Investing in commercial real estate? Ask yourself these 9 crucial questions
Are you venturing into a commercial real estate investment for the first time? While there is certainly a lot to get excited about, also remember that your success depends on careful preparation and planning.
To make sure that your investment strategies and motivations are sound, ask yourself these nine questions before you put down any sum of money:
What type of property should I invest in?
Commercial real estate can either be a multifamily house, office building, retail space, or industrial facility. Are your investment goals and targets clear enough to determine which type of property you need? While it’s true that the aim of every investment is to turn a profit, your vision and the means to achieve it must be aligned from the start.
Look into the differences of Class A, B, and C buildings in your market, as well. While the distinction among these property types is not set in stone, these classifications are still indicative of the quality and value of the building and are worth reviewing in terms of its impact on your investment’s profit potential.
How long do I plan to own the property?
When you invest in commercial real estate, you are more likely to resell the property after a few years than hold on to it indefinitely.
As an investor, you should plot out a finite timeline to keep track of your investment goals. Whether it’s a short-term holding of five years or fewer, or a longer term investment that stretches past 10 to 15 years, marking milestones at certain points in the future will enable you to evaluate the success, struggles, and progress of your venture.
What is my backup plan or exit strategy?
With a finite timeline in mind, you must also prepare an exit strategy that will enable you to seamlessly transition to your next venture. Reselling a commercial property can take longer than reselling residential real estate, so it pays to be prepared.
Be ready with contingency measures that will keep you afloat in case your investment fails, as well. Set up a reserve fund that can cover three to four months of your necessary fees and payments, such as your regular mortgage dues, maintenance costs, and other unforeseen expenses.
How tolerant am I to risk?
If you don’t mind a high risk profile in your real estate investment, you will likely be more willing to invest your personal capital as an active investor. Your money goes into costs and payments like mortgages and property taxes.
On the other hand, if you are more conservative with risk, you can still invest in commercial real estate by way of syndication, together with more experienced and qualified investors and sponsors.
Can I change how I use the property?
In most cases, commercial properties are designed for a specific purpose. An office building is not structured for industrial or manufacturing processes and vice versa, for example.
Zoning regulations in your location can also affect how you can utilize the commercial property. Because of this, it may be difficult to pivot to a dramatically different venture or means of use in case your original plan doesn’t pan out.
What are the tax implications of investing in commercial property?
The good news for investors is that commercial real estate comes with notable tax benefits, including depreciation, capital gains, and mortgage interest. Do your research on the tax implications of your investment so you can maximize the growth of your asset portfolio, as well as your net worth.
Where should I look for the ideal investment property?
The location of your investment property will influence how well you can maximize its earning potential. Is it located in an area that is visible and easily accessible by your target tenants? Are you surrounded by competitors that can draw potential clients and customers away? Are you establishing a niche by establishing a presence in your chosen location?
What does it cost to own a commercial property?
When thinking about the cost of a commercial building, think ahead about the long-term costs associated with ownership, instead of just the price you need to pay to acquire the property. Consider regular maintenance and repair costs, property taxes, and operating costs.
Can I manage the property myself or do I need to hire a property manager?
Are you willing to become a hands-on property owner and on-site manager? These responsibilities can prove to be too tedious and demanding.
Investors are typically better off leaving the day-to-day operations of your commercial property investment in the hands of a dedicated property management company. Hiring competent and experienced professionals to keep your venture running smoothly will enable you to pursue other endeavors or personal activities.
To learn more about the best commercial real estate investment opportunities in Brazos Valley, Texas, get in touch with Berkshire Hathaway Home Services (BHHS) Caliber Realty. Call us today at 979.694.8844 or email sales(at)bhhscaliber(dotted)com.