When it comes to wise investments, commercial real estate is a more profitable long-term option than stocks and securities. But, it does come with risks.
Here are five tips to minimize risk:
1. Buy the Right Property Type for You
There are four primary types of commercial real estate – Multifamily, Office, Retail and Industrial. The kind you choose to invest your money in can make a difference in your earning potential. Each property type has unique benefits and risks. Apartment buildings require more management, but they also usually have a higher return. In comparison, office and retail space require less attention but can also sit vacant for a while, hurting your income.
2. Know Your Numbers
Before any purchase, you should estimate how much you expect to get in return. Look carefully at the expenses that go with the property to ensure that you can make a profit. The seller can provide information about the property’s rental income, expenses and current occupancy. Take into account any repairs or renovations the property needs.
3. Know the Tax Implications
Investing in commercial real estate comes with some significant tax benefits, including deductions, depreciation and 1031 Exchanges. But there are also potential tax liabilities. An increase in property taxes can make a dent in your bottom line.
4. Do Your Due Diligence
Buying your first income property can be exciting, but don’t get too wrapped up in the excitement that you forget to do your due diligence and research the property thoroughly. Make sure to carefully examine all financial statements and lease agreements attached to the property. Physically inspect the property to see if there are any repairs or renovations needed. Evaluate the property and surrounding market and run a cost-benefit analysis to determine if it is a wise investment.
5. Don’t Go It Alone
You wouldn’t perform surgery on yourself, so why would you try to buy commercial real estate on your own? An experienced commercial real estate professional can help you through the process of identifying properties for sale, evaluating the local market and getting the best price.
When it comes down to it, commercial real estate can be a very lucrative investment. By staying vigilant to minimize the risks involved, you can benefit from maximum rewards.