Location, Location, Location: Choosing the Right Commercial Property
So you want to get into the lucrative world of commercial real estate investing, huh? You’ve heard the stories of investors making an absolute killing and you’re looking to get your piece of the pie. Before you dive in headfirst in commercial and multifamily real estate, there are a few secrets you need to know to ensure you come out on top. Take it from me, if you follow these three must-know secrets, you’ll be well on your way to building wealth through commercial real estate in no time. But fail to heed this advice and you could lose your shirt. The choice is yours – care to take a peek behind the curtain?
Do Your Due Diligence: Vetting Tenants and Understanding Expenses
Location, location, location. Choosing the right commercial property is the single most important factor for a successful investment.
Look for high foot traffic and visibility.
Properties located on well-trafficked streets in business districts or near amenities like restaurants and transit hubs attract more potential customers and command higher rents. Keep an eye out for lots that offer maximum visibility and exposure for your business.
Consider the surrounding businesses.
Look for complementary businesses nearby like food places for office buildings or childcare centers for retail shops. Their presence indicates demand and stability. Conversely, avoid areas with many vacant storefronts which suggest lower foot traffic and little business potential.
Research recent sales and rent prices.
Check sites that track commercial real estate listings and transactions to determine typical sale prices and rent rates in the area. Look for properties priced under market value or with rents that could generate positive cash flow. The lower the cost, the higher your return on investment.
Evaluate access and parking.
Easy access for both vehicles and pedestals, as well as adequate parking, are must-haves. Lots should have dedicated parking spots for customers and, ideally extra spaces for high-volume periods. Nearby public transit and bike lanes are added perks, making the location more attractive and convenient for potential tenants or buyers.
With the right property in a prime spot, savvy investors can build wealth through lucrative commercial real estate. Focus on location, and the rest will fall into place!
Think Long Term: Setting Expectations and Planning for Successful Exits
To make sure your commercial real estate investment pays off, you need to do your homework. That means thoroughly vetting potential tenants and understanding all the expenses involved.
Find the Right Tenants
The tenants you choose can make or break your investment. Look for businesses with a proven track record, strong financials, and commitment to long leases. Meet with owners and managers in person to assess their vision and enthusiasm. Check references from current and past landlords.
It’s also a good idea to diversify your tenant mix. For example, aim for a combination of anchor stores, food and beverage, entertainment, and professional service companies. That way, if one sector experiences a downturn, your other tenants can provide stability.
Account for All Costs
Don’t underestimate the costs of commercial properties. In addition to a mortgage, you’ll have higher insurance premiums, property taxes, maintenance, and management fees. Make sure you understand:
– Common area maintenance (CAM) charges for shared spaces like parking lots, lobbies, and hallways.
– Capital expenditures (CapEx) for large repairs and renovations.
– Vacancy rates in the local market so you can budget for empty units.
– Inflation rates for costs like utilities, supplies, and services over the lifetime of your investment.
By choosing tenants wisely and accounting for all costs, you’ll set your commercial real estate investment up for success. Do your due diligence, and the rewards can be lucrative!