The initial cost of investment in commercial real estate can seem scary, but it’s not nearly as frightening when you run the numbers beforehand. Investments are meant to grow in value, not only paying for themselves, but providing an additional income above and beyond the investment.
As long as you know what to look for in a property, you can be confident that your investment will build value, pay for itself, and leave you with extra money in your pocket. Here are a few ways I’ve found to help ensure you can consistently make money from your commercial real estate investments.
Appreciation is Your Friend
Some commercial property investors buy property planning to make a profit on the resale. These investors rely on appreciation (the increase in value of your property over time and with certain market conditions). If this is your goal, you’d likely consider buying property in an up and coming neighborhood or investing when property value is low but starting to grow. This can be a lucrative way to operate so long as your property continues to appreciate.
When you’re seeking out an investment that will appreciate, you have to do your background research. What’s going on in the area in terms of improvement? What do the next 10 years in the area look like?
Also, don’t forget about your initial interest. When you’re thinking about selling remember to assess the amount you paid in interest on your initial investment. That way you can tell how much you need to sell the property for to truly turn a profit.
You Can Bank on Inflation
While property values go up and down all the time, you can always trust in inflation. Property value is something that rises consistently. If you’re worried that your property will lose value over time, don’t be! It might dip temporarily as the market fluctuates, but it will come back up. As long as you’re not in a hurry to sell, you can wait until the moment is right to make the most money on a sale.
Inflation also leads to higher rent, which means more money in your pocket while you own the property. Meanwhile, big payments like your mortgage and property taxes will stay fixed most of the time you own the property. That means that over time you’ll be making more and paying less.
Commercial Property Creates Positive Cash Flow
You can make your money back and then some if you take the time to consider your cash flow. Cash flow is the amount of money you have coming in and out every month. Think of it this way – even if the market goes down, you can still make money off your property so long as you’re pulling in more income than you’re spending on expenses. A consistently positive cash flow will have your property paying for itself in no time.
When you’re investing in a commercial property, take the time to assess what you’ll be spending for things like renovations, mortgage, property taxes, and insurance. Once you have a rough number consider what you could conservatively make from your rent. This will let you know if you’ll have a positive or negative cash flow at the end of the month.
If you’re having any troubles with calculating what you can earn off a commercial property, please get in touch with me to book a call or meeting and ask questions directly.