If you’re considering investing in commercial real estate, which includes industrial and warehouse space, office buildings, retail locations and apartment complexes, you’ll find many varied opportunities. Done right, commercial property investment can provide you with positive cash flow, as well as healthy long-term profits.
Before you leap into the fray, do your research and due diligence to help ensure success, following these steps:
- Evaluate which investment strategy is right for you. In commercial real estate, you can specialize in cash flow or value add properties. Cash flow properties are already leased when you purchase or are in ready-to-rent condition. Value add commercial RE investing means working with “fixer-upper” commercial spaces, which will need work before you can lease or resell them (and/or are not bringing in market rent currently). Consider the upside, or appreciation potential of your property type and location before buying or selling. The ideal holding period is another aspect of your strategy, where you’ll keep the property until it is profitable to sell, depending upon market conditions and your financial goals.
- Consider starting out with multi-family property investments, which may feel “familiar” since they are similar to apartments.
- Consider retail or triple-net leasing, which requires less daily effort but typically provides a smaller ROI.
- Research triple net leasing. Retail or NNN leasing requires less day-to-day property management because your tenants pay rent and utilities, property tax, upkeep expenses, and insurance.
- Learn commercial rental property proforma vocabulary, which are terms used in property financial analysis. You’ll be dealing with vacancy rates, operating expenses, and gross revenue to calculate your Net Operating Income (NOI). You’ll also pay attention to CAP rate, internal rate of return, and cash-on-cash figures when evaluating a commercial property investment.
- Determine the level of commercial property management you’ll need, to run the day-to-day operations of the property. You may not need it for NNN leasing, for example.
- Consider asset management or investor assistance, so that you have experience on your side to minimize risk.
- Know your financing options for profitable commercial property investment.
Experts in capital financing, like TopFund Capital, offer multiple funding options that allow you to expand your commercial real estate portfolio. Contact us today.