Investing in a commercial real estate can be rewarding – if done correctly. Commercial property can include (but is not limited to) office buildings, retail space, hotels, restaurants, etc. The 2009 recession was a nation-wide devastation that crippled a majority of people, and it’s reasonable to fear it may happen again. However: over the long term, buying properties gives you asset appreciation and depreciation of your property for tax purposes. Here is some advice and insights that will guide you through the real estate acquisition process.
- Lease Or Buy?
Buying commercial real estate helps you build equity (through monthly loan payments). Therefore, should you choose to sell in the future, you can subtract the difference between the residual loan amount and the current fair market value. Leasing commercial real estate means your payments go towards the property landlord, and any rental increase rates they may initiate.
If you plan to buy, consider the 504 Loan Program from the Small Business Administration (SBA). The loan program offers business owners financial advances between $500-$5 million dollars. These funds can be used towards purchasing existing buildings, land purchases, renovation costs, etc.
However, buying requires higher upfront capital investments (which can rise up to 10-20% as a down payment, eating up a lot of your financial budget). When you lease, you can deduct lease payments, property insurance and property taxes, as well as maintenance costs.
- Go Online
Having an online listing of properties available will help you buy commercial real estate more easily. You can typically filter according to state, city, or investment types you’re looking for that match your particular search criteria.
- Can You Afford The Risk?
Purchasing real estate always comes with risk. Unfortunately, there is no way around that fact. However, you can minimise the risks for yourself by leveraging assets for funding when you need capital. One such risk is liquidity losses. Owning commercial property will help you with cash influx if you need to sell in the future. Other risks include significantly large capital investments, down payments, and maintenance expenditures you didn’t factor into your budget. Real estate appraisal companies are an excellent source; they compare your investment portfolio against neighbourhood, property and cost of amenities.
- Pay Frequent Visits
Whether you choose to lease or buy, it is mandatory (in order to reap the most profits and income) to visit the property on a weekly/monthly basis. Being hands-on with the property you’re interested in, such as frequently making on-site visits, will help you oversee all operation levels. This means you will learn, first hand, how the property works, what problems there are with infrastructure, and learning about local zoning laws.
- Hire Experts
Real estate brokers analyse growth forecasts and real estate market trends. This means they will be able to analyse a business and its property, and precisely calculate where it will be years after you sign paper (be it a sales agreement, contract of sale, purchase agreement, receipt for deposit, etc.). Hiring accountants is also a valuable investment, as they will help you determine what you can financially afford.
One last word of warning: seek the advice of a lawyer or real estate attorney before signing a purchase agreement. They document and thoroughly analyse leases, inspections and appraisals (as well as preparing deeds and documents). These types of lawyers are experts at negotiating the terms and conditions of real estate deals, and will help secure your property transaction in ways you may not have thought of.