5 Things You Need to Know Before Investing in Commercial Real Estate
Savvy investors understand that having a diversified portfolio is the best way to defend against the fluctuations in the market. While residential properties do offer some options, over time many investors tire of the hassle of owning rental properties and consider purchasing commercial real estate instead. Commercial real estate can vary from large tracts of land available for development to the intimate shopping strip mall, but regardless of the type of property, learning how to avoid mistakes can ensure the investment is successful and yields the benefits expected instead of becoming a money pit.
Here are 5 considerations for investors interested in commercial real estate properties:
- Professional Representation Makes a Difference
Purchasing commercial real estate can be quite complicated. New investors whose experience has been in residential real estate will find the commercial market varies significantly. Finding an experienced commercial agent can offer valuable advice and direction to ensure the chosen property meets the needs of the client.
- Local Market Conditions
One of the most common mistakes new investors make is to ignore the local market conditions. While national and regional market trends are interesting, the local real estate market is of critical importance to success. Learn as much as possible about the local community: residential real estate health, income, and demographics of the local population, tourism, employee pool, etc.
- Location, Location, Location
The right location is perhaps the most critical in commercial real estate. Perhaps a secluded parcel of land is appealing when building a dream home, but commercial real estate must be located in the right place to attract customers and employees.
- Multiple Exit Strategies
Commercial real estate is usually a long-term investment. While this often is the goal, having effective exit strategies in place is vital if conditions change. Before purchasing commercial real estate, work with the agent to understand the possible exit options to reduce your risk of loss in the event of unfavorable market conditions or changes.
- New Developments vs. Existing Properties
New developments might seem more appealing to potential tenants, and this is often true, but existing properties hold fewer unknowns. New developments have less market data and determining value might be more complicated. Depending on the purpose of the property, both new and existing properties have advantages.
Commercial real estate holdings can be a lucrative addition to an investment portfolio. By learning as much as possible about the local market, investment options, building uses and tenants and having professional representation, commercial real estate is a great way to diversify and reduce financial risk.