Many wonder about investing in commercial real estate. It seems to be one of those mysteries of how people who invest in commercial real estate have plenty of money and they use that money to buy more commercial real estate. However, as you’re driving around town all you can see are these properties that have not had a reliable client or renter in years.
Some of these properties are falling apart and they are not even able to be rented out. The area around these properties actually lose value because the large strip of land that you own is really losing its value rapidly because it doesn’t offer a solution to turn a profit or even any type of reliable income.
So why would people who seem to be smart in business continue to invest in commercial real estate? The simple reason is because they can’t afford not to have that property have any value for years. If they can buy a property and hold it without a concern for 20 years, the chances of them losing money goes down gradually. Why?
Communities are buying back in. There are thousands of examples of communities and investors working together to buy back into these areas and turn them around. These once considered cheap commercial properties are now a hot commodity and you bought them on the cheap. Just the same, if you buy in a hotter market, it will be easier to find a renter and turn a quicker profit because rentals would be in higher demand.
So, what is the key to making money in commercial real estate? Understanding how long you can hold out without renters. If it’s less than two years it may not be worth the investment unless there are currently renters and you could immediately turn a profit.
What becomes your advantage in a situation where you wish to invest in commercial properties is having a reliable realtor who knows the area and will go the extra mile throughout the process. So, what does that mean you should expect from your realtor?
One thing would be to look into the lease agreements with all the tenants in order to know how strong you have them locked into the lease and how strong the businesses are. If this is not a strong area of the property that will drive the price down and your realtor can determine the costs of getting the property in optimal condition and what rent would draw in that area. If those costs are not worth it based on how long you can hold the property, it’s not a good investment.
When we consider the input of experts, we have the opportunity to get precise information and apply it to our situation. These are the truest partners you will have in this entire investment as their success is tied into the success of the properties they sell as they are all truly investments whether they are commercial or residential. Every property is an opportunity for someone whether it’s now or in 10 years. That’s where the experts can help you get the right numbers and put them together.
