WHAT TO CONSIDER FIRST
For the most part, investing in real estate is a predictably reliable ticket to greater wealth. While most amateur investors gravitate towards residential properties, commercial real estate can be quite lucrative as well. However, commercial real estate investment can be a complicated beast. Here are a few factors to consider before jumping into the deep end of the pool.
The Legal Red Tape Is More Complex
When it comes to title and setting up escrow, commercial real estate transactions are always more complicated than the residential variety. Ensuring that a commercial property is free of encumbrances is best accomplished by hiring a dedicated title and escrow service that can expedite the closing process.
Tenant Business Models Greatly Impact Risk
The profitability of the businesses that lease or buy the commercial properties that you invest in will always be a critical concern. If the real estate that you're considering is more likely to be inhabited by young businesses with thin profit margins, there's a greater likelihood of default.
Analyzing Local Demographic Trends Is Crucial
When you invest in commercial real estate, you need to think in terms of longer time frames than you would when investing in residential property. Looking at demographic trends that might impact the attractiveness of commercial property in a particular zip code in the future is a must.
The Process Can Take a Long, Long Time
It goes without saying that everything takes longer in the commercial real estate investment world. Performing one's due diligence might take months or even years depending on the investment in question. Be prepared for a variety of delays in securing a healthy return on your investment.
Dealing with Jurisdictions Is Often a Hassle
Regardless of where the commercial property you're investing in is located, you'll have to deal with a local government body at some point. Researching the permitting process and the local zoning laws is a priority if you're building a new structure or renovating an existing one.
Timing Is Everything in Commercial Real Estate
As with any entrepreneurial endeavor, commercial real estate investment is not immune to the ebbs and flows of the business cycle. Jumping into an opportunity just as a recession is about to hit isn't a good idea unless you have the capital and patience to weather the storm.
The Performance Metrics Are Completely Different
If you're new to commercial real estate investment, it's vital that you familiarize yourself with a few key terms before getting started. Knowing the ins and outs of net operating income, the capitalization rate and cash on cash as well as how they affect commercial investment is incredibly important.
No matter how you slice it, commercial real estate investment requires far more paperwork and attention to detail than most people can handle alone. That's why hiring an experienced commercial real estate services organization like Brightline Title to handle the nitty-gritty fine print for you is a wise move.
