The Secrets of Successful Commercial Property Ownership

1. What’s Your Type?

There are many types of commercial property that you can purchase including:

o Office
o Retail Space
o Warehouse Facilities
o Restaurant
o Commercial Condo
o Strip Mall

The first step is to clearly define what type of property you want to buy and how you want to use it. The following information will help you maximize your investment dollars to get the best deal when buying your property.

2. Build Equity With Your Investment

Equity is Money

Building equity is the main reason if not the main reason to buy instead of renting commercial property. Let’s face it. It’s money in the bank. In fact, it’s better than money in the bank because you can’t get the same returns when you put your money in the bank than when you build equity. Additionally, if you choose the right financing for your commercial real estate purchase, you can not only build equity through ownership, but you can also leverage your capital savings to grow your business, hire additional employees, or even purchase additional locations when the time comes. .

Owning beats renting because you can sell your investment once you’ve outgrown the space or sold the business. Even if commercial property in your area isn’t valued (which is unlikely), you can recoup your investment by renting out the space after you’ve moved and by selling it at the right time.

If you are planning to expand your building, buy something larger than your current needs, and rent out the extra space until you need it for expansion. This will provide you with a steady income that you can use to help pay your mortgage or invest in your business.

3. Calculate Your Savings And Your Profit Potential

Lower Monthly Payment

Consider buying commercial real estate as savings for your business. Real estate costs are the third largest business expense, behind salaries and taxes. Long loan amortization means that your monthly payments could be less than what you would pay for the rent, because landlords usually charge more than their monthly loan payments. In other words, owning your own commercial property can actually be more affordable, depending on current market conditions.

Ask your lender to provide you with an analysis of the current market in your area so you can see which scenario is best for you (rent or buy). The lender should be able to explain your options in detail with examples of monthly rent vs monthly loan payments and the benefits of each.

Rent Value Analysis

Once you’ve found the property that interests you the most, find out the current status of the tenant (if it’s a multi-tenant property) in terms of how much rent they’re paying. Check the current market to see if the rent is undervalued, meaning below what you can get in the market today. Your realtor or lender should be able to help you figure out how much you can charge for rent and determine how much profit you can make each month.

Tax Advantage

There are many tax advantages to being a commercial property owner. In most cases, you can deduct some of the value of the building at tax time, as well as the increase you make as depreciation, which can save you more money on your taxes. Buying property in the name of your business or company is also a better tax strategy than in your personal name.

4. Do Your Research

The more you can learn about property types and options, mortgages, financing, zoning, and renovations; the better positioned you are to make wise decisions regarding commercial property acquisitions.

However, you don’t have to know everything. That’s where putting together a strong team of professionals who are proficient in their area of ​​expertise may be your most important step. Building a team of advisors – people you can trust to point you in the right direction is critical to your success.

Understand Current Market Conditions

Keep your eyes open for news articles relating to the commercial real estate market. Is it “hot” now? Is it a buyer’s or seller’s market? What types of interest rates are available?

The internet is a great place to start. Doing a Google search for “the commercial real estate market,” for example, will give you results that include news and resources for national trends, analytics, and market research.

In addition, many realtors, lenders, and attorneys across the country offer free and timely articles on their websites explaining current commercial real estate trends nationwide.

Tips For Selecting the Right Commercial Property Agents

Look for Real Estate Professionals Who Invest in Their Own Commercial Properties

In the UK as elsewhere in the world, many people are better at giving advice than taking it themselves, a commercial real estate agent is no different. So, it is important that you find a rental agent who invests in or has invested in commercial properties. They will be a source of knowledge that will be an invaluable resource in the more difficult stages of the process.

The cheapest realtors are not always the best choice

Nobody likes to pay more than they need to, but sometimes property consultants are really cheap for a reason. You have to understand that when it comes to service, like most things in life, you pay for quality. So when looking for a commercial real estate agent, don’t go for the cheapest, choose a real estate consultant who has the lowest price compared to the value they can offer you as a customer.

Always Be Prepared to Pay More for an Experienced Realtor

In the UK, not many people are as familiar with selling commercial property as they are with housing deals. Of course, this makes sense because many adults have been involved in a housing deal or two by the time they are middle age simply for buying their family home, therefore they will be aware of the processes and procedures that go along with it. However, fewer people are involved in putting commercial property up for sale, so choose a commercial property agent who has extensive experience in this field. And by extensive experience, we don’t mean extensive property experience in general but commercial property listings in particular.

