Investing in Commercial Real Estate: 5 Factors to Consider First

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The commercial real estate industry can be incredibly lucrative. Not only can you make a lot of money in this market, but also it is a lot of fun. What is commercial real estate? Commercial real estate is the buying and leasing of any property that has some kind of commercial usage. For instance, office space would be considered commercial real estate – you may be an investor amongst a few that chips in to build a new sky-rise. As an investor, your money is returned in the form of dividends, a percentage of profits and more. Before purchasing commercial real estate - or investing in it – you want make a few crucial considerations. Here are five factors to consider before investing in commercial real estate.

  1. Cash flow. If you are purchasing commercial real estate, you not only want the cash flow to make overhead payments, but there may be a lot of maintenance as well. So, you want cash flow to be as liquid as possible. If cash flow becomes a little slow, it could affect the profitability of your entire investment. So, before you put a single dime into a commercial property, be sure to evaluate how liquid you are.
  2. The return. Some deals are just plain bad – it is as simple as that. If you are being asked to go in on a property, you want to do a lot of due diligence before you start writing checks and signing papers. For one, you want to find out what the purpose of the property is. If you are intending on renting out the structure to a particular segment of the market, you want to find out if that market is viable or not. The last thing you want is to get involved in a bum deal.
  3. The true cost. When it comes to commercial real estate, there is the base cost, but then there are a number of other expenses that can jump out at you, like taxes, fees and other miscellaneous expenditures. The last thing you want is for these expenditures to become surprises. So, be sure to sit down and do a full cost analysis before you start drawing up papers. As you start adding up all the costs up, you may realize that the deal isn’t so great.
  4. The location. Location is everything when it comes to commercial real estate. If you’ve visited a strip mall or any other commercial location, like the Uptown Center, you’ve probably gotten a sense of a few things. For instance, how convenient is the location? When it comes to commercial real estate, convenience and accessibility is key.
  5. The economy. Before you invest, you want to feel out the local and national economy before you start putting your money on the table. What happens if the area you are investing in is showing signs of a downturn? The last thing you want is to put your money in a town that is going in reverse. In the end, with a little research, you’ll be able to tell quite quickly what direction a certain town is going in.

 

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