Investing in commercial real estate can be a lucrative venture if done correctly. With careful research and planning, it can lead to financial stability in the future. However, it's important to be aware of potential pitfalls and opportunities when diving into the world of commercial real estate. As experts at Oakstrand Realty, we have compiled some helpful guidance for those looking to make a successful investment in this field.
Managing Your Rental Property
One of the first decisions to make when investing in commercial real estate is whether to manage the property on your own or through a rental agency. While managing it on your own may seem more cost-effective, it can lead to headaches in the long run. Unpaid rent, damages, and lawsuits can all be better handled by a professional rental agency. Plus, you won't have to deal with the inconvenience of finding a plumber in the middle of the night if something goes wrong.
Do Your Due Diligence
Before making any investment, it's crucial to gather as much information as possible. This includes talking to current business managers or owners who rent from the location you are interested in. Ask them about their lease renewal plans, their business clientele, and their overall experience in the neighborhood. This will give you a good idea of the potential profits of owning the property.
Consult a Real Estate Lawyer
It's always wise to consult a real estate lawyer before purchasing a commercial property. They can help you navigate the legal language and laws involved in the process. A good lawyer will explain everything in a way that is easy to understand, ensuring that you make an informed decision.
Secure Financing
It's important to determine your financing methods before starting your search for the perfect property. It can be frustrating to find the ideal property only to realize that you are not financially prepared to make the purchase. Get pre-qualified with a lender before beginning your search to avoid any setbacks.
Choose the Right Size Property
When looking for a commercial property, it's essential to choose one that is the right size for your business. A space that is too small will limit your operations, while one that is too big will result in unnecessary expenses. Consider your business's current needs and future growth potential before making a decision.
Calculate Net Operating Income (NOI)
One of the most crucial metrics to consider when evaluating a commercial property is the Net Operating Income (NOI). This is calculated by subtracting first-year operating expenses from the property's first-year gross operating income. A positive NOI indicates that the property will generate more income than it costs to operate and maintain it, making it a sound investment.
Be Prepared to Walk Away
To be successful in commercial real estate, you must be able to identify a great deal and know when to walk away. This means being able to quickly assess the repairs needed and determine if the property aligns with your financial goals. Don't let emotions cloud your judgment; always be prepared to walk away from a deal if it's not in your best interest.
Consider the Location
When it comes to commercial real estate, location is key. It's essential to evaluate not only the property itself but also the surrounding neighborhood and its potential for development. Attend open houses and talk to local homeowners to get a better understanding