Find a Nursery Agent Who Will Manage Your Property Nursery As Well As Acquisition

When you are offering commercial property for rent, you should have as little headache as possible, the smart decision is to choose a London commercial real estate agent who will manage as well as facilitate the acquisition of the commercial property. Having a real estate company take care of all of this for you, especially in London, is invaluable, and it frees you up to concentrate on your other business ventures.

Ask a Commercial Property Agent Perspective for Reference

If you are having trouble choosing between two or three different commercial real estate agents in the UK, ask for references to each of them. This is an acid test; if they are reluctant to give you any referrals from happy customers then you should be careful doing business with these commercial real estate agents. There’s no reason for them not to let you talk to one of their previous customers if they really have a good working relationship with them.

Commercial Property Investment Mistakes

The value of commercial properties for sale is determined using a few simple formulas based on the amount of net operating income the property generates each year. So when you see a commercial property for sale, one of the first things you want to ask a broker is an income statement.

Some brokers who have listed commercial properties for sale may refer to this income statement as an IPOD, or income property operating data sheet. Once you get your IPOD, or income statement, you can then compare the information provided by the broker or seller with your other sources to help determine what the real figure is. The challenge when looking at commercial properties for sale is that brokers and/or owners will tend to overestimate the amount of revenue that commercial properties for sale generate while also trying to minimize the amount of reported operating costs.

How to Determine the Value of Property for Sale

The reason is simple. The value of any commercial real estate is based on the amount of net operating income the property generates each year. In fact, each additional dollar of annual income increases the property’s value by about ten dollars, depending on where the property is located, and how old it is. Note that this extra net income can come from getting additional income from rent, or from reducing expenses by managing the property more efficiently.

Once you understand that commercial real estate owners will tend to display unrealistic numbers in an attempt to get a higher price for their property, you’ll better understand why when looking at any commercial property for sale it’s important to know the market you’re in. invest in. When you know what rental rates in an area tend to be or what the typical cost ratio for a twenty-five year old apartment building is then it is much more difficult for a broker or owner of a commercial property for sale to try to pull the wool over your eyes.

Verifying Income and Expenses

The first step in verifying the income of a commercial property for sale is to request a list of leases. A rental list is a list of what each apartment, self-storage unit, mobile home lot, or office space is rented for. Make sure you get an actual rental listing because the owner or broker of a commercial property for sale may try to give you a Pro-forma rental list instead of an actual rental listing. Pro-forma means that there is an expectation, realistic or not, of getting a higher rent than the property is currently earning. My response to this has always been, “If you raise the rent to be pro-forma then we’ll use the higher revenue amount, otherwise we’ll base our assessment on what the property is currently producing in revenue.”

When looking at the expenses of a commercial property for sale, keep in mind that you are trying to calculate the actual amount you would spend operating the property rather than the seller’s expenses. So, despite knowing exactly how much the seller has cost me, I have learned NOT to rely on the information provided by the seller when looking at commercial properties for sale as this information is almost always inaccurate.

Simple Formulas Used for Expenses

Costs will vary depending on the type and age of the commercial property for sale. For example, if you want to buy a Class C apartment building that is at least twenty-five years old, your expenses will range from 45 to 50 percent of your monthly income. The accumulated revenue, known as Effective Gross Revenue, is what remains after the vacancy fee is deducted from the total rental amount on the list of leases of a commercial property for sale.

The final step in determining the value of commercial property for sale is dividing net operating income by the capitalization rate, which varies from about 6 to 12 percent depending on the type of property, age, and location of the commercial property. for sale. The quickest way to get an idea of ​​the capitalization rate you should use when looking at commercial properties for sale is to ask other brokers not involved in the transaction.

Using Escape Clauses to Limit Your Risk

Another way to protect yourself when looking at a property for sale is to make sure that your purchase contract gives you time to walk out of the deal if you’re not comfortable with anything you find. If done right, you can often tie up a property for 60 to 90 days so you have time to determine the true value accurately. This makes it easy to see commercial real estate, because you can get out if you have the right escape clauses.