Investing in commercial real estate can be both favorably and unfavorable. You can make tons of money, but you can also suffer financial ruin. You not only need to choose your properties wisely, but also your funding sources. The information from this article should shed some light on the fundamentals of commercial real estate.
Regardless of whether or not you are the seller or the buyer, negotiate! Be sure that your voice is heard so that you can get yourself a fair price on the property you are dealing with.
Take digital photographs of the unit. Be especially diligent in photographing any flaws that exist when you move in, like cracks in the wall or stains on the carpet.
Pest Control
If you are looking to lease or rent, the issue of pest control is a critical one to address. Talk to your rental professional regarding pest control policy if you rent in a community known for bug or rodent infestation.
The location of the property is the most important factor to consider when investing in commercial real estate. When investing in a property, consider what type of neighborhood it is located in. Also review the expected growth of other similar communities. You’ll want to choose an area that is on the upswing and will continue growing for at least a decade into the future.
Real estate deals must include inspections, so check the credentials of the inspector. A lot of people have no accreditation, especially in pest control services. A non-accredited inspector could be a source of problems.
Be sure you position yourself well when it comes to negotiating any lease for commercial real estate, you want to do things like decrease what could be considered as a default event. The tenant will then be less likely to violate these terms. You want to avoid any circumstances that could lead to this occurrence.
Have your property inspected before you list it for sale. Have any issue that the inspector finds repaired right away.
Do a walk-through of each property on your short list. As you tour each property, you should bring along an experienced contractor who can offer helpful input. You can then make an initial offer and begin the bargaining phase. Give a bit of thought to the counteroffers before deciding to accept the offer, make a counteroffer yourself or walk away.
Smaller Issues
Start drafting letters of intent by focusing on the more central issues. Once you have agreement on those, broaden the negotiations to include any smaller issues that remain. The initial negotiations will be less tense and the smaller issues will seem less important later.
Establish your goals and needs before you start looking at properties. Take the time to outline what your needs may be, from number of rooms to types of spaces needed. This should include the appropriate number of washrooms based on people present.
Dual Agency
Read the disclosures of the real estate agent you are planning to hire. Some agents work for a dual agency. In this case, the real estate agency represents both sides of the transaction. In effect, while you are paying the agency, they also work for the opposite side; if you are a prospective tenant, for example, the dual agency represents the landlord, as well. The fact that the agent is representing both parties must be disclosed to everyone involved and those parties must sign off on it.
Itis customary for the borrower to arrange for the appraisal on a commercial loan. The bank won’t let you use one not ordered by you. Order your appraisal yourself to ensure that you will be eligible for commercial loans.
If you want to spend some money on commercial real estate, consider tax breaks you may get. Investors will receive tax breaks for both interest and depreciation of property. However, investors sometimes receive “phantom income”, which is income that is taxed, but not received as cash. Find out if you will be getting this kind of income before you invest.
This is done so you can verify that the terms match the rent roll and the pro forma. Failing to review the terms might cause you to encounter a term not encompassed by the rent roll, thus resulting in changes to the pro forma.
As previously stated, commercial real estate isn’t a slam dunk. For a chance at success, you’ll have a large, initial down payment, plus significant time and effort. There’s no guarantee of success, either; you can do everything correctly and still lose money.