Photo by Drew Beamer on Unsplash
So, you’ve decided to take the plunge and start your commercial real estate portfolio. If you’re new to this sort of investment, don’t go in blinded by ideals and ambition. Even those who’ve been in the residential property game for years will want to regularly brush up their knowledge and understanding of this exciting, yet challenging field. Commercial real estate is often viewed as a safer investment than its residential counterpart. While this may be true, any sort of investment is a balance between risk and reward. Generally, people get into this side of the game because there’s more security with tenancy and larger returns to be earned. However, these won’t help you if you fail to do your homework and manage the associated risks. Luckily, there are certain steps you can take to further minimise your exposure and keep your portfolio strong:
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Do Your Research
It doesn’t matter where you’re looking, there will always be commercial property for sale. Just because it’s there doesn’t mean you should just jump in and buy it without performing your due diligence. Do some research on the area in which you’re looking to buy, and compare the property you’re considering against those around it. This is what your prospective tenants will be doing, so it pays to know the market well. If you have your eye on a specific property, it’s crucial to have a comprehensive history of the property, so that you know what kind of maintenance it will require.
Have a Plan
You’ll want to sit down and work out exactly where the money for this venture will be coming from, and have contingencies in place should tenancy arrangement not go as planned. You’ll also need a solid plan for how you intend to execute your ideas. This is good practice with any investment but real estate tends to require a larger initial outlay, so it’s vital to be prepared should the market throw you a curve ball or two.
Speak to a Professional
Now you’ve got the basic groundwork done, it’s time to bring in some specialized help. We’re not talking about chump change here, so it always pays to have at least a financial advisor and real estate agent on your side. Set up a meeting with your trusted advisors and start crunching numbers, while you may think you’ve covered every angle, two heads are better than one, and three is even better. Your A Team will also be able to help you go through your buying, funding and maintenance plans to ensure you’ve covered everything, and advise you as to any permits you may need.
Have a Purpose
Speaking of permits, if you’re going to want to change anything in your building, you’ll probably need one. Head into your new purchase with a solid idea of what you want to do with the property and if you plan on making any alterations, make sure you’ve factored in the cost of renovations, surveying, permits and lost income from the time where your new building probably won’t be habitable.
The critical mistake that people make when entering the commercial real estate market is thinking that they’ll be fine without planning and investigating all possible variables, because it’s established itself as a “safe” investment. If you can avoid this pitfall, you’re halfway to having a successful property, which can help provide for you for years to come. Make sure that all of your ducks are in a row before you put any money down, follow your plan and watch your bank balance, and portfolio, grow.
