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Define Your Motivation
While buying commercial real estate can be a worthwhile investment, plans tend to fall through if you don’t have direction. Reflecting on your reasons for buying commercial property is crucial. If you want to narrow down your motivation, consider asking yourself:
- What is a successful financial return to me?
- Who do I hope to impact through my investment?
- What are my long-term and short-term goals?
- Do I want security for me and/or my family?
Buying Commercial Property For Personal Use
Sometimes, investors purchase a property for personal use. One method is the owner-occupied commercial real estate (OOCRE) investment strategy. In this case, the owner uses the property to conduct business operations.
OOCRE affords you tax advantages, like the ability to depreciate and deduct annual interest on the loan. In addition, owning the property allows you to build equity, which means you can sell it for more later. Or you can continue using the property as an income stream through leasing. Managing the property on-site and controlling the tenant selection is much easier.
However, more costs may fall in your lap, such as property repairs and routine maintenance. Conflicts of interest can also arise, making it difficult to collect rent.
Before buying commercial property for personal use, check zoning laws. Certain limitations may apply to commercial real estate properties, like office buildings or other commercial-designated spaces.
Buying Commercial Property For Investment Purposes
Buying a commercial building as an investment property comes with its perks. Commercial property returns range between 9% and 12% annually; that’s higher than the average for single-family residential properties (which is typically around 10%). There are also tax advantages, cash flow opportunities and equity appreciation when you buy commercial property.
Investors employ a variety of tactics depending on their financial goals and the overall timeline.
Find The Perfect Opportunity Commercial Property For Investment Purposes
Numerous factors come into play for commercial real estate investors looking for the right property.
Some things you may want to think about while searching include:
- Economic and industry trends
- Affordable leasing options
- Zoning laws and land use
- The property’s design
- Potential for growth
- Market data – like rental rates, vacancy rates and construction costs
Run The Numbers
Due diligence plays a crucial role in real estate investing.
Before the actual purchase, you’ll want to evaluate the location and the real estate market. You’ll also want to compare multiple properties and assess the condition of the property you decide on.
There are a few formulas and tools you can use to estimate a property’s value. Some are:
- Cost approach: This is how much it would take to rebuild from scratch.
- Market approach: This is how much the property is worth based on other similar, recently sold properties.
- Income capitalization approach: This is the estimated income you’ll receive from the property.
- Gross rent multiplier (GRM): This is the potential value based on the property’s price, divided by its gross income.
- Value per door: This is the value of a building, primarily apartments, according to the number of units.
Need a loan? We can help with that too.
If you intend to use a loan to purchase, you need the right Lender. We are happy to refer you to a trusted Lender that will get you started applying for loan.