With the fall of the inflated housing market a few years back, forward-thinking investors saw an opportunity to delve into business real estate. Properties were selling for prices well below their value, which made the risk of commercial real estate investing seem not as great. Fast-forward to today, where the housing market has steadily risen over the last 60 months, and some enterprising individuals may be considering if they have missed the boat on getting into business real estate. The prices of properties has risen, it is true; but with the right knowledge, it is still possible to create a viable side business.
This Is What You Need to Know Before Looking At Any Properties.
Perhaps the best thing you can learn before anything else is objectivity. If it is not a property you and your family will be living in, it is not necessary to fall in love with it. Business real estate is a huge investment, even with the bank lending 60 to 70% of the purchase price. There are multiple factors that affect the possible success of this business venture. It will be difficult to accurately estimate that success if you are justifying a purchase instead of debating it.
The Money Terms You Need to Know.
Business real estate, at least the success stories, requires more detail and estimation than simply picking out a pretty property and finding a tenet. The estimated net income; future cash flow; return on investment; the cash-on cash-return; and the final total ROI need to be computed before any money is put down. As a guideline, depending on the area commercial properties generally see about 6 TO 12% of the purchase price on their annual return.
Additional Factors You May Not Have Considered.
Let’s assume you have found a good solid property to invest in, and are ready to rent. But there are other potential problems to watch out for first. Have you considered who you will rent to? Before paying a downpayment, did you check the local school rankings, or if the property is in a high- or low tax area? This can determine who will want to rent. Also, do not assume you know enough about the future tenets. To avoid problems in the future, make a contract of what is allowed, what is expected in terms of upkeep, and what you as the landlord will fix. If you are not a contractor or plumber, it may be beneficial to hire a contractor on-call for emergencies.
Business real estate is a big investment and takes quite a bit of time, both in the initial investment and in the upkeep. It can be a successful side-business, or your main business if you have the time and inclination (and cash). Remember to be objective about all properties before putting down any money. Have enough money on hand for unknown complications. Be careful who you rent to, and remember to have someone on call for maintenance issues. You’re an entrepreneur, not a plumber.