Tips to Help You Invest in

Commercial Real Estate

• The most basic rule in purchasing commercial real estate says that you should choose a good property in a good location for a good price. Sounds nice but what is underneath the bright advertising? How do you determine those hidden obstacles and how do you count the risks? These and some other frequently asked questions could become a pressing issue in making your decision.

• The first point of course is the location of your potential property. Each property type requires its own features. A set of special attributes is necessary for various types of commercial real estate. You should also mention things such as ingress and egress from the road. Don’t forget to ask about office buildings benefits too. Check if it is a relatively easy freeway and public transit access. Surrounding developments are also another necessary thing for office building.

• Pay special attention to tenancy as well. Initial lease term is a very important condition in your selection. You must always remember that long leases are much better than short ones. If you don’t have all the tenants’ lease renewing all at once, you can lay out your risk.

• Debt coverage ratio is a special metric for the lenders. You should be aware of their process if they should and would lend money on property. This debt coverage ratio should be positive and the net operating income should be greater than that of the DCR.

• What do you know about additional expenditures which you weren’t able to see at the beginning? Such unexpected things like roof replacements and the tenants’ improvements could become a big problem if you face them without warning. That’s why you should be ready for sudden capital expenditure. Plan how you are going to handle this situation ahead.

• If you are an experienced businessman, you should know that leverage can sometimes be a good condition in positive marketing swings. It’s true, but it is also sometimes a restricting feature. Use of debt is a limitation for the amount of money available for emergencies. Consider how you will get out in case of real problems and found your liquidity pool ahead.