What exactly do you know about commercial property investments? If you know you want to invest in commercial real estate, that's not really enough to get started.
To be successful, you need to learn a few things about these assets. Luckily, this guide uncovers some of the most important topics.
Keep reading to learn more.
1. Not All Property Types Are the Same
Commercial property investments are more diverse than other assets because there are a wide variety of property types. The five main sectors of commercial real estate are classified as:
- Retail
- Industrial
- Office
- Special purpose
- Multifamily
Within these classifications, there are other property types such as medical, hotel, self-storage, land, etc. The supply and demand, overall profitability, and yield of each sector vary greatly.
When you invest in commercial real estate in New York, you must know which asset class is the top performing at the time.
Before you begin investing, research the performance of each asset class to find out which is the most viable investment. From there, you can determine which property type you want to pursue.
2. Understand the Market Area
If you are interested in commercial real estate investing in Wantagh, you need to understand that market specifically, as every market is different. When you invest, you are investing in specific geographic areas that have a unique supply and demand.
On a macro level, you may find certain property types are doing well. Upon further inspection, you could find there's an oversupply in the area, or vice versa.
If you fail to conduct enough market research, you won't be aware of the potential risks. Start by researching the market supply in your immediate area, but be sure to take rentable square footage and additional square footage into account.
If you identify an undersupplied property type, continue to research it to get an outline of the future growth and likelihood of success. The market cycles change, so avoid buying when the market is high.
3. Have a Contingency and Capital Reserve Fund
With any investment, there is going to be uncertainty. To mitigate these uncertainties, consider accounting for cost contingencies. Cost contingencies refer to additional funds you set aside for your initial acquisition to help with unexpected expenses that could arise. These expenses can include:
- Raised rents
- Change management
- Renovations
- Rezoning
- Building
This can also be used to cover your debt service until you have a stabilized property. Cash contingencies can help investors if there is a negative cash flow while improving the property for any reason.
A standard contingency budget is up to 15%, but it can vary depending on the asset.
Additionally, you can mitigate risks by creating a capital reserve by setting money aside for long-term improvements of unexpected expenses.
Successful Commercial Property Investments
If you are a new investor or just want a partner to help you throughout the decision-making process, consider hiring property management services.
Our company can help you make successful commercial property investments through property valuations and much more.
Contact us today to learn how we can help you make smart investments.
