Regardless if you want to purchase a retail building or an apartment complex the single goal with any commercial investment property is to make money, and these 9 tips help ensure you make plenty of it.
Your options are wide open when it comes to buying commercial investment property in Florida. The million dollar question remains: how do you know a quality commercial property when you see one? First and foremost, you hire an experienced real estate agent that knows the ins and outs of the local industry. The following tips help too!
How To Find The Best Commercial Investment Property
1. Take All Numbers Into Consideration
Commercial real estate can help diversify your risk. For instance, if you lose one tenant in a large building it’s not as big of a blow as if you lose one tenant in a single-family home. But, if you don’t take all numbers into consideration it can also increase your risk. Don’t forget to consider NOI, cap rate and cash on cash.
-Net operating income (NOI) is a property’s first year of gross operating income subtracted from the first year’s operating expenses.
-Cap rate is the formula used to determine the actual value of a commercial investment property. This is calculated by finding the max possible future profits a property is capable of producing.
-Cash on cash is important if you plan to finance the property because you must subtract these expenses from the NOI, as a mortgage is an additional operating expense.
2. Have A Plan Before You Shop
Make a list of your priorities before going out to shop. Consider things like: how much can you afford to spend? How much do you want to make back every month? Who are the key players of your future operation?
3. Bigger Just Might Be Better
The more units your property has to offer the more money you can make. As the common saying goes, it’s just as much work to manage 10 units as 50 units, but 50 units is going to make a lot more money! Don’t put a cap on your potential possibilities or else you might miss out on a great opportunity.
4. Be Prepared For Unexpected Expenses
After your offer for commercial property is accepted there’s a period of time for appraisals, property inspection and other legal inspections. All of these inspections add up and the costs for commercial property inspections far supersede inspections for single-family homes. In the end, you could end up spending $6,000+ on all of this only to find out the property is riddled with issues and you don’t even want it.
5. Patience Is Your Pal
Buying a family home is a time consuming process, but buying commercial real estate takes even more time. Don’t think of buying commercial investment property as a quick way to pay your bills next month. Instead, you have to be patient to reap the full rewards.
6. Farm The Area
I know we said farm, but put your tractor away. To ‘farm’ a neighborhood all you need are your two feet. Before buying real estate in any community it’s important to get a good feel of the area, what sort of shops are open for business? How busy are they? Are there any vacancies?
You also want to do your research on the actual property you are interested in. What was tenant vacancy for the previous owner? What sort of business was conducted? How could you come in and make it better/more profitable?
Take the opportunity to talk to current tenants if possible. Ask them what they like or don’t like about the current property, as well as ways business could be improved.
7. Look For Good Deals
Commercial real estate goes into foreclosure just like residential property. You might be able to score a really good deal on a foreclosed commercial space. Of course, it’s important to remain mindful of the additional risks associated with buying any bank-owned property.
8. Large Down Payments & Good Credit Pay Off
The bigger your down payment the greater advantage you have in regards to scoring lower interest rates. This is especially true if you have at least a 25% down payment. Having a solid credit score, above 740, is going to help out a lot in regards to lower interest rates too.
9. Hire A Reputable Real Estate Agent
The best way to simplify the process and erase some risk is to hire an experienced real estate agent that is very familiar with commercial real estate in the area.
Curri Properties specializes in commercial real estate in central Florida. Our expertise and solid connections make all the difference.