your income. However, you can only gain from your investment if you know how to determine a profitable and low-risk commercial property. This requires skills, intelligence, knowledge and experience to make swift and sound investment decisions.
The solutions to investing in a profitable and low-risk commercial property are very simple. They include making sure you purchase properties that are centrally located in prime areas, visit and inspect the target property and area, understand the zoning and planning requirements of your target area, inspect fundamental utilities on the property to determine if they are in good working conditions or require repairs, and scrutinizing financial statements to establish whether the property has good returns.
In addition, you should understand the local commercial real estate market trends so that you do not invest in a real estate market that is collapsing. Also ensure that you buy cheap or distressed properties since they have large discounts and conduct a comprehensive commercial real estate market analysis.
Actually, this a very opportune time to invest in commercial real estate properties since the market is recovering from the recent economic downturn. However, it requires great effort to locate a profitable and less risky property. The solutions outlined here will help you locate a profitable and low-risk commercial real estate investment property in the US.
Very good article. Investors who have plenty of money could use a lot of this advice. One should remember that the whole idea of creating investments is to generate profits or an income. So, if you buy a property that produces no income, it means that you just bought a property instead of making an investment