Commercial real estate can be a great investment, but if you buy the wrong property, it can easily turn into a disaster. Before purchasing any commercial real estate, you should check it out thoroughly. Asking the following five questions will ensure that you make a wise investment.
1. Is it in a good location?
Location is always critical when it comes to real estate, but it’s even more so with commercial real estate. You need to ensure that there’s demand for the property in its current location, whether it’s student housing, self-storage, a parking garage or a shopping plaza. Not only does there need to be a demand for the property, but it also needs to be a good location for its purpose. A parking garage that’s next to nothing but a couple of empty fields isn’t going to give you much of profit.
2. Is it zoned for the use you want to use it for?
Properties can be rezoned, but there’s no guarantee that a rezoning request would be granted. If you want to use the property for a specific purpose, or you think you might want to change its purpose later, it’s best to find out now whether it’s zoned properly for that purpose.
3. Are the tenants good quality?
Look over the vacancy rate for the area and the specific property itself. Look at the current leases, and when they expire. How long have the current tenants been there? How is their credit, and do they pay their rent on time? If any of the current tenants opt not to renew their leases, can you easily fill the space?
4. Can you get a pro forma?
A pro forma is a document that details the expenses and income of a particular building. This will allow you to calculate your possible return on investment on the property by showing you the net operating income of the property. It will help you determine whether this investment is one that will make you money or cost you money.
5. Are there any major issues with the building or property?
Expensive or extensive repairs, liens, easement obligations, or other legal obligations can be hidden, unseen problems with the investment. Ask lots of questions and make sure there are no major issues with the building or property before you invest your money and get stuck with a severe problem you weren’t prepared to handle.
Commercial real estate can be a wonderful investment. It can provide you with an income-producing property filled with quality tenants in a great location. Ask plenty of questions so that you have all the information you need. With a little sound advice from a qualified real estate agent or real estate attorney, you can invest worry-free.