Are you thinking of investing in commercial real estate as part of your 2018 goals? Start with understanding why you’re investing in the first place.
Your success in commercial real estate investment largely depends on understanding your investment objectives.
It’s normal to jump right to analyzing the numbers but understanding what your objectives are first will help determine if the deal will be profitable for you. Understanding your objectives will also make it easier to quickly identify the highest potential properties that meet your requirements.
Here are six steps for an analyzing a commercial real estate investment:
- Analyze your investment objectives – In order to make an investment profitable, you need to ask why are you investing to begin with. When analyzing your objectives ask yourself the following:
- What are your targeted growth and return objectives?
- Are you trying to replace earned income?
- How much risk are you willing to take?
- What is the investment timeline you desire?
- What kind of deal structure are you most comfortable with?
- Are you willing to co-invest with partners?
- Understand the market – Understanding what market factors are diving the price for the investment is key. Market factors can include current and potential grow patterns, development, and demographics.
- Assess location – When assessing the location ask yourself if the property is well-located and in good condition. Also, look at zoning and feasibility studies to identify if any potential property restrictions or challenges exists.
- Evaluate the income flow – An investment property at 100% occupancy can provide a reliable income flow, however; don’t discount investing in a property just because it’s not at 100% occupied. This is why understanding the market and your investment objectives are so vital. You can better assess and predict future income flow based on market conditions and whether that plays into your overall objectives.
- Analyze Expenses – Looking at the expenses is critical for identifying areas where you can increase equity. For example, you may be able to find a lower price for cleaning or maintenance services than what the current owner is paying. Reducing your expenses creates more equity.
- Qualify the Seller – Find the reason why the current owner is selling. This will help you make an informed decision about the investment profitability.
By identifying your investment objectives first, you can better find targeted investments that are more likely to lead to a successful transaction.
Also, consider hiring an investment advisory firm with extensive experience and local knowledge. At Verity Commercial, our constant surveillance of the commercial real estate market and our relationships with key players allow us to uncover promising properties ahead of the competition.