Investing in commercial property can definitely boost your profits. It can also cost you the shirt off your back if you're not careful.
It is not hard to put a commercial deal together if you know what you're doing. To avoid making costly mistakes, here are a few helpful hints:
Know your market. Although there are ways to beat the real estate crisis, it is best not to try it with a commercial investment. By doing a market analysis ahead of time, you can find out the growth rate of an area and see how the job market is being affected. When the real estate market is in trouble, the job market is usually slow as well. Keep in mind that distressed areas are not good for the commercial investor. If the area is on the decline, you will want to look elsewhere for your commercial investment. If you find the market is on the rise, you may want to consider vacant storefronts. Many people like to start businesses in a growing market. There may not be a demand for a warehouse, but a storefront could sell quickly.
Inspect the entire property. Many new investors have been taken because they did not inspect the property before buying it. This is not something you should undertake on your own. It is well worth the money to hire a professional to come in and thoroughly inspect the property. This includes the land the building is sitting on. One such unlucky investor bought a small repair shop. Thinking it would be great to own his own business, he turned around and opened up the shop again after buying it. It turned out that the reason the property was for sale so cheap was because the state had issued a citation to the owner to have the underground fuel storage tanks removed. This information was not discovered until the new owner had been in operation for six months. He had to close the shop and it took $100,000 to do everything the state wanted done before he could open back up for business. Had he researched the property ahead of time and paid to have a professional inspection done, he would have known to pass on the deal and keep looking.
Borrow only what you will make. Many investors borrow against their commercial property. If the interest rate and other factors are right, this can be a good thing. The savvy investor knows to make sure the loan will be covered by the existing profits from the property. This sounds like an elemental concept, but is often soon forgotten. People get caught up in an exciting deal and forget the true value of the real estate. For example, let's say you purchased a warehouse 10 years ago for $150,000 and have been renting it for $4 a square foot for the last 5 years. If the property value has gone down due to area market decline, the value of the property has also gone down. It may only be worth $100,000 now. If there is a mortgage of $80,000 on the property, it would not be a good idea to borrow against it. However, if the market has grown and the property is now worth $200,000, then it might serve as the perfect collateral for a loan.
Stick with what you know. This is a no-brainer. If you know service stations, then buy a service station. If you know restaurants, then by one of them. Avoid commercial properties you know nothing about. The exception would be if you happen to know someone who is knowledgeable in areas where you have no experience and they are willing to partner with you. Otherwise, keep looking. There are other properties elsewhere on the market that can still make you good money. Be patient and wait for something that is a better fit for you.
Excellent money can be made in commercial investments. You just have to know the market and follow the common-sense guidelines mentioned above. Do that - and stay within your budget - and you shouldn't have any problem.
Mark E. Moebius
CEO of MILJONAIR Development
3451 St. Albans Road
St. Albans MO 63073
636-300-9000
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