Everybody always talks about how lucrative purchasing a property and getting into the real estate market can be. However, these discussions are almost always centred around residential plots, and they never mention how profitable the commercial side of real estate can be.
What people don’t know is that commercial properties tend to be more financially rewarding than residential properties. However, as with most investments, higher rewards come with higher risks. If you’re interested in making money via commercial real estate, you’ve come to the right place.
In this blog, we’ll explore all the details you need to consider before you decide to purchase your first commercial real estate.
Location, Location, Location
As with any real estate property, location is one of the most important factors to consider, but even more so with commercial real estate. If you’re purchasing a retail space, you’ll need to ensure it’s located in a popular place, or nobody will want to rent it out from you.
Similarly, you may not have a large enough budget to secure the more popular locations. In this case, we recommend that you scope out the scene for up-and-coming neighbourhoods or developments so you can get in early whilst prices are still low and get a great return on your investment.
Consider Public Transport Links
When you’re scoping out different properties there are multiple things you need to think about. Location is only one of them. For example, you need to ask yourself how accessible this area is.
If your commercial space is a venue in which people spend more than an hour at, you’ll need to ensure there’s space to park outside. However, you should also consider the fact that not everybody owns a car. If your retail space it next to any public transport links this can vastly improve accessibility
Types of Leases You Can Offer
Once you become a landlord, you’ll need to evaluate the level of risk each tenant incurs. Commercial tenants can be harder to evaluate because their ability to pay rent depends primarily on the nature of their business.
However, there are several types of leases you can offer to mitigate the level of risk that you take on as a landlord. More specifically, there are single, double, and triple net leases. The most secure type for a landlord is the triple net, or NNN, lease which requires the tenant to pay rent as well as property taxes and insurance premiums.
Bring in An External Inspector
Before you commit to buying a property, it’s important that you make sure it's in good shape and that the quality matches the price tag. We always recommend that you bring in an external inspector that has no ties to the seller. They can help you walk away from the deal feeling as confident as possible with your purchase.
This way you can rest assured that you’re getting a professional opinion regarding the property. A third party can take a look at everything from the foundation and structural components to the electrical systems and plumbing.
If you do happen to find any serious issues with the space, you can use this to your advantage and negotiate a much lower price for the property. Let the seller know that you’ll be investing additional capital into fixing the issues, so this should be reflected in their price too.
Practice Your Negotiation Skills
If you’re seriously considering a property, it’s time to whack out those negotiation skills. In most cases, realtors will amp up the price of the property expecting buyers to negotiate. Take a look at other commercial spaces in the area and evaluate how much they been sold for.
However, you should also be wary of how much negotiation is too much. Send out an insulting offer and you could end up losing the deal entirely. Make sure you’re respectful with your negotiation and that the seller takes you seriously. Don’t appear too keen or too withdrawn, as there is a fine line between the two.
Before you commit to such a large purchase, it’s important that you recognise the state of your finances and whether you have enough time in your schedule to manage this property. Once you’ve gone through all the more tedious logistics, it’s time to get the word out there and find your first tenants. You’ll learn a lot throughout this experience, just make sure any mistakes you make along the way help improve your journey.