It’s no secret that investing in commercial real estate can reap high rewards. Whether it be the potential for hefty returns or flexibility in maintenance expenses that draw you in, be sure to consider ways to sustain your investment before taking the leap.
To quote American businessman and investor Tamir Sapir, “If you’re not going to put money in real estate, where else?”
So if you’re prepared to drop your dollar on a commercial property — whether it’s office, industrial, retail or multifamily — you’ll need to be prepared to manage a property that’s frequented by the public and utilized by multiple occupants.
Before you get started, consider these tips:
Know your market.
One of the top mistakes commercial investors make is purchasing a high end property in a stagnant market. If you want hefty returns, do your homework first.
Know your local market conditions before you invest. Study population demographics, growth, income levels and more. Saturate your mind with the details and get to know the population that makes up your potential market.
Once you’ve identified the needs of your market, be sure you can give it what it needs in return. Be aware that each parcel of land within a specified state, city or county jurisdiction contains detailed zoning regulations that limit types of development and commercial activity.
Be prepared for the unexpected.
Options to defer maintenance or tax costs through a triple net lease, for example, may have attracted you to commercial investing, but the upfront costs, vacancies and terminated lease agreements are not always easy on the wallet.
Before investing, know your financial constraints and be prepared for the unexpected. Are you capable and willing to cover costs related to maintaining the space? Can you afford vacancies?
Acknowledge that you’ll likely require the help of trained professionals to facilitate the upkeep of your property. You’ll need to cover costs in order to maintain a safe and sustainable space for the public to frequent on the daily.
Get to know your tenants.
Above all, know that managing a commercial property is a lot more hands-on than a residential property. It may seem simple, but when you’re in the position of leasing out five units to five separate tenants, things start to get complicated.
Absent landlords who neglect to properly manage their commercial property and tenants rarely generate high rates of return. Understand that investors and tenants have a combined interest in maintaining an accessible and appealing space for the public.
As an investor, it’s your job to ensure leases are properly managed, maintenance costs are correctly assumed and that professionals step in to help with repair when required.
The type of harmony described above can only be achieved if you put forth the effort. Take precaution, know your business and take risks. If not real estate, where else would you spend your money?
Troy Muljat is a Washington State certified commercial appraiser and broker with over 25 years of experience in the commercial real estate industry. He holds the Certified Commercial Investment Member (CCIM) and Certified Property Manager® (CPM) designations through the National Association of Realtors.He specializes in brokerage, leasing, property management, development, and commercial appraisal.Visit TroyMuljat.com for more information about Troy.