One excellent way to diversify your financial portfolio is by investing in commercial real estate. However, this endeavor is not for those with a weak stomach, nor those with little money to spare. It is a significant undertaking that requires more expertise than the typical investment but can offer lucrative results through rents accrued and property value appreciation. If you have the financial means and the desire, below are five steps to help you secure your first commercial investment property.
1. Hire a Real Estate Agent
If you want to secure the best deal on the perfect property, you need to hire a real estate agent. Commercial real estate agents create and engage with industry networks, allowing them to direct you to transactions you may not otherwise find. They should also help you determine the value of future investments and ensure the appropriate records are available to perform the necessary calculations.
2. Visit a Lot of Properties
If you are not sure which sector of commercial real estate – office, industrial, retail, or hospitality – is the most appealing to you, visit as many of the different types of properties as you can. As you begin to narrow the field, you will find that buildings within the same sector can be radically different, so you will want to make sure that you are aware of any state and environmental laws relevant to your desired area(s). They can make a seemingly great deal unattractive quickly or do the opposite for a previously less desirable investment.
3. Learn How to Read a Proforma
To understand the value of a building you are purchasing, you need to learn how to read a Proforma. This statement will tell you how much it costs to operate the building, what the current level of building occupancy is, and what your projected gross revenue would be if the building had no vacancies. This information will allow you to perform various critical calculations, such as your potential return on investment.
4. Raise Your Credit Score
Your credit score indicates how much risk an institution will be taking on if they lend you money. A credit score below 740 signals to lenders that you are riskier than they would like, so they will require higher interest rates for a loan. If you want lower interest rates, which can mean a significant amount of money saved over time, you may want to delay your initial purchase until you raise your credit score. The fastest way to raise your credit score is to pay bills on time, pay off your outstanding credit card debt, and keep your credit card balances consistently low.
5. Have Significant Down Payment Funds
Unlike buying a home, purchasing a commercial investment property requires a significant down payment of typically 20-25%. The greater the funds you can provide at the outset, while still having enough to make your debt payments, the better your financing terms will be.
Investing in commercial real estate is more feasible than you may have previously thought. Hiring a real estate agent can make a massive difference in the transactions you’re able to gain access to. If you do not know which sector is the most attractive to you, be sure to visit a lot of properties and learn to read the various Proforma statements so that you can understand the value each investment offers. Before making a purchase, ensure your credit score and down payment funds are sufficient to help you secure the best deals up front as well as the best financing rate for your debt.
