Commercial Property Investment Fundamentals

If you look at the portfolios of the wealthiest individuals, you are highly likely to find significant real estate holdings, and most will also have commercial properties. However, property investment isn’t right for everyone. These are some tips you should consider before you make your first investment.

Evaluate Your Goals

Your first task should include determining whether investing in commercial property is right for you and what types of properties fit your desired goals. You should consider how much involvement you want to have in managing your properties. How much money do you hope to earn every month, year, etc.? Are you willing to upgrade or remodel the properties?

Then, determine what type of commercial property fits your desires best. Retail, warehouse, and manufacturing spaces tend to have long-term tenants, while multifamily properties may provide greater income as well as higher expenses. You should also consider how long you want to hold each property and what type of appreciation you expect.

Learn To Evaluate Properties

As you search for your first property, you should understand how to evaluate it effectively. Your first investigation should include the property’s vacancy rate. Consider the longevity of the current tenants and review any vacancy periods. Also, look at the type of tenant in the building at present.

Your financial evaluation will include reviewing the current owner’s gross revenue and operating expenses. Consider the debt service, which is your monthly payment. Calculate your internal rate of return on your investment, cash-on-cash return on investment, and cap rate as well as your net operating income.

Investigate Your Financing Options

Your next task is to research your financing options. Do you hope to join with other investors to purchase the property, or do you have enough funds to finance it yourself? If not, you will need to investigate your loan options. You can choose traditional or alternative lenders.

If you choose to finance your purchase, investigate the loan terms for every available loan. Find out the interest rates, including their classification as fixed or variable. Choose the length of the loan you want to secure. Longer terms result in lower payments, but you will pay more interest. Some loans may also have amortization periods that can increase or reduce your payment period as well.

These are only three tips to help you start your property investment strategy. Consider investigating more tips and learn from the mistakes others have made in their investment journeys.