Commercial real estate is a double edged sword. You could earn a lot of money and also take the risk of losing it all. Choose the property you want to purchase wisely and how to obtain funds to do it. The article below guides you through what you should know before embarking on any commercial real estate venture.
Bigger is better in commercial realty investments. If you were thinking of buying a building with five units, realize that it is no harder managing 50 units than five. Even a building with five units needs to be commercially financed the same way as a larger building. However, the more units a building has, the less money you’ll pay per unit.
Eliminate as many definitions of default (i.e., actions that constitute default) as possible before beginning to negotiate a lease with a new tenant. Doing so makes it less likely that a tenant can default on the lease. This is one thing you don’t want to happen.
Learn to set realistic prices by observing the market. There are a ton of variables when it comes to what will give you success.
Make sure that the advertisements for your commercial real estate reach both local and non-local audiences. Many sellers mistakenly assume that their property is only interesting to local buyers. In many cases, a private investor will be interested in a property even if it’s not in their area, so long as its price is a good one.
Commercial properties can afford you some great tax breaks and benefits upon investing in them. Investors will receive tax breaks for both interest and depreciation of property. However, investors are sometimes taxed on income that they do not actually receive in the form of cash. This is known as “phantom income.” Learn about phantom income and taxes on commercial income before you invest in your first property.
Create an informative commercial real estate blog, or network with industry professionals on sites like Twitter or Facebook. Keep your online presence updated and active, as it will often be a good source of referrals, connections and updates from important sources.
If you are investing in commercial real estate, be aware that dramatic inflation over time can have a negative impact on your results. Many leases used to include clauses to protect investors from inflation that would adjust the lease according to the CPI (Consumer Price Index). This practice is no longer around, which leaves you more inept to lose money due to inflation.
Build a network of partners, including professional lenders, family and friends to use a source of cash when the time to invest comes. Look into and set up contracts that offer you one of two options, either one that gives you an actual percentage from the income of the property you are dealing with, or fixed interest rate.
Clearly state the amount of square footage you have available. Keep in mind, there is a difference between total square feet and the number of square feet which actually constitute usable space for your business. Total square feet encompasses the entire footprint of the structure, even that space that is actually take up by walls and other space that is unusable in terms of open floor space. The best strategy is to ask for both figures, to ask for the square footage and the usable square footage.
As mentioned, commercial real estate isn’t a money tree. You need to put in a tremendous effort, which involves a big initial investment and a lot of time, to give yourself the best chance of success. Even when you do everything right, it does not always work out in the end.