If you've already made a few good residential real estate investment, you might be thinking about purchasing your first commercial property. After all, investing in commercial real estate is a logical next step, but how do you know if you're ready to take such a huge step. Investing in commercial real estate is like residential real estate investing on steroids. The stakes are high, and it's a big gamble. If you win, you win big, but if you lose, you take a big loss. So, before you rush into your first commercial real estate deal, you should take the time to consider these things.
Will the Demand for the Building Continue?
Commercial real estate is typically built for a specific purpose, so chances are, you're purchasing a building that is suitable for a certain demographic of people. For example, if you were to purchase an apartment building that is currently used for student housing for a nearby college, and the university is in the process of building new student housing developments, the demand for your building will decrease over time. So, before you purchase commercial real estate, take some time to think about how easy it will be to fill the building with people in your target market, and what the demand for your building will be like in the future.
Real estate, both residential and commercial, is all about the location. You need to invest in a building that is located in a good part of town, but that doesn't necessarily mean that the building should be located in the same areas as your residential properties. Just because a specific neighborhood or city is a great location for the residential properties that you own, it doesn't mean that it's an ideal location for commercial buildings.
Can You Access Your Money?
When you complete a commercial real estate deal, you need to make sure the deal includes a flexible exit strategy in case you need to pull out at the last minute. When you purchase commercial real estate, you need to consider the profits on a long-term basis. However, you don't want to tie your money up for several years and not have access to it. So, make sure your deal includes long, guaranteed income periods. This way, you have access to the money if needed.
While investing in commercial real estate might be a bit riskier than making residential real estate investments, if you find a good deal taking the chance could benefit you in the future. Just don't rush into a commercial real estate deal. Take your time when choosing a building. This way, you're well aware of any potential risks before you sign on the dotted line.