Things To Know When Buying a Investment Property
by Mish Daniel | Free Information
It can be daunting understanding the many things you need to know when buying an investment property, particularly with commercial real estate.
Whether you are yet to invest in property or are looking for commercial real estate, we can help you.
We have put together a handful of tips for buying commercial property, regardless of where you are on your investment journey.
Check that the yield and potential future earnings are cash flow positive
When looking for a commercial investment property, one of the first things to do is “run the numbers”.
This means calling the commercial real estate agent and requesting the financial figures. While there could be well over 10 different financial figures you want to get depending on the type of property, the main figures you’re after include property sale price, outgoings and tenancy rentals.
From there, you can run the numbers with specific calculations, designed to determine if your commercial investment property will generate positive cash flow.
If you’re new to the game, knowing what figures to request and how to run the numbers is where a mentor or buyers agent can show you the ropes.
Get a good feeling for the kind of commercial space you are potentially buying into
Where possible, see if you can speak with the current tenant. Questions to ask them include:
- How long have you been here?
- Do you like being here?
- How do you feel about the property and the way it is managed?
- Do you intend on staying here and for how long?
- Are you happy with the current state of repair of the property and does it suit your needs?
You may also consider doing a drive-by during your tenants’ busiest times to gauge how functional the complex is, the volume of foot traffic, and how happy the customers are.
For example, you may visit a cafe that is a tenant of a commercial building you are considering buying.
While ordering food and talking to the tenant, you might overhear a group of regular customers talking about how they love coming back for the gluten-free carrot cake.
Knowing that the cafe has satisfied returning customers gives you a confidence boost as a potential commercial property buyer.
Do your research on the area
When looking for commercial real estate to invest in, it is important to know what future neighbourhood development may impact your investment’s viability.
You may be looking at a business or commercial building that seems to have a monopoly on the area it’s in which would make it a solid investment.
But one way to determine this is to call the local council and ask about any planned developments for the area.
For example, knowing that a new hospital, university and entertainment precinct are in development planning stages, it can give you the confidence to know that more jobs will be created, increasing the likelihood of further foot traffic to your potential tenants.
Your commercial real estate due diligence checklist
When visiting the commercial property and speaking to your potential tenants, you may also want to snap a few photos and videos. These will serve as an easy reference for the future to remind yourself of the potential red flags that may need further investigation.
Here is your commercial real estate due diligence checklist for you to take photos of and pay close attention to:
- Parking areas
- The number of available parking spaces
- The parking fees
- Rubbish removal areas
- Entries & exits
- Meters (water and electrical)
- Wet areas (kitchens, bathrooms and ceilings)
- Electrical outlets (including air conditioning, heating, fans and power plugs)
Sometimes you’ll find a property that has unused, open space. This area may have potential for development and increasing your monthly cash flow, as it could be repurposed for storage space, extra parking or additional tenancy.
How to make an offer on a commercial property
Before making an offer on a commercial real estate opportunity, be sure that you have completed the following:
- Run the numbers for positive cashflow
- Conducted due diligence of the external and internals of the building
- Researched the local council’s future developments for the area
- Financially ready with funds available
- Partnered with trustworthy, professional team to assist with legal and financial paperwork
Ready to get started but don’t want to go it alone? Find out how we can help you buy commercial investment property today!