When buying commercial property, it’s tempting to make an offer on the first property you fall in love with – and while you might not make an error by following your heart, chances are greater that you could. You should consider buying commercial property the same as entering a committed relationship, because that’s what you are doing. You need to carefully consider the pros and cons of the property and if there are any “deal breakers” before you commit to a commercial property. While your heart may lead you in the right place, you want to doublecheck that everything is a match with what your intellect says (and sometimes that’s hard to separate!) While you do this, these three things are necessary to avoid while buying commercial property.
3 Things To Avoid When Buying Commercial Property
- Not knowing the demographics of the area
- Not knowing local rent and property values
- Failing to be honest with yourself about the cost of repairs
If you don’t know the demographics of the area – which are characteristics like the median age of people who live in the area, their income status, number of young families as opposed to older retired couples, cultural values and social norms of people living in the area, you have a much higher chance of making a mistake when buying commercial property. You wouldn’t want to buy a building for the purpose of opening a children’s indoor playground in a community that is 90% retired people, unless you had special factors and had done your homework – if many of the residents are raising their grandchildren, it might be a sound decision. You need to really research the area and watch what’s happening in the local area.
If you have no idea what local rent value or property values are, you really can’t be sure if you’re making a sound business decision or getting a good deal. Business is all about competition – and competitive rates for similar structures/businesses in area. Do your homework. What did a similar building sell for last month in the area? How many similar buildings are on the market and how long are they typically on the market?
Not being honest with yourself is the downfall of any relationship, and it would definitely impact your success as a commercial property owner. You may absolutely love a building, but if it needs a lot of costly repairs, you have to take a step back and assess the situation. Do you actually have the funds or a high potential for return investment to make them? If so, how long until you’d see a return investment? A lot about business and buying commercial real estate is timing. You must take this into consideration when buying commercial property.
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