What Should I Look for In a Commercial Property?
Commercial real estate can be an attractive asset for investors and business owners alike. However, finding the right property for your needs can be challenging, especially since some properties are on the market for a reason: they aren’t profitable. Business owners and investors have different needs their property should fulfill. Once you know what your needs are, you’ll be better positioned to find the right property.
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What Should I Look for in a Commercial Property?
When researching commercial properties, it is important to note that investors looking to add to their portfolio and those looking for a space for their business have different needs. In both scenarios, you should have a detailed understanding of what you are trying to achieve. Investors typically have more options to choose from but also face more responsibilities. On the other hand, buyers need to narrow down their selection of properties to those that will suitably house their business, such as such as warehouses or storefronts.
How Do You Assess Commercial Property As an Investor?
As an investor hoping to expand your portfolio, you should understand your motivation for investing. Are you looking for another source of cash flow, or do you need a building that can serve as a long-term home for your business? Once you have determined your reason for investing, you can then focus your search on the right properties.
Whether you are buying for your own business for for your portfolio, you will be responsible for the general upkeep and management of the building. You should be sure that you are capable of fulfilling those obligations. While it brings added responsibilities, investing also has its perks. Some of the pros and cons of being a commercial property investor are as follows:
- High income: Commercial properties have the potential to generate more than double the return on residential properties.
- Flexible lease: Commercial properties are less locked in by lease terms, so you can negotiate your lease to better fit your preferences.
- Appreciation: In an in-demand market, the value of your building can increase over time. The value of your building can appreciate substantially in the right market.
- Property upkeep: Commercial properties are viewed more critically by the public. Repairs can also be expensive as you manage multiple tenants with separate maintenance needs. However, a well-kept building will be more likely to attract offers.
- Large investment: Though the return is a great benefit, you will be required to spend more money upfront when acquiring the property.
- Safety risks: Again, as buildings with consistent public traffic, commercial properties have a higher chance of encountering incidents that require insurance against damages from accidents or crime.
How Do You Assess Commercial Property As a Buyer?
As a buyer, you want to make the right choices for your business, and that includes choosing a suitable space for it. You need to determine what property can house your entire staff, accommodate any electrical or plumbing needs, and be an inviting environment for your customers. You also have the financial analysis of renting versus owning.
That decision, in the end, will depend on your current business standing. Though owning a property brings clear benefits, it may not work for you for several reasons. Some of the benefits and drawbacks of buying are as follows:
- Greater control: As the owner of a building, you can hire contractors as needed for maintenance and repairs without waiting on your landlord. You can also make changes to your building as you need without waiting for a landlord’s approval.
- You can charge rent: If your building is big enough to rent out space to other tenants, you can obtain additional streams of revenue to support your main business.
- Appreciation: Your building can serve as an appreciating asset for your business, adding to its overall value should you decide to sell.
- Equity: You are investing into your own return versus a landlords return. At the end of a 10 year lease you have no assets.
- High cost: Buying a property can be very expensive and may be beyond the means of your business.
- Low liquidity: Buildings are illiquid assets, in that they can’t easily or quickly be converted to cash in an emergency.
- Less focus on your main business: Managing and maintaining a property can be time-consuming and costly. As a landlord, you’ll be responsible for maintaining your building and working with tenants, which takes time away from your business.
Questions to Ask When Buying Commercial Real Estate
While you have questions you need to ask yourself when considering properties, there are a few matters you should consider for each potential property before selecting one:
- Is this a suitable location?
- Are there issues with the property, such as access limitations or deferred maintenance?
- Does the zoning code match your needs?
- Is the property ideal for the future needs in the market, is it not obsolete?
- What is the quality of the existing tenants and the leases?
No matter why you’re investing in or buying a commercial property, it will be a costly venture. Your property can pay for itself, but you’ll want to make plans for various scenarios so you can cover its expenses and avoid shortfalls. By taking some time to examine your purpose for purchasing a property, you have a higher chance of obtaining the one that best suits your interests.