Commercial real estate is a great investment opportunity that can often bring larger rewards on investment than residential properties. The leases in commercial real estate are normally longer and can increase by four percent each year or depending on the consumer price index. When you have tenants in your property they are in charge of cleaning, renovating, and overall maintaining your property that they run their business out of. Investors should be warned that commercial real estate has many benefits, but some risks can be avoided. Let’s take a look at tips that can help you get a greater understanding of commercial real estate and help you invest successfully.
Calculate your return on investment
No matter what type of business you are working with, you should always understand the profits you will make from the deal. When investing in commercial real estate, dive into the potential yield you may encounter in the future. The yield is your annual return on investment and is shown as a percentage of your property’s capital value. Gross yield is the income you receive before you take away expenses, and the net yield is the final return of your investment. It’s normal for investors to shortlist properties that their financial advisors believe will have a net yield of seven to ten percent.
Do your research
It’s essential to do as much research as possible before making a final decision. Dig into property transactions that have previously been done in your target areas and collect data to get an idea of a property’s potential. Consider using Zillow as your primary source of information as it contains numbers from real estate investors and realtors who may have purchased, sold, or leased properties in the area. Once you find a property, you can look for it’s permit data on the internet or simply go to your local municipality office. There are plenty of documents such as the sales deed, approval plan, and tax receipts that should also be looked at.
Keep the demographics in mind
The location of your commercial property is critical because you want to be sure that the location has a good traffic flow to bring customers in. Although it won’t be your business operating out of the property, you want your tenants to bring in enough cash flow to pay you every month. The neighborhood can also affect what types of businesses can conduct successful sales in the area. Another thing to consider is the parking arrangements on the street of your property. It can be challenging for customers to come in if finding parking is an issue.