Tips for Investing in Commercial Real Estate, what all you should know?

Dec 24 2018

Commercial real estate seems like a far fantasy to a lot of investors. Due to its volatile nature and heavy investment demands, the commercial sector is usually inhabited by the experienced lot only.

But things aren’t so if you ask us. Anyone who knows the ground rules well can invest in commercial real estate equally profitably. The basics of investing pretty much the remain the same, it’s just that some additional business factors weigh in.  

Here are some crucial tips and tricks you must know before investing.

Look for Low Vacancy Spots

Commercial property circles with the vacancy as low as 5 to 10%, are the best places to invest. They offer you a higher degree of safety with tenants who want to lease the property for rent.

The gains on commercial property offered by rented acquisitions are far more attractive than the capital gains over time. Therefore, aiming properties that offer a strong return on investment with consistency of recurring rent payments is better off than others.  

Quality is the Queen

Just like a beautiful house, commercial space that looks and feels premium, attracts renters the first. All kinds of multinationals like to set up their offices in buildings that present aesthetic features and spacious lobbies.

Therefore, your first preference should be the buildings that have a better outlook associated with them. This way, you will be able to collect a better income on the property side by side attracting premium buyers for the property.

Office Interior Development

When you go out to buy an office space, you only get the walls and the floor. Everything else, from false ceiling to cabinets are installed by the tenant who wished to hire the office for their business.

The expenses incurred in developing the interior can either be borned by the developer or the tenant. If the developer does so, a rent for the interiors is charged by the developer. The other way around, if the tenant themself decide to build the interior, they sign in for a long term of acquisition, which is something you should aim for.

Check Leasing Terms

Commercial leasing periods and terms are different from residential property. You can lease the property for tenures of 3 + 3 + 3 or 5 + 5 + 5 years. These leasing terms directly affect the security of your rental income, hence they must be created carefully.

There are clauses for lock in periods as well, wherein the tenant can’t leave the property before a certain period of time. The higher the lock-in the better it is to you as the investor.  

Invest in bits

The last piece of advice is the most generic one but holds absolutely true. Don’t put all your eggs in one basket. The concept applies to commercial properties equally well.

Its better to invest your money in different locations offering different ways of revenue generation rather than putting all your bets on one location. You’d be able to evade property risks in an organized way and will have the power to mobilize funds when required.    


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