Have you ever thought about investing in commercial real estate? Perhaps you’re trying to figure out how it works? If your answer to any of the questions is yes, then you’re in the right place!
Be aware that you will have much to learn before becoming a successful real estate investor. Whatever you’ve learned from the residential side may not be useful in the commercial front. In many ways, they differ from one another.
From leasing arrangements to property management options, there are many risks awaiting you. However, the best thing about going commercial is the new client based you’re going to have and the experience you will earn as an investor. Here are a few things you’ll note as you get your hands in commercial real estates.
Finding the Best Opportunities
Unlike investing in residential properties, investing in commercial properties is much more time-consuming. You will need to be extra patient for sales cycles and more. Finding the best tenant is not any faster, either, and you will often need the help of a company that specializes in tenant screening. In short, you will need patience. If you rush, you’re more likely to fail.
Knowing If You’ve Found the Best Property
It is good once you have patience. Now, you’ll have to learn the ins and outs of your real estate market of choice, check out listings yourself, or ask for help from an agent. Whichever step you take, you now have a few properties under you. Now you’re wondering, “Did I make the correct investment?” Here are a few more questions for you to ask:
1 – Does the Property Fit Your Objective?
First, think about your investment objectives. You may think of goals that include making thousands of dollars a month, or maybe even do house-flipping. Whatever you want to achieve, you need to make sure your investment is capable of fulfilling that. You can do some quick math to find out if it’s worth it to continue investing in your property. Calculations such as Gross Rent Multiplier can help you realize how much cash flow you’re going to receive from the venture.
Calculate the GRM by dividing the purchase price by annual rental income. If the number is ten or less, cash flow is either going to be positive or neutral. Any higher and you risk negative cash flow if you continue with the same investments. You will only logically take this path if you believe that the property’s value is going to increase significantly, offsetting any loss that you’re experiencing. However, it is hard to know for sure. The real estate game can be a volatile, a gambler’s game; you win some, and you lose some.
2 – Are Vacancy Rates Constant or Rising?
If you plan to rent out your property for a few years, a low vacancy rate will be your objective. Even if you have a property with a GRM of five, a vacancy rate of ten percent or higher will become a nightmare.
Commercial real estate investing is not a game for the faint-hearted. Before stepping into this game, make sure you’ve done your research and know what you will have to face. Of course, as you proceed with this, you will be going to learn many things, but you shouldn’t want to have to learn it the hard way. Enjoy your successes and learn from your failures to help you in the future.
If you’re looking to buy property in Toronto, get in touch with us today to see how we can help.