It can be more profitable for investors to spend money on commercial properties instead of residential properties. One of the greatest benefits is the additional cash flow. But well as you know, making a good deal when investing in commercial properties is not a piece of cake. First of all, an investor needs a lot of patience in order to research the market extensively and he needs to prepare his moves like a professional chess player. Here are some of the most helpful tips and tricks that will assist you in finding an excellent commercial real estate deal.
Come up with a good plan
Investors should set their parameters before making the deal. For example, they should know exactly how much money they afford to pay for a commercial property, who the most important players in the market are, how many tenants are currently paying rents in the commercial property in question and so on. By knowing all these details right from the start, he is more prepared to make the best decisions when it comes to buying commercial real estate.
Familiarize yourself with the real estate jargon
In the real estate world there are several terms which need to be completely understood even by investors who don’t have a lot of experience. For example, the cap rate is used to calculate the value of properties which produce income. Commercial office buildings or small malls are excellent candidates in order to determine the cap (or capitalization) rate. Such a factor is used to estimate the net present value or cash flow and it is an essential tool in making a good deal.
Similarly, investors need to be familiar with the NOI or Net Operating Income. The NOI must be positive and it can be determined by subtracting the operating expenses for the first year from a commercial property’s gross operating income in the first year.
Speak with property owners in the neighborhood
This is called neighborhood “farming” and it is a great way to find out the value of a commercial property. Basically, investors should speak with other property owners in the neighborhood, go to open houses and look for vacancies in the area.
Use multiple methods to find out about excellent deals
Investors should spend some time and effort in order to obtain the desired results and they need to refine their searches and searching methods. For example, they should take advantage of the internet in order to find out good deals quickly. Similarly, they should look for classified ads and hire bird dogs. A bird dig can help one find very valuable leads in exchange for a small fee.
Learn to make the difference between commercial properties and residential properties
Commercial properties are very different from residential properties. For example, the actual value of a commercial real estate is determined by the square footage that can be used, in comparison with residential properties. In a similar fashion, commercial property leases extend on a longer period of time, in comparison with leases for single-family properties. Lastly, those who lend commercial properties prefer to get a down payment of at least 30% before they agree on the real estate transaction.
Have a lot of patience
Investing in commercial properties and making profits is not something that can be done very quickly. Investors need to be patient, do their homework properly and the good deals will definitely appear. Commercial deals should be considered as great bonuses after a long period of hard work, not as a quick sum of money in order to pay the bills.
This is one of the most important tips investors can get. Developing relationships is very important when it comes to buying or selling houses, but even more important when it comes to commercial properties. First of all, the prices of such properties are much higher and investors need to work with partners in most cases. Secondly, a lot of commercial properties are sold even before they are getting listed, so it can be very helpful to know a lot of people who can provide useful pieces of advice or tell details about such transactions. Investors need to develop new relationships all the times while maintaining their current ones.
Learn to think big
Getting commercial financing can involve a lot of hassle and it is not justified for buying a small commercial property or an apartment with 5 units. Investors should think big right from the start and go for commercial properties which are large and more spacious. Maintaining them is not hard and the larger the apartment complex, the cheaper the unit.
If you would like to invest in commercial or industrial properties and you need professional guidance, make sure that you give us a call and speak with our specialists. We can offer you pertinent counsel, saving you time and money while providing you with thousands of commercial properties for you to choose from.