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Top Factors to Consider when Investing in Commercial Real Estate

Are you considering making investments in commercial real estate property? The commercial side of real estate can be a lucrative investment opportunity. However, it is important to make the proper investment decision. As long as you do your due diligence, you should be able to find the right opportunity for a successful investment. Below, we will be going over some of the top factors that you want to consider when you are aiming to make a commercial investment.


1. Understand It’s A Long-Term Investment


One of the most important things that you are going to have to consider when it comes to investing in the commercial side of real estate is that it is a long-term investment. You must understand the market that you are going to be investing in. Being able to have a successful commercial real estate venture requires long-term thinking. Unlike other forms of real estate investing, you are going to have to have a much more long-term mindset going into the investment. Everything is going to take longer including construction, renovations, and more. At the same time, you benefit from being able to give out longer leases which can help reduce risk.


2. Consider Location


The location of your investment is going to be just as (if not more) important when you are getting into the commercial side of things. This type of real estate’s value can be dictated by its location. Therefore, you are going to want to fully understand both the demographics and trends of a particular area prior to investing in it. Understanding the location in detail is going to be key to making a wise purchasing decision. If you are going to be looking to invest in a particular area, you want to understand the development surrounding the area and whether or not the area is going to experience growth in the future.


3. Assess The Risk


You want to make sure that you are spending enough time and energy understanding and assessing the potential risk that you are taking when you are making this sort of investment. Because this type of investing requires much more capital than other kinds of real estate investing, you are going to want to spend even more time assessing the total risk and whether or not you are capable of taking such a risk. You want to look at the overall risk in your potential investment prior to making it.


4. Avoid Leasing To Business Models That Fail More Often Than Not


When you are going to be making an investment in the commercial real estate arena, one of the keys to succeeding is by avoiding investing in anything that deals with business types that are prone to failing. Restaurants are a type of business that you want to avoid because they have a high risk of failure. Because of this, you want to try to invest in commercial property that avoids leasing to this type of business as a result of their failure rate. By searching for and leasing to businesses that are not at such a high risk for failure, you will end up dealing with fewer leases that default and you will be replacing tenants far less often.


5. Be Active


Another big thing that you are going to want to consider when you are deciding whether or not to make the investment in the commercial arena is whether or not you are going to be willing and able to remain active with your investment. Investing in this type of real estate is never going to allow for a passive style of investing. Instead, you are going to have to be actively involved and/or at least hire someone that handles it for you. Anyone that is successful with this type of investing is going to be fully active in their investment and constantly looking at the local economic trends, potential laws, and everything else that could impact their investment.


6. Find A Good Value


Another big thing that you are going to want to do when you are aiming to make a commercial real estate investment is to find a good deal that is going to put you in a good position to succeed. Finding a good deal is crucial if you are going to be successful with your investment. You want to find a commercial property that is available at a good valuation and one that is going to allow you to be able to succeed with. Making the wrong valuation on a property can put you in a hole that you simply cannot easily get out of.


7. Only Invest What You Can Afford


One of the most important things that you are going to want to consider is whether or not the investment is even feasible. You don’t want to over leverage yourself. You should be looking to see what you are going to be able to invest and stick to the amount that you decide. Along with this, you should be attempting to find other investors to keep yourself from over-leveraging.


8. Understand Jurisdictions


Another big thing that you are going to need to consider when you are looking to get into commercial property investing is fully understanding the jurisdictions that are going to impact your investment. You will need to fully understand the permits and everything that is going to be needed to begin recouping on your investment.


There are a lot of factors at play that you want to consider when you are looking to make significant investments in commercial property. It can be a very lucrative investment opportunity as long as you do the required research and find a viable opportunity. You want to consider everything from the overall risk associated with the investment, how much you will be required to put down, the location and growth potential of the area it’s in, and whether or not you are able to score a good deal on the property in the first place.


Source: Baltimore Post-Examiner, 7th November 2018, Brenda Vollman

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