THREE QUESTIONS TO ASK BEFORE ANY COMMERCIAL PROPERTY PURCHASE
On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Wednesday, July 11, 2018.
Commercial property is one of the most solid investments you can make over time, but only if you invest wisely.
How can you make sure that you’re putting your money where it will do you the most good? Ask questions about the indicators of investment success before you buy any piece of property.
1. What is the neighborhood like?
Take care to evaluate both the current condition of the neighborhood and the things that are likely to change its shape in the near future. For example, a property that’s in an area that’s gradually being gentrified could bring about significant returns if you buy early.
Look at the changes in the area and try to determine the general direction that the neighborhood is moving. Plans around hospitals, public transportation, roads and zoning can all affect your investment’s value.
2. Is the seller motivated?
You want to get a deal for your money, which means you need a seller who is motivated to let go of his or her property at a price that gives you room for profit. There are plenty of them out there, especially as owners age and decide to move on to other places, but you need to be willing to walk away from any property where the seller isn’t ready to deal.
3. What will your net operating income be?
This is a critical question. You can’t tell how valuable (or affordable) a commercial property is going to be unless you have some idea of what your net operating income will be. Calculate the value of the property’s gross income and subtract the cost of your anticipated operating expenses. This will give you the net figure you need to determine if you can make a profit.
The more familiar you are with the language of commercial real estate investment, the better you’ll be at picking out a good deal when you see it. Take plenty of time to familiarize yourself with the process. Commercial real estate purchases are something that you never want to rush if you want the most reward for your money.
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