Investing in commercial real estate presents many challenges, much more than investing in residential properties. There is, of course, the potential to make huge gains on your investment; however, there is also the potential for huge losses.
Another challenge of investing in commercial real estate is finding the right tenants. Of course, tenants tend to stay longer in commercial properties than they do in residential ones, however, it can be harder to find new tenants to fill empty properties.
If you are thinking of investing in commercial real estate, what are the 5 most important questions that you should ask?
What is the Demand?
Investing in commercial real estate involves taking a long-term view of your investment. Therefore, it’s important that you ask yourself what the future demand for the property will be. There could be a high demand at present, but is the demand sustainable? If so, you can be sure that your investment will yield long-term benefits.
What is the Location?
The location is an important factor in any real estate investment – both residential and commercial. You should ask yourself if the location for commercial real estate development will attract high occupancy.
Of course, you need to make sure that zoning regulations allow for the type of commercial development that you are planning.
Is the Developer Trustworthy?
In order for you to see a healthy return on investment, you need to make sure that the developer has the experience and skills necessary to make the project a success. If a development runs over budget or takes too long this will impact on your investment yield.
Why is the Owner Selling?
There can be many reasons why commercial real estate comes on the market. However, it is always good to research the reasons why the current owner is selling. Is it because there are extensive repairs needed to the property? Have many of the units been sitting empty for an extended period of time? Are there any local environmental issues to consider?
Answering those questions can help you decide on investing in the property.
What are the Risks?
One of the keys to making a success in investing in commercial real estate is to be sure that you have a good risk mitigation strategy. Finding solid answers to the previous questions can help.
A risk mitigation plan also means making sure that contracts are asset-backed and don’t go through a shell company, which can sometimes have no assets.
