Points for Investing in commercial real estate property for beginners is not as hard as it may sound. Of course, following the long term investment policy will yield you higher returns. In fact, the returns are much more than the most instruments of debt. To make things go smoothly, there are certain considerations needed to be followed.
Take a look at the steps to be adopted for investing in commercial real estate for beginners.
Location gets the primary focus. The returns in any commercial property are extracted from two sectors – rent and capital appreciation. Both are largely dependent on the location of your real estate. Always choose those locations that have a vacancy of less than 5%.
This implies that the supply is in control and the tenants are less prone to empty the land. This in turn leads to more rents and higher capital appreciation. The more is the vacancy, the more is the possibility of the tenants to move to other options and renegotiate.
It might happen that there are two buildings in the same location. But the one that promotes a better quality will obviously get the rent first hand.
The better building will attract 4 things at the same time:
1.Quality of tenants
2.Higher capital appreciation
3.Better tenant retention
4.Investor higher rents
The multinational investors are ever ready to a premium amount for the best quality. While investing, check out the certifications of LEED, the platinum or gold ratings, or the buildings that have good facilities like elevator, good looking balconies, high ceilings, and the like.
3. Demand vs supply
Any savvy investor will first analyze this demand vs supply factor before purchasing or investing in a commercial property. Each city has their set of micro markets. If you notice that the annual supply crossed the historical demand within the next 2 or 3 years, know that the prices of the rents are sure to drop down. When there is an unnecessary high supply, both old and the new properties will be affected.
4. Quality of tenant
When there is a good tenant, the value of the commercial property is increased automatically. It is better to fetch for multinational companies than to give entry to unknown or small companies also, it has to be acknowledged that having a good tenant is a boon. They pay the rent on time, pay more deposits, remains for a longer time and lastly, heighten the value of the property automatically.
5. Security deposit
The security deposit for commercial properties differs between 10 and 12 months’ rent. When tenants offer a rent of 6 months or much less than that, be very careful about it. This implies that the tenants are looking forward to a second option or there are some cash issues.
These above major points will help you in investing in commercial real estate property & with great profit…!!