Buying a piece of commercial real estate might seem a bit intimidating if you’re a beginner. After all, it’s quite different from buying a home. But, once you learn the fundamentals of commercial property transactions and ownership, you’ll feel more comfortable with the process.
If you’re ready to purchase real estate on the commercial side, there’s a lot to learn. Here are some of the biggest points you’ll want to consider as you develop your commercial real estate strategy.
Point #1: Is Commercial Property Investing the Best Strategy?
Similar to residential real estate, buying commercial property requires that you do due diligence. This process will help you determine whether the transaction is feasible and will help you achieve your business goals.
Before you move forward with a commercial real estate purchase, you should understand how it will impact your cash flow. What is the monthly cash flow for the property currently? Do you expect that to change after closing, and how?
When a property is considered “value add,” that means the owner will have to complete some work before it can be rented to tenants, or you can charge higher than current rents. Figure out what needs to be done, including any deferred maintenance, and then incorporate those costs and time frames into your strategy.
If the property is in a high-demand area, you may be able to factor appreciation into your equation. Otherwise, look at the history of rents. Have they continued to increase or decrease in the area?
Point #2: A Mult-Family vs. a Triple Net Lease Strategy
There are any number of things you can do with commercial real estate. If you aren’t going to occupy it, two common options are multi-family tenants and retail tenants.
With multi-family tenants, you might have to deal with higher turnover rates. But expenses are commonly low with these properties, and they can appreciate quickly.
A triple net lease strategy is commonly applied with retail properties, where the tenants pay all maintenance, real estate taxes, and insurance associated with the property. This is a less hands-on and lower risk approach to owning commercial real estate.
Point #3: Understanding Commercial Property Financing
Few investors are able to pay cash for commercial real estate, so you’ll want to understand your financing options. Financing commercial properties is similar to residential ones, but banks will require more documentation and have higher net worth and income standards for buyers.
Terms relative to interest rates, repayment periods, and downpayment requirements will vary depending on your lender and the type of property you wish to buy.
Point #4: Understanding the Role of Property Managers for Commercial Buildings
If you take the leap into commercial property ownership, you’re probably going to want some help. Buying a piece of commercial real estate is complex enough. Managing one can be incredibly time-consuming.
A commercial property manager can handle vacancy and rent collection issues, deal with maintenance, and help manage your brand. While you will pay for the service, it gives you a hands-off approach to owning commercial real estate and can even increase the value of your property. But you likely won’t need this type of service with triple net leases.
If you’d like to like to explore your options for purchasing commercial real estate in South Carolina or just have some questions, the professionals at Caldwell Commercial can help. Our commercial realtors and property managers have more than 80 years of combined experience helping clients throughout the Charleston, SC area with a variety of commercial real estate needs.
Contact us today to learn more about our services.