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7 Key Aspects of Commercial Real Estate Investing

| Mar 2, 2021 | Commercial Real Estate

The commercial side of real estate in New York has notable advantages over residential investing. It’s an advanced form of investing with the potential to generate consistently high returns, passive income and growth through a greater client pool.

However, inherent concerns and liabilities make due diligence, active involvement and an understanding of the market essential to avoiding mistakes. There are some things you should know before starting.

Know the market

Understanding the market is fundamental. Competition, local supply and demand, economy and available rentable floor space all play a part in getting a proper read and avoiding costly mistakes.

Active engagement and due diligence

The investor ultimately assumes the risk. Active involvement in research, site inspections, permits, zoning, financials, new-tenant campaigns and construction minimizes risks.

What are the legal concerns?

Successful investment depends on a complete understanding of city, state and county codes. A building code conflict could result in a project shutdown and lost cash flow to pay off loans. Complex taxes will also require attention.

Understand the market cycles

Conditions change. Understanding market cycles in relation to the economy, GDP and unemployment provides insight on opportunities during market highs and lows.

Timeframes are longer

Patience is essential. Thorough market study, site management and financing require time, and renovation, building and leasing can take months.

Risk by property type

The property’s type plays a significant role in level of risk. Unlike residential properties in one area, side-by-side commercial properties, such as office and retail, can fluctuate independently and reflect disparate ranges of risk.

Capital reserves for contingencies

Reserved contingency funds help absorb unforeseen uncertainties. They cover the gap during renovations, rent raising, leasing or rezoning, and they see through early debt obligations.

Find reliable financing

A commercial property investment will probably require a loan. Investment credibility depends on a well-researched business plan according to the property’s purpose and value, its targeted customers, pricing and projected business growth.

A strong investment

Commercial real estate is a high-performance investment. Assets like office, industrial, retail, multifamily, healthcare and hotels can generate a respectable income. With competent legal guidance in strategic planning and asset management, serious investors could do well to investigate this market segment.