Investing in Commercial Real Estate: What You Need to Know
Understand the Market
The best way to ensure that your investment will yield high returns is to be informed before you invest. Having a sound understanding of what you’re getting yourself into is key. Before you jump in, understand the market you’re investing in.
With commercial real estate, there may be more to consider than with residential real estate. Make sure you have done your homework and are aware of the legal implications, competition, rental agreements, demand, etc.
Commercial real estate tends to take more time. Finding new tenants takes longer, building and renovating takes long, planning and zoning takes longer, it’s a more drawn-out process. Before investing, know the time frame for all city approvals, set up a meeting with a local authority to determine the approvals you’ll need to build or buy.
Before investing, have a solid grasp on the risks that come along with your investment. Risk assessment is extremely important. No investment is risk-free. The risks of residential and commercial real state will differ. For example, two residential properties located right next to each other will likely succeed in a similar manner. However, that may not be the case for a commercial real estate.
Your tenants may be running a failing business or a business model. Trends like telecommuting or co-working could impact a demand for office space. Run a risk assessment that factors in the risks of the business you are potentially renting to. If your tenant does go under or migrates online, assume that they will default on their lease and be prepared with your insurance coverage in advance.
When done well, commercial real estate can be very beneficial to you as an investor and diversify your portfolio. Do your due diligence before investing to ensure that your investment will be lucrative.