Investing in commercial real estate can be a very profitable venture. Most commercial spaces have the potential to bring in much more money than what goes out for the mortgage loan. In order to make any purchase worthwhile however, it is extremely important to conduct a thorough commercial property analysis beforehand. Several factors will determine whether or not your investment will be rewarded with profit and growth.
#1. Location
The old saying “location, location, location” definitely applies when it comes to buying commercial property. Where the building is located will determine how easy it will be to attract customers or how easy it will be for employees to get to work.
#2. Price
During your commercial property analysis, you should make sure that the price offered is based on the fair market value and that it closely resembles the price offered for comparable buildings in the area. Your analysis should also include an inspection of the building to find out if there are any issues or problems that would bring down the asking price.
#3. Potential Income
Calculating the amount of money you are likely to bring in each month from renting the property is an important part of the commercial property analysis. You will have to make a monthly mortgage payment and profit; you will need to make at least that much back in rent plus some. This means attracting and keeping tenants will be essential. Check out nearby properties to discover if they have good rates of renting and retaining tenants. If buildings in the area have changed hands often in the past few years, the realty may be a financial dud.
#4. Taxes
You will spend a fortune getting into a commercial property mortgage with a twenty percent or more down payment, closing costs, and insurance fees. One thing you may forget to plan for is property tax. These can be very hefty in some places depending on the city and state tax codes and they may add thousands of dollars to your investment expenses. Be sure to check into any local tax incentives available and figure out how much you will have to pay each year.
#5. Zoning Laws
Each city has its own set of zoning laws setting forth how certain areas of town are allowed to be used. Part of your commercial property analysis should include finding out what the zoning laws are and if you will be able to lease out your building as you please. These laws can sometimes be confusing, so be sure to learn all the details before making your purchase.
