7 Important Commercial Property Investment Tips

The commercial real estate sector has grown tremendously over the years. While some attribute this success to initiatives such as Smart Cities, others believe it is due to increased demand for office space in the ITeS/IT sectors. According to the India Brand Equity Foundation, absorption in Grade-A office spaces will exceed 700 msf by 2022. This demonstrates that commercial property investment will be profitable in the coming years.

Although there are numerous reasons to invest in commercial properties, there are some risks that must be thoroughly evaluated. So, in this blog, we will weigh the benefits and drawbacks of this type of real estate investment and offer advice on how to avoid common pitfalls.

What are Commercial Properties?

Commercial properties are movable assets that are used for investment or rental purposes. In other words, they are land or buildings used for commercial rather than residential purposes. Shopping malls, office complexes, retail outlets, hotels, and resorts are examples of such structures. When compared to residential properties, commercial property investment provides a higher rental yield and income.

As previously stated, commercial property investment necessitates a thorough understanding of the market and business risks. You can only earn higher and more consistent returns on commercial spaces if you take a strategic approach. We’ve compiled a list of seven tips to help you succeed in the commercial real estate industry.

1.Location Research

The two ways to earn higher returns on commercial properties are through rent and asset appreciation. It is important to note that both metrics are heavily influenced by the location you select. Aside from infrastructure, you should also look into vacancy rates. The lower the vacancy rate, the more likely it is to find a tenant.

2.Value Assessment

Evaluate the neighborhood thoroughly in order to reach an amicable agreement with the tenants. Obtain information on the different types of commercial properties in the area, as well as their rental and occupancy rates. This will provide you with an idea of how much rent you can charge.

3.Property Quality

To keep tenants for a longer period of time, it is critical to invest in commercial properties with appealing exteriors and interiors, ample parking space, and proximity to public places. Furthermore, LEED (Leadership in Energy and Environmental Design) or EDGE certified buildings will attract more tenants and command higher rental rates.

4.Overall Rental Earnings

Understanding the market dynamics is important, but so is calculating rental earnings after tax or insurance deductions. This will give you a general idea of what your commercial property investment will entail in the future and whether or not you will be left with enough funds for rainy days.

5. Tenant Credibility

Cross-examining a tenant’s credibility is just as important as evaluating the quality of a building. Reputable organizations or corporations conduct business in a professional manner. As a result, you won’t have to run from pillar to post looking for a place to live. It is, however, prudent to investigate the credibility of less-well-known tenants. Security deposits could be one way to accomplish this. Tenants must provide a security deposit equal to 10-12 months of property rent. If the tenant insists on paying only 6-7 months in advance, this may indicate a cash flow problem.

6.Consult Experts

It is recommended that you seek the advice of professionals such as lawyers, chartered accountants, tax experts, and real estate consultants before purchasing a commercial property. It will assist you in comprehending various aspects of various laws and regulations.

7.Background Check of Agent

Another important commercial property investment tip is to perform a background check on the real estate agent you want to work with. Examine previous rental agreements, look for legal violations, confirm license information, and so on.

The investment process, whether for a residential or commercial asset, can be somewhat perplexing. Aside from understanding market dynamics, you must also have a thorough understanding of taxation and other sector-specific laws. However, with the aforementioned tips and a well-thought-out plan, you can reduce the risks associated with commercial property investment!