Insight To Buying A Commercial Real Estate Property
Posted on: 17 April 2019
A great real estate investment is made when you buy a commercial property that brings in more income than the total of the property's debt service. Then when you look at the property's capital gains when you later sell, this is an additional benefit and return on your investment. When you choose to buy a commercial real estate as an investment, here are some tips to help you be ready for the process so you can be as successful as possible.
Have a Sufficient Down Payment
One of the first things to consider when you decide to buy a commercial property is the down payment you will need to get the funding for the mortgage. As a commercial property owner, unless you have all cash to put down on the property, you will need to finance the majority of the purchase price.
If you are looking into a small business loan with the SBA, you won't need to have as large of a down payment as you will need if you use a conventional commercial loan. But as a result, putting more money down toward your purchase of a commercial property will increase your loan-to-value ratio and reduce your expenses on the loan payment. This leaves you with less overhead debt and contributes to more positive cash flow.
Hire a Commercial Real Estate Agent
Just as you would hire a residential real estate agent to buy your next home, you should similarly hire a commercial agent to help you with this important decision. Your agent is going to be your eyes and ears on the real estate market to recommend commercial properties for sale that you can analyze for a return on your investment. Utilize their knowledge and professional resources to help you find the right commercial property for your investing.
Look Forward to Favorable Lease Terms
As the owner of a commercial property you may rent it out to a business as retail space, for example. In this type of situation, you offer a triple net lease to your tenant and you get to benefit from not having to cover many of the property's expenses, but instead, your tenant pays for them. For example, in a triple net lease, you don't have to pay for the maintenance, utilities, and even real estate tax on the property. You only have to cover the mortgage payment on your loan for the property while you collect the lease payments from your tenant.
A triple net lease associated with a commercial property reduces your expenses further as a property owner and helps to increase the return on investment (ROI). Your commercial property investment will be considered more profitable the higher its ROI is.
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