Investing in your first commercial property is a bold move and this expert says you need to get out there and see your investment for yourself to avoid making the wrong choice.
“Commercial property prices in popular business districts don’t offer the sort of investment returns that first-time investors are looking for,” says commercial real estate guru and author ofCommercial Real Estate Investing for Beginners, Peter Harris.
But, he explains that instead of giving up your search for your first commercial property, you can look at out-of-town properties. “Just don’t buy any commercial property without looking at it first or you might be in for some surprises later on that will ruin your investment experience,” Harris adds.
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Your investment in a commercial property is probably one of the largest financial decisions you will make in life and you need to know that you’re spending your money wisely. It’s prudent to thoroughly investigate the property you’re interested in in-person, and for added peace of mind it’s ideal to contact your personal banker to find out more information on the property if you plan on financing a portion of it. Standard Bank’s property experts are ready to assist.
Make responsible choices
“Buying your first commercial property is a big step and you need to see what it is you’re investing in. It’s irresponsible to make a big financial decision like this and expect things to work out. More often than not, if you buy a property without seeing it, you’re going to be in for costly surprises,” says Harris.
He advises taking the time to drive to the out-of-town property you’re interested in to personally assess its condition and the area surrounding it. This way you’ll be able to see first-hand if the building is in as good condition as you need it to be. Taking a commercial real estate agent along is also advised, because they will be able to give you insights on the property itself and can answer any questions you might have regarding property usage or zoning laws.
Don’t buy into hype
“Sometimes property agents might come to you and say, ‘Hey, we’ve got a great property that’s going to give you a 20% return if you buy now’. Don’t do it,” Harris adds.
He believes that you need to assess all ROI for yourself, and the only way you can do that is if you have a thorough understanding of the property, its usage rights, and even the complementary businesses and activities in the vicinity.
“No matter what ROI is promised, don’t buy it until you go see it first,” Harris says.
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Inspect everything yourself
“People often say to me, ‘Peter, I’ll just get an inspector to check the place out for me.’ That’s great, and you need an inspector to visit every property you’re going to invest in, but you cannot solely rely on the inspector to find all faults and to pick up on any issues in your commercial property,” Harris says:
- An inspector might be great at picking up on major issues with a building, like its structural challenges, but they might miss small things, like renovations that might need to be made to accommodate tenant businesses.
- An inspector isn’t going to be assessing whether the property is able to accommodate high speed internet access, for example, and this can affect your investment when it comes time to secure tenants.
If you want to buy a new car, you’ll probably test drive the models you like first, right? When you bought your first home, you probably went to see it before you signed an offer-to-purchase too? Why should it be any different when it comes to buying a commercial property? If you go and see the property you want, you can assess its maintenance needs more accurately. This will help you determine whether you’re buying a building that’s going to sap cash or one that’s going to generate profit.