When you begin to invest in industries, you should know what you’re getting into. Commercial real estate is a good place to start investing because it offers higher rewards than some residential investments, and the lease tenures are typically longer. There are plenty of benefits to investing in commercial real estate, but you can’t ignore the risks either. Because of this, you need to do your research and figure out positive and negative factors before making any sort of investment. Here are a few tips about investing in commercial real estate to help in this endeavor.
Return on Investment
A good investment practice is to calculate the return you’ll get on your investment. What’s the point of investing money in something if you won’t gain anything in return? With commercial real estate, you’ll need to check the potential yield of the property you’re looking at in order to see what this return will be in the future. The gross yield will be the income received before expenses are deducted, and the net yield will be the final return you get on your investment.
Real estate firms recommend looking for properties that promise a net yield of seven-to-ten percent.
Local Real Estate Market
You can’t invest smartly in the commercial real estate field if you don’t have any knowledge of your local real estate market. Like with anything worth doing, you need to do your research and get in touch with professionals who can help you make a well-informed decision. Professional realtors are well-informed on the market dynamics and will be able to guide you toward making a smart investment.
If you’re entering a field, you should learn common terminology so you understand what you’re getting into. This is no different with commercial real estate investment—some of the common terminologies can confuse even the most experienced investors. Look online for a guide that’ll explain common terms (cap rate, gross/net operating income, etc.) in a way that makes it easy to understand and refresh your knowledge once in a while, so you continue to be up-to-date on your terms.
There’s more to commercial real estate investment than looking within the field. Your background knowledge should extend beyond terminology; take a close look at the demographics surrounding the property you want to invest in. If you want an active inflow of customers, you’ll want to aim for an area that has a healthy flow of traffic and is easy to locate. Figuring out who lives in the surrounding area will help determine what should be going in the property’s spot as well. You’ll also want to make sure there’s adequate parking available; customers are more likely to avoid a business if there’s no parking available.