Tips for Purchasing Commercial Real Estate
Purchasing commercial real estate takes a different process than purchasing residential real estate. Whether you need facilities for your business or you are looking for an investment, you will have your work cut out for you. These are some tips to get you started.
Identify Your Wants and Needs
Your first step should always be determining what you need and want. First, if you are purchasing commercial property for your business, you should identify what you need. Do you need retail, manufacturing, storage, or office space? How much square footage do you need?
If you are investing in property that you hope to lease or otherwise make money on, you should identify what type of property you want. For example, do you hope to provide housing to multiple individuals, or do you want a mixed-use commercial property that provides office space, retail space, and even housing for different individuals and companies?
You also need to set your budget and investigate the location you hope to invest in. Evaluate your capacity for renovations and whether you will serve as the landlord or work with a property manager.
You should start touring properties as soon as you have your desires and needs outlined. You will probably start by researching properties online. Then, you can tour the ones that make your shortlist. Investigate the neighborhood and local amenities.
Conduct in-depth research on each property you tour. Ask how the property is being used as well as the businesses in the immediate area. Make sure you don’t have direct competition and that your company fits well in the area. Is the area being developed or improved?
Learn About Commercial Real Estate
As you begin touring properties, you need to learn everything you can about commercial property investing. This starts with finding a mentor who has experienced success in this area. You may also take courses or pursue private study on the market, prospective rent and what it depends on, and capitalization rate as well as loan-to-value and debt service coverage ratios. Find out what makes a profitable investment.
Obtain Your Financing
Most commercial property is financed. Therefore, to give yourself an advantage over others who may be interested in the same properties, consider obtaining your financing early. Research the different financing options you may have, such as traditional mortgages, crowdfunding, or working with investors.
If you don’t have the credit to gain financing, take the next six months to a year to clean up your finances and clear any negative or inaccurate information from your credit report.
Commercial real estate typically increases in value over time, but you can improve your chances of success by following a few simple tips.