Commercial real estate can be a valuable investment. But it isn’t quite so easy as buying a piece of property and watching it appreciate in value. It takes a keen strategy to find the right fit and the most potential.
There are a few ways of evaluating a commercial real estate property. Use these techniques to analyze and evaluate a commercial real estate property before making your next move.
Look at Local Market Trends
Before investing in a piece of commercial property, it is important to know what the local market as a whole looks like. Are you getting involved in an industry and area that has room for growth or will the business stagnate?
It is important to know the market and how it is trending. Using a market cycle as a rough guide can be a great tool when making decisions about your next investment. An investor should understand where in the market cycle things are and they generally last around 10 years, give or take.
Look at the Dates
Investing in commercial real estate means spending a little bit of time becoming familiar with what is known as the basic pro forma. Basically, it is a spreadsheet that starts with the assumed sales price. From there, it is an outline of the operating expenses and income of the property.
Things such as rents collected, vacancies, routine expenses, taxes, and the like are all included in the pro former. It gives a total picture for what the costs and potential revenues can be for that commercial real estate space. All to allow you to make the most informed decision possible about the property.
Remodeling
Finally, it is important to know what kind of changes will be required. Is the property going to need any work before you can get moving? Are there any renovations needed to bring the building up to code or to make room for new equipment?
These go into the expenses involved in a commercial real estate property. Sometimes the remodeling can be part of the plan, but it is all too common to get involved in a commercial real estate property and not realize the amount of renovations that are required.