Commercial properties offer many specific advantages that cannot be found in residential properties. But they can have their own drawbacks, too. If you’re creating a job opportunity for yourself in the real estate industry and you’re looking to invest, commercial real estate is one of the best places to start.
While renters of residential properties have specific tastes to consider, commercial properties are often chosen based on more practical factors. Nonetheless, it’s still important to choose the right property, which can be difficult for first-time investors.
It’s not enough to simply invest in a property and call it a day. In order to make a good amount of money, investors need to choose the right property, which may, in turn, involve some level of renovations. There are different types of responsibilities that a commercial real estate owner must keep in mind, just as they would when investing in their own homes. With that being said, let’s look further into some of the tips to consider when planning your investment in commercial real estate.
1. Narrow down your property type
You can’t invest in or even search for a property without first knowing the exact type of commercial real estate you’re looking for. Typically, the types of commercial real estate on the market are as follows: industrial, multifamily, retail, office, or mixed-use.
Some properties will offer more consistent possibilities than others. Industrial property will likely be rented on a fairly long-term basis by a company, as would a retail property or office building. A multifamily property would likely have a steady flow of renters moving in and out of the property, but would still be a good investment considering the national housing shortage.
However, there are a lot of potential opportunities in commercial real estate that some investors may not have considered before. For example, pop-up shops are becoming increasingly popular, with a current market value of $50 billion.
2. Inspect The Property First
A property may seem to be ideal at first glance. However, just as residential properties should be inspected before one invests in them, so too should commercial properties be inspected. As an investor, you will be responsible for any damage incurred, and it would be difficult to prove that damage had been pre-existing or caused by a tenant without an inspection.
For that matter, if a tenant or their property is harmed due to preexisting property damage, you’ll be responsible for that as well. Potential issues that could strike a commercial real estate property include water damage, roofing problems, or high radon levels. Right now, about 1 in 5 properties have radon levels that are above the EPA’s action level. You could potentially invest in a property that seems like a great deal, but is actually more trouble than it’s worth. The only way to know a property’s true value is to have it carefully inspected well before you buy it.
3. Consider The Risks
It’s tempting to buy quickly, especially in today’s market, but an investment must be considered in depth. There are risks that come with investing in any property. But the risks are heightened when a property is meant to provide an additional or even primary income.
Many commercial real estate properties will require improvements. It may seem like a great idea to buy a flip a cheap property with ROI in mind. But it’s important to remember that while little investments like new carpeting and paint may be feasible and offer a great return on investment, larger investments can eat into your potential ROI faster than you think. Think about how long your improvements can last; carpeting, for example, may very well last for 15 years.
For that matter, it’s relatively easy to choose a type of paint for your home when you have a professional painter there to introduce you to options that you would never think of by yourself. However, bigger investments should be regarded as part of the overall cost of the property, even if it’s not figured into that initial cost.
Ultimately, investing in commercial real estate certainly isn’t the typical way of making an additional income. But that may change as people look for alternatives to typical jobs. As with any job, it must be taken seriously and treated with caution.
