6 Things to Consider Before Investing in Commercial Real Estate

If you are looking for a decent investment opportunity that’ll yield you good returns over the long term, you should consider commercial real estate. Besides being a source of passive income, it also protects its owner’s wealth from getting devalued by inflation. And it tends to attract more stable occupants than residential properties.

Perhaps you’d like to get involved in commercial real estate—maybe build and rent out an office space, warehouse, or manufacturing unit –but you’re not sure what to look out for before starting. This article runs through some of the most important factors you should think about before investing in commercial property.

Location

The location of your property will determine how successful you’ll be at attracting tenants for it. Businesses want to be accessible. They would want their customers to reach them with ease. And they’d also expect to be able to move their products to retailers or final consumers. So, have your property built as close to major routes as possible.

Another thing you’ll want to ascertain is the demographics of your location. Quite often, businesses want to be sited within a cluster of other businesses like them, so that they’re easier to find. If you intend to build office blocks, it’ll be smart to have them in a commercial district that’s home to companies like the ones you wish to attract.

Market Conditions

Make sure to examine the state of the market in an area before deciding whether to invest there or not. Market conditions—such as the demand for property, relevant products, and services –will affect the rate and stability of occupancy.

A thriving local economy will be great for business, and therefore, for commercial units. But the absence of any significant business activity may indicate that the area in question isn’t a good place to site your office blocks.

Competing Properties

If you’d like to know what the prospects for your real estate investments look like, you should find out how properties similar to the ones you want to invest in are faring. If they are fully occupied and have low tenancy turnover rates, they’re probably doing well. Significant vacancies, on the other hand, may indicate an oversupply of (or low demand for) that kind of property.

Apart from yielding these insights, an investigation into competing properties can also furnish you with such crucial data as average tenancy fees, and the ability of your would-be typical tenant to pay such fees.

Source Of Finance

It’s up to you to decide how you’re going to finance your real estate project. You could fund it with money straight out of your pocket if you’re able to. However, many investors in this space seek out external finance for building real estate. They either secure equity financing or opt for a loan.

Whatever funding source you settle for, be sure that it’s something you can live with. Only agree to financial obligations if you’re convinced that your investment can cover them.

Extra Costs

Take account of possible additional costs, including state and local fees. Ideally, you’ll want to avoid locations where land grabbers and illegal levy collectors are active. If you’re in Lagos, you’ll find this article useful: How to Avoid ‘OmoOnile’ Property Extortion in Lagos State.

Documentation

You need to know the documents involved in the process of acquiring and registering commercial property in the district in which your property is located. Get a lawyer to help with documentation if you can. They could help you avoid the confusion and uncertainty that’s sometimes associated with legal items in real estate.

Working with a lawyer may also enable you to detect hidden charges and undefined ownership clauses—things that could pose a challenge at some point in the future.

Final Words

More often than not, commercial real estate presents investors with an opportunity to earn that’s unmatched by other assets. If you’re interested in this niche, you should definitely consider the factors we’ve laid out here before deciding whether to go ahead with it or not.