If you are considering investing in brick and mortar and are thinking of buying commercial real estate, there are many points of consideration. Unlike any other investment, putting your money here, can be a tough decision to make.
Commercial real estate investment is all about creating a cash flow generating asset and all your efforts need to be directed towards ascertaining its potential value. It’s no secret that these are times of economic recession and the real estate market has taken a beating. However, if you think optimistically, this is a time of opportunity, as a piece of real estate, which was beyond your reach in boom time, can be bought at a substantially lower price today. Here are the major points of consideration, while purchasing a commercial property. These are certain pertinent questions, which need to be asked, that help you assess the profit potential of a real estate investment and make your choice simpler.
What Kind of Property are You Looking For?
Even before you can start thinking about this investment, you need to have a plan about the revenue generating mechanism or business plan, that is going to reap cash for you, through this investment. Are you planning to buy a rental property, business premises for your company, or a shop? If you make up your mind regarding this, you’ll know what type of property to look for. That will simplify your search.
What’s Your Budget?
The next thing to ponder upon is to come up with a maximum purchase limit. If you are planning to make the purchase using a mortgage loan, then you need to decide on the maximum down payment, that you could make. A knowledge of your purchase limit will see to it that you don’t go overboard, when negotiating on price and land up in a soup. Start looking for banks that offer commercial real estate mortgage loans, once you decide the property, which you plan to buy. There are many financing options to choose from.
How to Search For Them?
There are various channels through which you can search for such properties. Online and print classifieds are a place to start your search from. Approaching a real estate agent is one of the best ways of searching, as they have extensive databases of properties for sale. They can find you a property, that fits within your price range and requirement. Be on the lookout for properties being auctioned.
How to Evaluate the Revenue Potential?
When it comes to evaluating the value of real estate, with respect to commercial gain, location matters. Consider what is the scale of profits, that you can hope to make, from those premises. If it’s a rental establishment, calculate what is the cash inflow. If you plan to open a shop or your company office there, location is the most important factor.
Ensure that title of the property is clear and get an architect to evaluate the structural solidity of the building, if it’s an old one. See if there are any pending tax payment issues associated with it. Get a real estate consultant to provide you with a valuation of the property, according to current market prices. This is known as an appraisal. When all of your homework is done and you choose a property, make an offer to the seller yourself, or via his real estate agent.
Negotiate for a fair price and arrange for a mortgage if the deal goes through. See to it that all the legal formalities are handled properly. A real estate attorney can handle it for you. Once you buy the property, you could either opt to manage it on your own or let a management firm handle it for you.
To sum up, leave no stone unturned in evaluating the earning potential of a property before you buy it. If the potential is substantial, the risk you take while opting for a mortgage loan, is lessened.