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6 Reasons Investing in Commercial Property Real Estate

Whenever I watch tides in action, ebbing up and flowing in the ocean, I can get a clear picture of markets trending up and down, creating fussy drama. No one in this market sphere is spared, even real estate investors, experiencing the effects of those restless tides. Unlike Stone Age men, we, now, moving along with civilized crowds, prefer staying in safer zones rather than roaming around in wilderness. Our growing fears have made us to go out in search of homes, offices, outlets, etc. to store all our valuable possessions rather than leaving them in the open. If you like to invest in a commercial real estate property you can’t afford to overlook a bump in the road, otherwise you have to bear the brunt of unexpected crashes.

In an investor’s point of view, one can say that he invests in a property expecting a good return. But what if everything runs out of hands? He may either get a lower return on investment (ROI) or hardly anything. And so, before sticking your necks out in the investment arena, analyze possible risk factors you may bump into when you are all set to go. 

Residential vs Commercial

Imagine that you want to own a house and rent it later. First, you look at the house and then ponder over its condition. If it’s a little shabby or run-down, you try to shrug off those hideous messes and give the house a facelift. Then you crunch some numbers to sum all the expenses that went into the makeover and come up with a finalized rental price for the bought house. You may even look back at your neighbor’s house and give a second thought. In addition, you may search online for local similar properties and compare their rentals to put up a price tag. Everything sounds easy. These are the steps involved in residential real estate investment.

But when it comes to investing in a commercial real estate property you may not find the same scenario. Basically, commercial properties, such as shopping malls, hotels, apartments, etc., sit on larger grounds and if you can’t find a buyer sooner, you are really at a loss. You need to have a regular cash flow to maintain and pay taxes for your enormous property. What if a local law goes against your desire to invest in a commercial property? What if the area you own your property becomes a land of runaways? Think about it and bring every overwhelming odds to your table, and come to a conclusion whether you are really on investing.

Have a grip of the gravity of the situation

When it comes to real estate and market trends, these two horizons go hand in hand. They mutually co-exist, and if a downy wind whoosh past them you can witness a perfect domino effect. And so, always be on your toes to divert those passing winds going rumbling up the roof of your property. To put it straight, the prospect of an economic downturn may bring your profitable business to a staggering close.

What can you do to duck this stunning blow? Have a close watch on changing markets and bet yourself on next day outcomes. By this way, you can figure out the nitty-gritty part of commerce and trade impacting commercial real estate business. Let’s say, that a nearing deal to end up a contract with Exxon in a decentralized area may cause businesses developing a distaste to the area as one can’t find the gas station in a few miles.

In the event of prospective buyers turning cash-crunched, just bite the bullet and wait for a boosting economy to turn the tables.

Gauging the value of your property

You have the virtue of evaluating your own commercial real property in multiple ways. Either you step into your town hall to run through local property listings or just call on your next door buddy to exchange views, you can do well in measuring up the worth of your property at any cost. But when the market price of properties keeps on fluctuating, your hands are tied up. You can never help yourself in estimating the value of your property and apparently, you dilly-dally. What you need to keep in mind is that the net income generated by the way of renting your property is relayed to your capitalization rate. Even if you get good returns, you can still see that you are not really making a profit. Because if the market value of your property goes up, it brings down the percentage of market cap rate. It’s like playing blind man’s buff. Peek through your eyes and make sure that the property value changes in tandem with the net operating income.

How to find a big fish in a small pond

You have to put in a collective effort to find a good buyer for your commercial real estate property. Experiment on a score of seller-friendly gimmicks that would make a buyer to snatch up your property in the first place. If you are to find a buyer doing a worthwhile business, then you are in a luck. But, you have to understand that buyers are a bunch of aliens who have too many brains working up inside their crania to make things work for their own benefits. All they want is a favorable atmosphere that makes them fell the reach of their business in this part of the globe. Entice them with offers that would avail for every lease of their property. Give them a set of options like gross lease, modified gross, double net and triple net.

Beware of ‘odd property out’ pitfall

Carry out the task of enchanting your commercial real estate property so that it stands out the best in your premises. If your property gives an eyesore to a prospective buyer, then you are in great trouble of losing him. Preen your property’s outlook at times to make sure that the buyer’s curiosity don’t get the better of him and step into other’s property.

Opt for a bigger piggy bank

Unlike residential real estate investment, one has to break their heads to pull in money for commercial real estate investment. Since commercial properties are comparatively larger than normal homes, you have to bear the burden of financing enough money to pay the deal. You may even get cash-starved at the times of payback. Seek lender’s help if your amortized loan spills over the life of the loan and pitch in for a balloon payment mode. Juggle the market tactics in drawing lenders for refinancing to do away with financial risks.

These are the guidelines to break yourself free from the nudging nightmares experienced before and after making a commercial real estate investment. Now you are good to go and have a blast.

Blog Author

Patrick O’Connor, MAI, Owner and President
Patrick O’Connor has been active in reducing property taxes, providing expert witness testimony and appraising commercial real estate property since 1983. Pat is active in publishing analyses and data with respect to the real estate market, while being a highly regarded media spokesperson for the real estate community. He holds a MAI, the highest achievable designation from the Appraisal Institute, and is a licensed senior property tax consultant. Pat earned a Master of Business Administration from Harvard University. In 2001, he authored the first definitive consumer guide to Texas property taxes, Cut Your Texas Property Taxes.

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