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A Brief Introduction to Commercial Real Estate for Novice Investors

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Given that 2020 is set to be a promising year for the already burgeoning commercial real estate industry, you’ve decided to get a head start when it comes to investment endeavors.But you’re not sure about how you should start.

Unlike residential real estate, commercial real estate requires a more thorough analysis on your part. So how do you go about making the right choice?

Here’s some basic information to get you started!

Understand Property Types

There’s no one type of commercial real estate. Its separated into five different categories—all of which have subsets—that include industrial, office, multifamily, retail, and special purpose.

For each property, the supply-and-demand cycle varies greatly, in accordance with its location, so a property that may seem like a financially sound choice on paper, might not yield a good profit if it doesn’t perform well on a macro level.

Know the Area

Buying an industrial property in an industrial area might seem like a no-brainer, but as it turns out, investing in a certain property type in an over-supplied area isn’t usually a good choice.

Often, investors make the wrong choices because they don’t do enough market research to determine what kind of property they need.

Research market supply in your preferred location and find out if there are any properties or land that will do well with regard to future planned developments.

Follow the Market Cycle

While the commercial property industry is thriving right now, you can’t be sure of how long this trend will continue.

The health of the economy, unemployment rates, and many other facts affects the profitability of commercial realty.

Follow the cycle and make sure you don’t end up buying property when the market is in an upward swing. Wait for the right opportunities.

Be Thorough

Due diligence is important. Review all documents, tax returns, finances, profits and losses in the region, as well as statements from any previous owners, property inspections, and surveys.

Have a firm understanding of all the ins and outs before investing in any commercial property. This will lower your chances of making costly mistakes.

Have a Contingency Account and Capital Reserve Fund

Given the many uncertainties that come with commercial investments, you’ll need to have a certain amount set aside in cost contingencies and capital reserve funds so you have something to fall back on in case you come across any unexpected expenses.

A reliable real estate agent can guide you on the right way to set up your account. But if you need further assistance, it would do well to work with a property lawyer, so you have all your bases covered.

Agreement

Work with Us!

With first-time commercial investments, you have to be prepared for uncertainties and setbacks if you work alone.

So why not make things easy by hiring a trusted commercial real estate firm like Macomb Commercial Real Estate? Our listings include commercial property in Warren and Sterling Heights, MI. Contact us today and start searching for your first commercial property investment!

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