Commercial real estate has always been better deals compared to residential real estate. The properties exhibit higher cash flow, advantageous economies of scale, and the relatively open market, not to mention cheaper cost on property management services due to the larger supply of commercial property managers. But before you congratulate and pat yourself in the back for making such a pragmatic and profitable decision, you’ll have to learn how to best analyze commercial properties first. Interviewing a large group of experienced and successful commercial property investors, here’s 5 takeaways on how they analyze the market including why you should hire a commercial real estate consulting firm.
Research the Basics
Commercial property research establishes a solid foundation before you take on more complex terms, concepts, and analytical tools. Before researching a commercial property, ask yourself critical questions, such as what kind of property are you looking to invest in, what your risk tolerance is, your competence and/or willingness to assume a landlord/landlady position for the property, and your financial capacity to fund such investment. Research commonly used terms, such as Loan-to-Value ratio, Capitalization Rate, Vacancy Rate, and Ad Valorem.
Think About What the Pros are Thinking
If you want to be a big player in the commercial real estate market someday, you need to learn how the pros think, particularly how they analyze good buys from toxic ones. For instance, understand how professionals undertake commercial property risk management. Income generated by commercial property will depend on the usable square footage, which is simply not the case for residential units. To develop a mindset that is homogeneous to a professional’s way of thinking, read books written by experts, follow them on social media, and attend webinars and in-person conferences.
Ask a Ton of Questions
When you get commercial property consulting, ask all the questions you can think of regardless of how unintelligent it might sound. When choosing a commercial property consulting firm, ask how much experience they have in the niche, what specific commercial properties they specialize in, such as barber shops or convenience stores, and what other services are they prepared to offer aside from initial consultation.
Assemble a Good Team
Commercial real estate consulting professionals aren’t the only ones you should be working with to make the most informed decision possible. There are other experts along the way that you may need to get help from, such as a mortgage broker, lawyer, and commercial broker. A good accountant will also serve as a valuable asset to figuring out business financials, maximum tax benefits and in-depth operating budget analysis.
Focus on a Specific Location
Narrow your search within a specific location, particularly in a neighborhood you are familiar with. While most will argue that such tip would result in limited investment opportunities, experts like the idea of being able to focus your search on a specific location as this leads to better quality analysis of properties. Spreading your time and energy too thinly will only make it more complicated since you end up having too many things to keep track of. The Altus Group website is a good reference if you want to find more information online.