A Guide to Evaluating Commercial Real Estate Deals
Many investors become successful by investing in commercial real estate (CRE). The reasons to invest in a CRE deal include high-income potential and tax benefits. Securing the right CRE deal requires knowledge, effort, patience, and plenty of capital.
What Are the Types of Commercial Real Estate?
There is a wide variety of commercial real estate available including multi-family properties, office buildings, industrial properties, retail, hotels, mixed-use properties, and land deals. Therefore, there are plenty of options for finding the right CRE deal.
How to Evaluate Commercial Real Estate Deals
Before signing on the dotted line, here are some important considerations. First, getting the best CRE deal requires a careful valuation of each property being considered. The calculations to focus on are the property’s potential net operating income, cash flow, cash-on-cash return, and gross income.
Second, it is critical to assess whether you can get financing for a specific property, based on the merits of the property as assessed by the lender.
Third, it is important to use a commercial broker to help you evaluate a CRE deal. He/she will help find attractive opportunities, will understand the numbers involved, and the terms of potential deals.
Evaluate multi-family properties by looking at vacancy records, maintenance records, bank statements, and utility bills.
Evaluate office and retail properties by talking to prospective tenants, business owners, and commercial brokers. Determine reasonable lease rates that can be expected. Understand the impacts of potential build-out costs, utility expenses, property taxes, and property insurance. Most importantly, be sure to review zoning and land use requirements.
Evaluate industrial real estate by examining usage history, property design, maintenance information, and surrounding market data.
Finding the right CRE deal requires a careful examination of all the information available.
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