Commercial Real Estate:
10 Questions to Ask BEFORE You Buy-
You may be Considering a Small Commercial Real Estate Property Purchase… Maybe You Have Heard That There is Good Cash Flow in Commercial Real Estate OR…Maybe You’ve Even Looked Around and Found Some Properties That Seem To be For Sale at Really Good Prices…
BUT- How can you figure out if Commercial Real Estate is a venture that you would like?
There are some questions that you need to ask yourself before you buy that commercial real estate property.
- What Type of Property Should You Invest In? There are a number of types of commercial real estate properties; Apartment building, office building, retail buildings, mobile home parks, self-storage units, mobile home parks, an existing business, and many more. There are pros and cons of each and it partly depends on whether you’re looking for cash flow or flip cash and how active you want to be in the business. (We cover the ins and outs, pros and cons of several commercial niches, you can watch them FREE here.)
- How Do You Want to Be Involved in Your Investment? Do you want to invest you time and energy as well as your money? Do you want to just invest your money and let someone else do the heavy lifting?
- How Long Do You Want to Be Involved With This Investment? Do you want to be involved in this venture for less than a year or more than 10 years?
- In What Area Do You Want to Invest? Do you want the investment property to be close enough to check on frequently? Do you want the property to be easy to get to so you can work in or on the property?
- Are You Going to Finance the Investment? If so can you qualify for the funds? Can the investment property qualify for the amount of money that you need?
- What ROI (return on investment) Are You Expecting? Can the property investment that you are considering return that rate? Is commercial real estate a better ROI than other investments? Is the risk greater?
- What are the Government Regulations Affecting the Commercial Property. Every state, county and city and small community has their own set of regulations. Part of your research is to find out what those regulations are and when and if they may change in the near future.
- What About Income Tax, Does the Investment Leave Any Room for Profit After Taxes? Of course you will be hiring a good tax person to help you with the ongoing business. But consider getting advice from a real estate tax attorney before you buy. You want to know how to buy a commercial property that will take advantage of the tax laws.
- Is This Investment a High Risk or Low Risk? There are a lot of commercial property investments that are low risk, if you know what you are doing. These same investments become high risk when you do not know what you are doing. Also, there are high risk investments even when you know what you are doing. It is a very bad thing to take on a high risk investment when you are also a high risk investor (not experienced and/or do not have any knowledge in that particular area).
- Are You Looking For an Income Producing Property or a Property That Will Grow in Value? Of course you would like to have both. A few years ago you could have both, but that is not generally the case now. There are always exceptions.
Deciding to make an investment in commercial real estate property is a big decision. It is very important to ask yourself many questions about this decision. It is equally important that you ask many questions about that particular property.
The biggest problem that investors have is that they do not even know the questions to ask.
Believe it or not, the questions are more important than the answers
Let me give you an example. A few years ago I was looking at a property in Utah. I asked my usual long list of questions. Everything seemed to be going well. I was ready to make an offer, and then my friend asked me about the water rights. Water rights? What is that? Were I live water rights are not an issue so I never need to ask about water rights, we have plenty of water.
I found out that I could not use the property for the purpose for which I was buying because of the water rights. I almost lost a lot of money just because I did not know all the questions.
What to Do Next:
The question you want ask yourself is what is my Purpose for investing in this commercial property. Cash-flow, passive investment, active investment, lump-sum cash, etc.
The next question to ask is how much time do I plan to spend in the business.
The final question is; should I focus on a sub-niche of commercial properties…like Apartment buildings, or self storage or retail space or office buildings, etc. How do I know which of these niches I should focus or or should I try to be a ‘genralist’.
To determine if you want to specialize in a sub-niche, you may want to browse a few videos we have that cover the ins-and-outs of various niches. Watch Videos Free
And/Or…there are 7 Critical Steps to becoming a successful commercial real estate investor email series that you can sign up for free in the right hand column.
Best Wishes
S.Reid PhD
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