If you are a savvy investor, commercial real estate may be an ideal choice for you. Did you know that the value of the commercial real estate market is over $20.7 trillion in the US alone? That’s whopping, boss! And it will also inspire you to join the bandwagon sooner than later.
But beware before diving in because you may face some risks and challenges along the way. Knowing the market and following some rules can help you overcome the negatives and make the most of the opportunities. You can go the extra mile if you know things that nobody will tell you upfront.
So buckle up and get ready to learn the unspoken rules of commercial real estate investment. Here you go!
1. Location is the Key
You probably know this rule if you’ve been in the real estate domain, right? But it’s worth repeating because the location of your property matters the most when it comes to commercial real estate. YA prime spot that’s easily accessible and has good foot traffic sets you up for a handsome ROI.
Think more specifically such as buying a retail property in a busy shopping area and choosing a business district for an office building.
2. Cash Flow Should Be the Top Priority
In commercial real estate, cash flow should always be the top priority. You’ve got to ensure that your property generates enough income to cover all your expenses and yield profits.
Calculate your net operating income (NOI) and check if it’s higher than your mortgage payment and operational expenses. Also, set aside some cash reserves for emergencies.
3. Never Skimp on Due Diligence
Well, this is one thing no one will talk about, but skipping due diligence can land you in big trouble down the line. A Phase 1 ESA is the initial phase of environmental due diligence. In fact, its reports are an essential element of commercial real estate transactions, so make sure you have them.
The objective is to dig deep into past and present land use and check risks like the discharge of hazardous substances on the project site. These risks may lead to penalties and loss of property value.
4. Know Your Tenants
Besides knowing the land you add to your portfolio, you must also know your tenants well. Your rental income is the lifeblood of your business, and it comes from the tenants.
So you must acquire and retain good tenants who pay rent regularly and take care of your property. Doing your due diligence with tenant screening and paperwork keeps you safe in this context.
5. Be Patient
You cannot overlook this rule because commercial real estate investment is not a get-rich-quick scheme. Remember that it is a long-term game that requires patience and strategic planning.
You’ve got to invest time and effort in finding the right deals, attracting good tenants, and building up your cash flow for a profitable business. Also, stay ahead of the market changes and risks to win the game.
Follow these unspoken rules, and you’ll be on your way to becoming a successful savvy commercial real estate investor. Remember, there are no shortcuts to profits in the industry.