Fort Collins CO Commercial property is valued in a different manner than residential property. It is valued according to its usable square footage. Loans on commercial properties are also different from loans on residential properties. Lenders usually want up to 30% down on commercial real estate.
When you are buying commercial real estate for its investment potential, here’s hoping these handy tips will help you get the best deal.
1. If you are not already familiar with the commercial real estate investment terminology, take a quick crash course. These terms will be used a lot when you are evaluating commercial property for investment purposes:
· NOI, or Net Operating Income refers to the net income you can expect to receive during the first year of owning a particular commercial investment property. It is derived by subtracting the expenses from the income you receive from the property.
· The Cap Rate, or capitalization rate, is a way to evaluate a commercial real estate investment. It is determined by dividing the net operating income by the sales price of the property.
· Cash on cash (sounds like a fun one, doesn’t it!) refers to the amount of investment required to purchase a commercial property.
2. Look for properties that have more than one tenant. This diversifies your risk. If one tenant defaults on the rent, you still have others to count on for your monthly mortgage payment.
3. Investigate before you buy
· Evaluate the neighborhood yourself.
–If you are buying a multifamily dwelling like an apartment complex, question the tenants about the neighborhood and whether it has gone downhill or uphill in the last 5 years. Ask about what maintenance has been done on their apartment, how long they have lived there, and what problems they have had with management.
–If you are buying a retail complex, ask if the tenants plan to renew, if large stores are planning on moving into the area, and how the area has changed in the previous 5 years. Ask what they liked and didn’t like about the seller’s management of the property.
4. Go to the tax assessor’s office and view the tax assessor’s records for the past 5 years. This can give you some invaluable information about the property’s value.
5. Ask to see the property seller’s cash flow statements for the past 5 years. This will definitely give you an idea of the profitability of the property.
6. Research the current market conditions in the area where the property is located and contrast them with the preceding 5 years’ market conditions. Is there a down trend or an upsurge?
7. Assemble a team of trusted advisors to assist you with your purchase. An accountant, a mortgage broker, an attorney and a commercial realtor like Badger Realty are of paramount importance.
Investing in commercial real estate is a great way to diversify your investment portfolio. When you find a well-maintained property that needs little maintenance, you can relax and enjoy your investment. The commercial property agents at C3 Real Estate can help you find the property that is right for you.