When investing in commercial real estate, it’s important to consider the following factors:
Location
Look for properties in areas with a strong economy and good transportation access. Depending on the types of commercial real estate, the locations might be different and your target tenants will be different as well. You have to select the locations that make sense for your target tenants. One simple illustration is that for example, you will not be having a school in a town that has no kids, nor will you have a warehouse that is really far away from any normal roads or transportation access.
Demographics
Consider the demographics of the surrounding area and whether the property is well-suited to the needs and preferences of the local population. Demographics can control your tenant mix and also your tenant’s clients.
Market conditions
Research the current real estate market conditions and determine whether it is a good time to invest in commercial real estate. One rule of thumbs in any investment is that we need to buy at the right price. A lot of new investors might get too excited and caught in the market trends and forgot about the fundamentals of investing. When the market conditions is really hot, many new investors will try to jump on the investment boat at all costs. On the other hand, when the market conditions is softer, new investors might hesitate. Those are not logical behaviour. In my opinion, the time to buy is when the market condition is soft. That’s the time you can find a lot of great deals and less competitions. It’s the buyer’s market.
Property condition
Carefully inspect the property and ensure that it is in good condition, both structurally and cosmetically. When buying any properties, pre-purchase building inspections would be crucial. For Commercial properties, we might have to carry out more inspections such as the Environment Safety Assessment to see if there are any issues on the environmental side.
Tenant mix
Make sure that the property has a diverse and stable tenant mix, as this can impact the property’s financial performance. Your neigbhours would also affect the rentability and value of your properties.
Existing Tenant
On occasions, the commercial properties that you are looking to purchase might already have an existing tenant. In that case, reviewing the tenant’s covenant and financial stabilities, the lease terms and other obligations will be crucial to a good return on investment is provided.
Financing options
Commercial financing typically is more stringent than Residential financing. It also typically takes much longer in the approval process for Commercial mortgages. Consider the financing options available and determine the best way to finance the property based on your goals and financial situation.
Professional advice
Work with a real estate professional, such as a broker or attorney, to help you navigate the process and make informed investment decisions.
Remember, investing in commercial real estate can be a complex process, so it’s important to do your research, seek professional advice from experienced broker like Jane Fung, and make informed decisions.
