Investing in Commercial Real Estate: Top 5 Investment Tips
September 29, 2022
Commercial real estate investing is becoming more and more popular in recent years. Investors want to get their money’s worth and broaden their portfolios with a range of office buildings, retail spaces, industrial, and more. With the economy we’re currently in, taking advantage of the commercial real estate market while the iron’s hot is one of the wisest choices investors can make. Investing in a commercial real estate property offers a world of benefits and opportunities, but comes with risk, just as most other investing projects. As a commercial real estate investor, it’s important to be aware of and analyze a variety of factors before making an investment. Here, we’ve compiled five tips that will help you get a better understanding of the commercial real estate space and enable you to invest sensibly and responsibly.
Calculate the ROI
When conducting business, you ideally want to understand the profits made from the deal as well as check into the potential yield it will generate in the future. Your yield is the annual return on the capital investment you make and is expressed as a percentage of the capital value. The gross yield is the income received before deducting expenses and the net yield is the final return on investment post deduction.
Learn the Terminology
Whether you’re just starting out in the world of business or you are a seasoned investor, the terminology used in the commercial real estate industry can confuse even the most experienced. Familiarizing yourself with common terms such as net operating income, cost of occupancy, cap rate, and more will help you navigate this real estate sector more smoothly.
Do Your Location Research
Location, location, location: the main ingredient to a successful commercial real estate investment. Location plays a large role in deciding where your business will live and determining how well it will perform in today’s market. Accessibility to main roads, major highways, airports, and downtown areas are all factors that can make or break the value of your business. For businesses that deal in software operations, you may look for a location that’s a bit more centralized near various cell towers, whereas if you’re a business that deals in retail you may want to search for a location in the heart of a downtown area where other shopping outlets exist.
Plan to Plan
Just as you make a grocery list before shopping, it’s important to make a list of everything you need and want out of a commercial real estate property before you hit the ground running. Ask yourself the hard questions and do your research ahead of time. This will help eliminate any confusion while browsing properties and will allow your real estate agent to show you properties guaranteed to hit the mark. Here are just a few questions you should consider asking before you look at commercial properties:
- How far are you willing to travel?
- What unique qualities do you want the space to have?
- Do you prefer rural, urban, or suburban?
Have a Replacement Reserve Account
Commercial real estate investors often set aside money known as a replacement reserve account. The purpose of this account is to replace anything needed to properly manage the property. This nest egg of income is typically put into action when there is wear and tear or immediate damage to the building: new roof, siding, low-bearing walls, etc. The amount of money you set aside will depend entirely on the building itself and a variety of other factors, including the age of the building.
Commercial Real Estate Investing with Farbman Group
At Farbman Group, our team carries a deep-seeded knowledge of markets and trends to maximize your investment, working with a strong sense of accountability. We understand the importance of investing at the right time and with our development and site selection services, we’re able to provide our clients with unmatched insight into geographic, market, and census data. Additionally, Farbman Group doesn’t just stop there. We take great pride in managing our relationships with each of our clients and offering services that best suit their needs. With personalized property management services, construction services and commercial real estate brokerage services, we’re able to assist investors with every aspect of the project. Learn more about our range of commercial real estate services and start increasing your income, today.
Commercial Real Estate Solutions
With more than 40 years of experience and 25 million square feet of property in our portfolio, Farbman Group is the leading commercial real estate firm in the Midwest. We oversee every aspect of property management, from financial services to construction to real estate brokerage and beyond. To learn what our hands-on, transparent, and solution-oriented approach can do for you, call 248-351-4386 or contact us online.
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