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Buying commercial real estate can be a great way to diversify your investments, and if you own your own business, to stop paying rent and build equity instead. Here is a check list of things to do before you take the plunge.
Why do you want to invest
Depending on why you want to invest, the property you will buy will be very different. For example, if you already own a business and want to stop renting your shop or your office, and move into your own walls instead, you will look for a different kind of property than if you are looking to be a landlord and rent the place out to another business.
Research the location
There are lot of very capable agencies that can help you while searching for commercial real estate to buy. You can begin here. The location can make or break your business so be very cautious when picking your property.
Depending on the kind of business, but also on whether you’ll have some office space or a shop open to customers, you will opt for very different locations. Make sure you go there by day, by night, during the weekend and the workweek to get a feel of the place, see what kind of people pass by, if the area gets a lot of foot traffic, and so on.
Define your budget
How will you pay your mortgage? Again, if you are moving your own business there and won’t pay rent anymore, will the mortgage be less or more than your previous rent?
If you plan on renting the place out, can you afford 6 months of vacancy?
How much do you need to invest on top of that to renovate the place and adapt it to your business? Ideally, you would buy an old restaurant and keep the place as a restaurant. Turning a restaurant into a laundromat, or an workshop into a beauty salon can be really expensive. Plus the previous business may be able to sell you some furniture or tools with the walls.
If you are buying for an investment, and do not know yet which kind of tenant you will attract, try to find a versatile space, that can easily be converted for a wide range of businesses.
Optimize your purchase
You are buying as a company, so you should get in touch with your accountant and your lawyer to make sure you optimize the purchase. As an individual, you could be the owner and rent it to your own company, which would give you a guaranteed tenant and rent.
You could opt for a longer loan term and a smaller deposit in order to maximize your cash flow and grow your business, or pour the maximum amount of money into the purchase to own the place as soon as possible. Look for professional help, the little fee you’ll pay up front can save you thousands over the long term.
Put yourself in your customer’s shoes
How easy is it to get to you? Are you on a main road? Is there a highway exit nearby? Can you place a big sign? Is the place well known or will you have to spend 10 minutes with each customer over the phone to explain how to get there?
And another really important point, do you have enough parking space for your customers? That alone can drive your business away if you don’t.
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We would love to buy commercial real estate but haven’t been in a position to do so yet. Plus, most of the commercial buildings for sale in my area are for sale because multiple businesses have failed there. It is definitely disconcerting!
I don’t know when I would consider purchasing my own commercial real estate. If I had the funds I would probably start with residential rental properties.
It makes sense to do this if you are already trading from the property – then you stop the greedy rent inflation. Otherwise commercial property is much more volatile than residential property so it needs to be researched particularly carefully. If business goes bust, it just closes up, walks away and doesn’t exist any more. But if a person loses their job they still have to live somewhere.
I’m not sure when I would get my own commercial property or if I would even consider it. Commercial properties are more complicated in my opinion. It’s like setting up a business. You have to research the kind of community surrounds the property, the type of business around as well. You need to take into consideration what type of business you want to attract to rent the space or if you have your own business scour the area for competitions, and so many other things.
Great tips. I always thought it was common knowledge, but it’s amazing how many people don’t know that location is and always will be the most important thing about any piece of property.
Hi..!!!
Real estate is the business that depends on our intuitions and wise choices. You have elaborated really great points in this post buddy. Loved them.
Thanks for posting.
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My new Real Estate Company needed an office to hold meetings with customers in Texas. They thought about using a coworking space. We weren’t sure whether to do it or not. But in fact, it had a positive reaction in the clients. They said they felt great in this spacious office with some state-of-the-art equipment. The place we chose is called Ranch Office. Do you usually use offices in these spaces to hold meetings with clients?
I’ve been considering buying commercial real estate for a while now! Thanks for the article. I think it’s time finally to give it a go.
The most common risk associated with commercial property is high vacancy rates. Whereas a residential property may take a few weeks to find a new tenant, securing a new lessee could take months. The potential quality of the lessee can affect the risk associated with commercial property investment. For example, blue chip lessee’s and government departments will reduce risk levels as they will usually rent the premises for long periods and never default on payments.
Creating office business space is such a tedious job. There are specialty contractors that does renovating and office conversion perfectly. Hiring them would do great for a bussines like this.
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Having an in-depth understanding of the property market and the properties within it will help your investments generate the highest returns for your business over and over again.
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