5 Essential Questions to Ask Before Investing in Commercial Property
I can tell you from experience that investing in commercial real estate will be a thrilling experience. You’ll make mistakes, experience triumphs, and definitely learn a lot along the way! I’m here to minimize your uncertainties and prevent mistakes, so you can reap the most benefits from investing.
Based on my own experience investing, I’ve learned that there are certain things you should consider before you commit to any commercial real estate purchase. All of them are important for short and long-term success when you’re deciding to invest. So, before you embark on your first investment, here are some questions you can ask to prepare yourself to make a decision:
1. Is It a Good Location?
You know the saying: “location, location, location.” You might be wondering how crucial location really is. The rumours are true; location is absolutely essential when you’re investing in commercial real estate. Why? Well think of it this way – if you’re living in an apartment building, you wouldn’t want to be next to a noisy freeway. You would, however, want to be in a welcoming neighbourhood with plenty of amenities.
Commercial real estate has even more considerations to be aware of than residential. Factors like visibility, foot and vehicle traffic, parking, nearby amenities, nearby neighbourhoods, and more can play into the specific strengths or weaknesses of a location. Before you invest, you need to ask yourself questions you may not have thought of:
How easily can people access this location?
Are there nearby interchanges from busy roads?
Is there already a community to support it? If not, can I help build up the community?
Is there high demand for leasing in the area? What types of businesses are leasing there currently?
What is the impact of rules and regulations? Are there rules in place to ensure the building looks it’s best? Considerations like signage rules in your complex can make a big impact on whether or not a location is ideal.
No matter what, make sure you take the chance to think deeply about the location you choose. For me, location can unquestionably be a deal breaker in some commercial deals.
2. Will There Be a Sustained Demand?
Don’t just think about right now; you have to know there will be long-term demand for leasing in this area. Obviously, it’s vital for your investment to be sought after right now, but what about in the next couple years? Are there indicators that the area or location will slow down? Or are there major ripple effects of growth that give you confidence about the longevity of leasing demand.
3. What Do I Know About the Developer?
When you’re purchasing a commercial property under development, you’re purchasing on the basis of trust. Experience and reputation are key! Learn more about your developer. Make sure they have produced exceptional work in the past and can showcase it. Sit down with them and ask them as many questions as you can. Test that trust however you need to in order to feel 100% confident in your decision.
4. Do I Have an Exit Strategy?
This probably isn’t something you’ve thought about, but it’s exceedingly important to have an exit strategy for every investment. This is just in case you need quick access to your money. Before you get to involved in any investment, thoroughly read and consider the terms and conditions you have agreed to. Know what you will and won’t be able to do in the future if you want to sell, start leasing, or change your arrangement in any way.
Ideally, your property will have a sustained demand (remember question number two), which supports a guaranteed income through leasing. If your property has this, you’ll find yourself with a much higher and more consistent income, which makes it much more appealing for potential buyers when you’re ready to sell.
5. How Can I Get Financing?
Many people will ask me how they can secure financing once they’ve found the perfect location for their investments. It’s important to know that commercial real estate financing is very different from residential financing. You won’t be able to go through your typical residential broker for this kind of transaction. Instead, I always recommend going to your bank and asking to speak with a seasoned commercial agent.
Before you go, one major thing to be aware of is that a down payment for a commercial investment is going to be in the range of 25%-50% of the total price. The amount you’ll pay upfront is dependent on certain factors. For example, whether the property is already leased or not can seriously impact how much your down payment will be.
Every transaction is different, and while I can’t help you secure your financing, I can help you understand more about commercial financing before you go to your bank. That way, you’re already prepared to have a confident conversation. Contact me for a meeting so I can help you prepare for your appointment with a financing agent.
So, now that you know about the 5 questions I consider when I’m looking at investing in a new property, I want to know what your other questions are. Tell me what you want to know most about investing in commercial property, and I’ll do my best to answer them for you here.