Tips On Investing In Commercial Properties

March 9, 2012

You’re thinking of buying a commercial property in San Diego as a property investment but are overwhelmed by all the many options, besides commercial real estate loans and prices. Just as with residential, there are many factors to consider. So here are a few starting tips.  

Tip 1 – Research the Local Area The commercial market, just like the residential market, can go through peaks and troughs. So investigate how well the economy has been going in the area that you’re looking to purchase in. There are simple, obvious signs. For instance, a street full of vacant shops with ‘for lease’ signs on them isn’t very encouraging to buy into.  

Beyond that, it’s good to check out the local demographics: how many users and consumers are in the area. The local chamber of commerce or a commercial real estate agent should give you a reasonable idea about the growth of businesses and the strength of the local economy. But also research the local infrastructure and any plans for development. So, are there council plans to build a freeway or a new rail station or improve local transport links? These are factors that will dramatically push up the value of any property investment, whether it’s retail, industrial or just office space.  

Commercial real estate companies could help you investigate any possible negative developments that may be planned. For example, if your planned investment is a retail space, this could be harmed if a major shopping center is about to open across the road.  

Tip 2 – Investigate the Overheads Commercial real estate in San Diego can sometimes have higher overheads than their residential counterparts. Make sure you’re aware of exactly what all the maintenance costs will be. For instance, what will be the cost of things like repair of lifts or carpets or air conditioning or heating?

 

You’ll have a lot more users in the property and so therefore expect there to be more running repairs. A building report or similar tracked over the last five to ten years should give you a good idea of what to expect.    

Tip 3 – Research the Tenant In many ways researching the tenant is the most important factor in any commercial property investment. You really need to investigate just how stable and financially secure the commercial tenant is.  

Some commercial tenants are immediately more safe than others (for instance, a government agency is hardly likely to default on the lease) whereas a new, untested business (for example, a new media company less than a year old) could be considered high risk as a tenant. So make sure you’re absolutely on top of the tenant’s financials.  

A tenant who wants a longer lease is also far more desirable. But you also need to consider if the tenant is likely to renew the lease at the end of the period. If they are a growing business, will they want to move somewhere larger in five years’ time?  

Tip 4 – Research the Market Researching the market comes down to investigating the area that you’re buying into. Commercial real estate is usually divided into three types: industrial, retail and office.  

So, if you’re considering buying a warehouse space for the purpose of leasing commercial real estate in San Diego to businesses, then it’s worth researching the market that it will be used for. For instance, if the space is currently used to produce paper, you should investigate to see how viable that business will be in the long term.  

Similarly, if it’s retail space – for example, a shoe store – research just how well the local market is doing. Remember; you’re not buying an investment property.  You’re also investing in a business.  So you need to be aware of all the latest business trends. 

Source: Neil Williams 

DISCLAIMER: This blog has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger and does not necessarily represent the opinion of Pacific Coast Commercial.