Friday, 15 December 2017

Professional Property: 5 Keys to Success in Business Real Estate

Written by Posted On Wednesday, 22 November 2017 16:45

Some corporate buildings tower above, presumably owned by someone.

Many of the people who go into real estate investment focus on residential properties, because that’s what they’re most familiar with. Some investors may even avoid commercial real estate because they believe there’s a lower potential for profit. However, in a strong economy, just the opposite may be true. Professional properties should be part of a balanced real estate portfolio. Here are some things to be aware of when looking for professional properties as an investment.

Commercial Vs Residential Value

Business properties are valued differently. A home is nearly always seen in terms of fair market value for a given area and its residential market. Commercial real estate value is generally appraised according to its cap rate, or net income potential divided by the price of the property. Determine what the cap rates are for each business property.

Attracting Tenants

It helps to understand what today’s business owners are looking for. You can attract them faster by making energy-efficiency improvements such as insulated windows or solar panels. They’ll also want ample parking, clean, professional grounds and exteriors, adequate lighting and security measures, and in the digital age wiring for fiber optics and similar needs. Your buildings must have in-demand amenities for more appeal. Be prepared to negotiate and provide prospects some flexibility, as every business is different.

Income

Your income is often greater from professional properties due to higher lease rates. The yield is typically higher per square foot compared to residential. Commercial real estate is also usually leased for a longer term. As your portfolio of business properties increases, you’ll want to call upon the services of a corporate law firm like Carter West to manage your tax structure and other obligations for optimizing your net income.

Lending

Since commercial property is always seen as a financial investment, you may have a harder time finding the funds. Traditional lenders such as banks, and even private investors, have more stringent standards when it comes to professional properties. They will require a higher down payment and more financial assurances. Many people also seem to think that lenders won’t foreclose on commercial properties. They can and do.

Do Your Homework

All the above are good reasons why you should do your research before buying commercial properties. Find out what the vacancy rates have been, and how that will affect your income long-term. Try to contact previous tenants to find out how they felt about doing business in the area. Look for areas that are in a state of growth. Learn whether new employers are moving into the area, and housing developments are going up. The residential market has direct bearing on the value of commercial properties. If you’re willing to do the research and the math, you’ll find many opportunities in business real estate.

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