Tips for buying investment properties:
Identify different types of commercial investment properties:
Before you invest, you’ll want to be familiar with the different types of commercial real estate on the market
Retail buildings, office buildings, warehouses, industrial buildings, apartment buildings and “mixed use” buildings, where the property may have a mix, such as retail, office and apartments are common types of commercial real estate investment opportunities.
Weigh the Pros and Cons of investing in commercial real estate:
Pros include: income potential. The best reason to invest in commercial over residential rentals is the earning potential. Commercial properties generally have an annual return off the purchase price between 6% and 12%, depending on the area, which is a much higher range than typically exists for single family home properties (1% to 4% at best). You might consider Triple net leases. There are variations to triple net leases, but the general concept is that you as the property owner do not have to pay any expenses on the property (as would be the case with residential real estate). The lessee handles all property expenses directly, including real estate taxes. The only expense you’ll have to pay is your mortgage.
Cons include: bigger initial investment. Buying investment properties typically requires more capital up front than acquiring a residential rental in the same area, so it’s often more difficult to get your foot in the door. Once you’ve acquired a commercial property, you can expect some large capital expenditures to follow. Commercial real estate investments also come with More risks. Properties intended for commercial use have more public visitors and therefore have more people on the property each day that can get hurt or do something to damage your property. If you’re risk adverse, you may want to look more closely at putting your money in residential properties.
Calculate the Net Operating Income or “NOI” :
Businesses that deal in the development, purchase, rental or sale of commercial properties must consider dozens of factors before committing their money, and that of their investors, to their next deals. Naturally, the profit on the investment, and the amount of risk associated with earning that profit, are important factors in the decision-making process, and net operating income is one of the numbers used to calculate expected profit and underlying risk. Thus, the term net operating income (NOI) is central to any discussion of commercial real estate. You can calculate the NOI by subtracting the operating expenses from the real estate revenue.
Hire a Commercial Real Estate Broker:
Much like you wouldn’t file taxes without the help of a CPA or design a house without an Architect, in order to protect your best interests and get the highest return on your investment, you should always engage a Broker for any and all commercial real estate transactions. Representing either a buyer, seller or tenant a broker serves as a mediator between parties, ensuring that their client receives the best terms, conditions and value on their investment transaction.
Understand Commercial Property Financing:
Commercial property financing is typically different than a residential property. In fact, many commercial opportunities require investors to meet higher income or net worth standards, while also being able to make a larger financial commitment. Interest rates for commercial properties are dependent on the current prime rate, as well as an understanding of how banks actually borrow the money needed to give you a loan with a fixed or floating interest rate.