Commercial real estate investments can be incredibly lucrative when done right. There are tremendous opportunities to be found across the country, but unleashing the full potential of a commercial property requires hard work and dedication.
If you’ve just begun dabbling in commercial real estate, you should consider connecting with expert realty partners to boost your chances of closing lucrative deals and earning risk-adjusted returns on your capital. For example, look into FNRP stock if you’re searching for a quality, institutional-grade commercial real estate investment vehicle.
While this kind of commercial real estate can be a passive investment and still generate good cash flow, investors should still be willing to put in the legwork and be well-versed in the different aspects of real estate properties. Here are four key considerations when investing in commercial real estate:
1. Location, Location, Location
Property location is the most fundamental consideration when investing in commercial real estate. Whether you plan on renting suites to business tenants or using the location yourself, choosing the wrong site could kill any businesses operating out of your property—and even your own.
As commercial real estate price evaluations are influenced by the city and neighborhood, you should opt for a popular location with high traffic and easy access, such as properties near shopping malls. The property should also have adequate visibility and foot traffic to attract customers and clients.
In addition, the location should complement your intended use of the property. For instance, relaxing, aesthetic outdoor scenery will be important if investing in a hotel or a spa. Popular, well-chosen locations are often considered safer investments, and higher-value commercial spaces will also attract greater rental demand. Investors willing to resell the property can bank on securing significant returns on their investment from such a location.
2. The Numbers
Before investing a hefty sum in a commercial building, thoroughly review the numbers and projections for the site. Consider whether the cost of the property will justify the monthly generated income stream and the risks associated with the investment.
Another important consideration is if the commercial venture is worth the investment and how long it’ll take to pay off the property.
3. Occupancy Status
Commercial real estate investors must consider whether an empty or occupied property better suits their long-term interests. Fully-rented commercial property prices are often revised downwards, and information about the property’s profitability is generally available. Once the deal is closed, investors can begin collecting rent immediately, which is important if quick returns are a priority.
On the other hand, empty properties carry their own set of advantages. Firstly, the investors have the freedom to choose their tenants and can draft leases according to their terms and conditions. This is different from an occupied property that may have old, outdated leases or renters who are delinquent on their rent.
At the same time, it is more challenging to evaluate the profitability of empty buildings. Finding and investigating suitable tenants can be a tedious task.
4. Future Development
Future-forward thinking is critical to good commercial real estate investment. Investors should have an idea of the current and potential growth of the investment property and the surrounding area. For example, it’s important to stay updated with developments and project plans that have already been approved or are in the review process to consider the impact they could have on your property’s value.
In this case, one important consideration is the level of new construction in the area. For instance, new housing can mean more potential tenants but it could also bring in more competition, depending on your property’s characteristics and use. Identifying potential future competition can make a substantial difference in your investment strategy.
Commercial real estate is often considered the golden goose of investment, but it is not a risk-free path. Investors must take into account important considerations such as future development and property location, along with having a solid investment strategy and source of financing.
As long as you prepare well, nothing should stop you from venturing into the commercial real estate market! Be sure to check out our latest article on the best commercial real estate investing apps.