Commercial real estate is increasingly regaining its popularity among investors. These investors have been able to create wealth by finding quality properties where they can generate a high level of returns.
For those who are new to commercial real estate investment, the key to finding the best opportunities is performing a thorough analysis before making an offer on a property. Experienced investors know what to look for, but new investors may get excited and lose sight of due diligence. Considering these five points should be a minimum for any prospective investor.
When making a choice about a deal, buyers need to consider two factors: the property and the market. Of the two, the local market conditions are the most important. A quality property in a declining market is not a good investment. Consider the demographic trends before making a choice (population growth, income level, employment) before making your decision.
It’s critical to base a decision on whether to buy a property on real operating numbers, not projections of potential rent and estimates of expenses. Each element (income and expenses) must be verified to ensure that any offer is based on the actual financial performance of the property.
Have an inspection performed on the property to check its structural components, building systems and environmental matters. Hire professionals to provide estimates of maintenance costs and how much it would cost to replace them.
Leases are important documents when you are considering buying an income property. Take the time to review each existing one and understand its terms before making an offer. You’ll want to examine payment histories and credit files for existing tenants to find out whether you will be dealing with stable, healthy companies who are likely to continue paying on time or ones who will create problems for your rental income cash flow.
Prospective buyers must do their due diligence to determine whether there are any restrictions on the property for the use they intend.
For a comprehensive guide to buying commercial property click here.
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