7 Features of a Great Commercial Property Investment
It is seldom easy to decide whether a specific commercial property is worth the investment. You need to carefully weigh out the cost of the property against its earning potential. And you need to factor in all the taxes, repairs, and fees that go along with buying and owning commercial property. And while this may seem like a complex task that only experienced CRE investors can handle, there are some tell-tale signs that a particular piece of property is definitely worth your consideration. This article will focus on these features of a great commercial property investment and how to spot them quickly.
Clear features of a great commercial property investment
Each of the following features stands as a clear sign that you are viewing a worthwhile piece of property. Of course, the odds of finding a property at a modest price that encompasses all of the following features are slim to none. But, even if a commercial property only has a couple of them, it is still worth your time to further research it and consider it an investment opportunity.
A decent number of tenants
The number of tenants situated within a commercial property is directly related to how profitable it is. The more tenants there are, the higher the income you can expect. Of course, other factors help determine how fruitful a piece of property is. But, if you are looking for an easy, numerical way to outline the income potential of a commercial property, the number of tenants is a solid metric to consider.
A small number of previous owners
Similarly, a relatively small number of previous owners is a sign that you are dealing with a quality property. Of course, if the property has been around for 50+ years, it has probably had a few owners. But, if the owner seems to change every couple of years, know that you are considering something that seems lucrative but probably isn’t. So, before you take out a loan, check who previously owned the property and why they sold it. The high number of previous owners suggests that most of them realized that the property wasn’t profitable and looked to pass it on to the next owner as soon as possible.
Healthy local economy
Commercial property can only be as profitable as the local economy. A healthy local economy helps the businesses within your property to develop and brings the workforce necessary to maintain the development. Again, other factors play a role. But a healthy local economy is the basis of any lucrative commercial property. Without it, there is no apparent reason to expect that the property will bring you revenue, even if it is currently profitable. In this instance, you need to understand how the broader economic currents impact the property. And it would be best if you outlined what makes it seemingly independent from the local economy.
A developing area
In most cases, a growing economy goes hand in hand with a developing area. After all, the more an economy grows, the more money local people have. In some cases, the government can first motivate the development of an area to strengthen the economy in the near future (think of gentrification). If you catch a whiff of such a project, you’d be wise to invest in commercial property. Its value is only going to go up.
Neither area development nor economic strengthening is possible without ample safety. Both the police and the local residents play a part in how safe the area is. Commercial properties in unsafe neighborhoods tend to be poor investments, no matter how cheap they seem. Of course, if you believe that a notable change is incoming for the area, you can look to invest. But, unless the local security is top-notch, you really ought to stay away. On the other hand, low crime rates and well-managed streets are good signs that you should note.
Available local services
No business can entirely function on its own. Even if it is a reasonably independent venture, it will still need cleaning, transport, repair, and various other services to keep it operational. Therefore, check if reliable California commercial movers, cleaning crews, maintenance companies, etc., are operating there. If there is an experienced team in the area to help with transport or a well-rated cleaning service nearby, take it as a good sign. Know that businesses that wish to rent commercial property from you will look for these services. And the more services you can mention to them, the more you can expect them to do business with you.
This one may come as a surprise among other features of a great commercial property investment. But, local education opportunities are pretty noteworthy. Namely, the more educated people you have in an area, the more likely they will need commercial space. Big businesses are likely to move to find young professionals. And entrepreneurs will likely look for commercial space for their startup to take off. So don’t neglect the quality and quantity of nearby education opportunities. They can be a good estimate of how potent the local economy will be. So, before you pick or build a commercial building, learn which colleges and universities operate in a specific area. That way, you can safely guess what industries are likely to flourish.
While there are plenty of features of a great commercial property investment, there is no end-all list that you can go through. After all, commercial properties can vary drastically from one another. And deciding whether one is a worthwhile investment is rarely a clear-cut decision. It takes plenty of research and experience to make savvy decisions in commercial real estate. Thus, we advise you to take your time and do further research. The more you can learn from other investors, the less likely you are to make costly oversights.