Four Things to Consider When Purchasing A Commercial Investment Property

Commercial real estate can yield significant returns for landlords. However, like any other investment, there are certain risks involved when purchasing a business property. Knowing what to look for during the search process can help investors discern the opportunity for profit – or pinpoint the potential for loss. Here are four factors to consider before moving forward with an investment property:

Capitalization Rate

The capitalization rate, or cap rate, compares the net operating income to the overall property asset value. For example, if a commercial property recently sold for $2,000,000 and had a net operating income of $200,000, then the cap rate would be 10%. Understanding the cap rate can help investors establish cash flow and profit margins as well as help with budgeting.

 

Location, Location, Location

Yes, even in commercial real estate, location matters. Is the property you’re considering located somewhere that will attract the type of tenants you’re targeting? Building amenities are important. However, beyond the facility itself, renters will also look for things like easy commuting access, surrounding businesses, and even perks like nearby gyms, shops, and restaurants. Put together a list of must-have location-specific features that will appeal to your demographic to ensure your investment delivers what renters want.

Current Occupancy

Go into the search process asking several essential questions about the property. What’s the current occupancy rate? Is it typically at maximum occupancy? Or have the current owners struggled to find tenants? Not only will you want to explore the property’s rental history, but you’ll also want to find out about the leasing terms of existing renters. Are the current tenants signed to long-term leases? Or will you have to start advertising the property immediately after purchase to maintain cash flow?

Value Add

Commercial properties designated as a “value add” investment generally means that buyers may have to have work completed on the building to attain higher rent rates – or to even be able to rent it out at all. Typically, value add requirements fall into three categories:

  • Renovations
  • Deferred maintenance
  • Exterior updates

Value add isn’t necessarily a deal-breaker – investors often have more room for negotiating on a fixer-upper property. However, it’s important to know exactly what the building needs as well as the potential return on investment before moving forward with an offer. 

Are you considering a commercial property investment? We can help. Contact Avid Commercial today to learn more about our real estate loan programs.

Four Things to Consider When Purchasing A Commercial Investment Property

Commercial real estate can yield significant returns for landlords. However, like any other investment, there are certain risks involved when purchasing a business property. Knowing what to look for during the search process can help investors discern the opportunity...

Applying For a Business Loan? Avid Commercial Can Accelerate Your Company’s Access To Capital

Successfully running your business means having access to the cash reserves you need when you need them. Unfortunately, working with banks and traditional lenders can mean a long, drawn-out approval process. As a result, entrepreneurs across every industry often find...

Long-Term Loan Savings: What a .5% Interest Rate Decrease Could Save on the Life of Your Loan

Since 2015, U.S. interest rates have consistently increased, testing how (and if) the nation's economy could successful absorb each incremental raise. Apparently, we've officially reached our economic threshold; on July 31, 2019, the Federal Reserve cut America's...

You’ve Outgrown Your Commercial Property – Now What?

Most entrepreneurs launch their enterprises with visions of future growth. However, executives often don't have a tactical plan of how they'll accommodate the increase in employees, capital assets, and internal infrastructure when their operations do begin to expand....

Seven Best Practices to Build Your Business Credit

Establishing business credit can play a critical role in the health and longevity of your company. Some small- to mid-sized business owners assume that they can leverage their existing personal credit to make purchases for their organization. However, having a...

Borrowing Strategies To Fuel Your Corporate Operations

For business owners in every industry, securing funding right now can be tough. The financial challenges go beyond the current unpredictability of our economy and lukewarm market temperatures. Right now, many entrepreneurs are also struggling to navigate through...

Four Ways To Create A Dynamic Company Culture This Summer

Your company's corporate culture matters. A positive internal culture serves as a foundational cornerstone for an organization, setting the tone for employee morale, engagement, and productivity. Striking the right cultural chord with your staff may even impact your...

Power Fast Access to Capital with a SBA 7A Loan

Need to infuse your business with an influx of capital without pursuing a restrictive conventional bank loan? For many small businesses, an SBA 7A loan delivers an ideal corporate funding solution. Long-term, low-rate, and government approved, the SBA 7A program...

Leveraging The Benefits Of A Conventional Loan For Your Business

Many entrepreneurs assume that the most critical time for a business loan is when first launching their companies. However, small business owners may need fast access to funding for a myriad of reasons that extend far beyond startup expenses. Growing the team,...

2018 by the Numbers

The commercial financing vertical experienced a banner year in 2018, with several key forces driving a perfect investment landscape for business owners across multiple industries. A robust U.S. economy, coupled with the strongest global economy of the last decade,...