When you decide to invest in commercial property, there is a good chance that you have pre-existing knowledge and experience in this area, even if it is solely theory-based at this stage.
If this is to be your first property purchase, there are certain things to consider before going ahead and taking the leap. This guide covers the most important points.
How Much You Are Investing vs. The Return
The primary factor to consider when observing any potential commercial property real estate venture is how much you have to spend and how much are you looking to make back.
If you do not yet have an answer to these two questions, step back and figure it out before you go any further.
You cannot take chances with numbers, because this is a wholly financial gain that could jeopardize your investment and savings pot if not handled with the due care and attention.
The Type
Commercial property comes in an array of sizes and functions. What you invest in will determine what you get back and it is important to feel at least a little spark of joy when you think about the category too.
For instance, do you want to purchase an office and re-let it? Or are you considering something more factory-focused?
Do plenty of research before you decide on a type of commercial property. Weigh up the pros and cons of each before you make a final decision.
After all, it is pointless investing in office space if the market is already saturated and there are lots of empty units. Instead, you might be better off investing in a retail unit in a busy strip mall that sees a lot of foot traffic.
The Purpose
The second thing to really take on board is why you are doing this. When you have the type of property ready to go and an overarching goal guiding the process, it is then important to understand what you are going to do with it.
Is it going to mean a complete refurbishment from top to bottom? Will there be structural issues to overcome?
Think about how much work you are willing to put into the venture, and whether you can afford to hire other people to do some of the work if a full refurbishment is needed.
If you do go down this route, factor in the additional costs into your budget and cash flow projections.
The Location
Your return on investment will be dictated by multiple things, and the one that arguably has the most influence of all is the location.
Think carefully about where you are going to buy because this will determine what you can re-sell the property for when the time comes, or gain in terms of passive income as a result.
So while a smaller space with a lower price tag may feel like a better investment at the time, you have to think about how the location will serve your investment goals.
Putting more money down upfront on a better location is the better choice a lot of the time.
Timelines
There are two main things to think about when it comes to timelines.
Firstly, do you want this to be a short-term thing or a long-term thing? Secondly, how long do you have to do what you need?
For example, do you need to see a return on your investment fairly rapidly or will you be able to sink the costs and wait a few months before passive income starts rolling in?
Make a timeline with these questions in mind so that you have a clear structure to move forward with.
Investing Alone vs. Partnerships
The last thing to process is whether you are going to invest in a property completely alone or if you are going to opt for a partnership-style investment structure.
You may already have someone in mind who has more experience than you, or you might just want to start your first project solo.
Wherever you land, there are advantages to both. For example, investing with someone means there is more money to play with but investing alone gives you complete control.
Managing Risks
Ultimately, any investment you make carries an inherent risk. Risks include everything from tenants not paying the rent to a market downturn where you can’t find tenants.
To navigate this successfully and give yourself some security in this area, it is vital to think about insurance and risk-managing strategies like Titan Risk’s commercial insurance offerings.
Insurance is designed to cover a multitude of business risks, so this is a smart move and will prove useful for your future financial ventures.
Before investing in commercial property you need to know where to buy and how much money you have to invest. Don’t forget to protect the investment.
