As an agent, you already know that the real estate industry has the potential to be incredibly lucrative. Residential real estate can earn you millions of dollars if you’re a master of your trade – but, if you’re out to earn billions – you may be more interested in the commercial side of things.
Why is commercial real estate such a profitable venture? Apart from there being an endless variety of properties to invest in, commercial spaces tend to offer the best return on investment. If you’re seriously considering investing in a commercial property, you’re probably wondering what steps to take next. Keeping in mind that this process may have a steep learning curve, we hope that these helpful acquisition tips get you started on the right foot.
Know your goals.
Ask yourself all of the important questions up front: What kind of property are you looking for and in what location? Are you looking to build equity, use the property for your own business or rent it out? Will you be buying or leasing? What is your financial situation? Will you be needing a partner or property manager? What is your risk tolerance? How much time are you willing to commit to this project? This is just a sampling of the key questions that must be answered before moving forward with your investment.
Familiarize yourself with the local market.
You may think that you know the area, but before you go all in and commit to purchasing a commercial property, it’s imperative that you familiarize yourself with the market that you’re considering buying in. Like properties, every market is different – each with its own unique figures in terms of employment rates, tax rates, inventory, etc. Being well informed about the area in question allows you to make the tough decisions that will enhance your chances of success.
Develop a plan.
Once you’ve hammered out all of the pertinent details, including what you want, what you’re up against and the basics about the area in which you plan to invest, you are ready to develop your plan of action. Among other things, this means establishing parameters; knowing your price range, how much money you plan to earn from the property and what exactly you intend to use the property for. A solid plan will act as a guide for all of your investment decisions, allowing you to achieve more success in your venture.
Learn and practice your vocabulary.
Commercial real estate has no shortage of fancy acronyms and vocabulary for you to add to your glossary. Like in any industry, being savvy on the lingo will make working with your colleagues and clients much easier and more comfortable. You wouldn’t want to show up to a meeting not knowing what a debt service coverage ratio is, would you? Since you’re probably not familiar with all of the terms, we’ll link you to a few important ones to get you started.
Assemble your dream team.
Even the best of us can’t do it alone – commercial real estate is a complex process that requires a little help from the experts. Your team should include a commercial realtor, commercial estate lawyer, accountant and mortgage broker. Of course, a more complicated property could also demand the assistance of more specialists, such as accountants, tax experts, appraisers, environmental specialists and engineers. Make sure you have these key players on deck before embarking on your commercial real estate journey.
Set up financing.
Your access to financing can make or break a deal in the fast-moving real estate market. It would be wise to have your finances in order even prior to searching, but at the very least, you must sort it out upon deciding on a commercial property to invest in. Find a suitable bank or mortgage company to use and work out the potential interest rate based on your credit. You could always opt for a more creative method of financing the property if traditional methods fail you, such as a second mortgage, leasing or seller carry back.
Make an offer.
The time has finally come – you’re ready to make an offer! With this step comes a considerable amount of paperwork, including documents like the letter of intent, which outlines the basic terms of the transaction. As you go through the process of making an offer on the property, your lawyer will explain all details of the written agreements, so that you’re aware of all rights and obligations. Make sure not to sign anything without your lawyer’s review.
If a commercial real estate investment is on the cards for you, we hope that these steps can help you to secure a seamless acquisition, and we wish you nothing but success in the rewarding industry of commercial real estate.