5 Considerations to Make Before Investing in Commercial Real Estate
If you are looking for a way to diversify your real estate portfolio and have not yet ventured into commercial real estate, now could be the time to do so. However, there are some important differences between commercial and residential real estate transactions that one must understand before diving into the market. Gain a firm grasp on these variances with help from the following sections, and discover how the assistance of a seasoned real estate lawyer can help improve the outcome of your first (and hopefully all successive) commercial real estate transaction(s).
What is the Market Doing in Your Chosen CRE Sector?
Commercial real estate involves many sub-sectors (housing developments, office spaces, restaurants, etc.), so investors need to understand the various nuances and fundamentals of their chosen sector. Not only does this decrease the risk of project failure, but it can also increase one's chances of yielding a high return. Savvy CRE investors can also use their market knowledge to fine-tune their investment path and diversify their real estate portfolios.
Do the Trends and Demographics of the Area Fit Your Goals?
Some of the most successful CRE investors have a long-term plan - an end goal, so to speak. The reason for this is simple: to find the path to success, one must first know the destination. Since the CRE industry has so many different sub-markets and sectors, the path for each individual investor will be unique. As such, it is critical to ensure you have knowledgeable advocates and professionals in your corner - people who understand your chosen market, its trends, and area-specific demographics. It also helps to employ a legal professional that understands how to navigate the local laws and regulations, as they pertain to land and property development.
Assess Risk by Property Type Instead of Location
While it is important to consider area demographics and local data when choosing your next CRE project, one must avoid assessing risk by location alone. This is very different from the risk assessment process used with residential properties, in which adjacent properties are often compared since they tend to carry similar risks and returns. The same cannot be said of commercial properties; instead, property type (and the performance of similar property types in the area ) is usually far more indicative of the potential risks that an investor may experience.
Have an Active Role in Your CRE Development Projects
Investors are encouraged to actively participate in all real estate projects, but having an active role in the process is downright essential for those investing in commercial real estate. In this sector, market changes happen frequently, and trends shift, sometimes monthly or even weekly. There are also many issues that can crop up with little to no notice. Being involved and having an active role in the market, staying involved in each transaction, and monitoring each property to ensure it is operating at its fullest potential can help mitigate such issues while you pave your path to investment success.
Avoid Failing Tenants by Performing Your Due Diligence
Dead-beat tenants can be found in every real estate sector, including commercial real estate. Sadly, though, the losses in this sector are usually far more devastating for investors. Due diligence can reduce the risk that you will end up renting to a tenant that may default on their rent or damage the property. A seasoned attorney can assist you with the process, as well as any other landlord-tenant issues that may arise along the way.
Contact Our Naperville Commercial Real Estate Attorneys
Whatever your real estate investment needs may be, Lindell & Tessitore, P.C. can help. Our firm is one of the most trusted in the state because we avidly protect the best interests of our clients. Get started by scheduling a personalized consultation with our Naperville commercial real estate lawyers. Call our offices at 630-778-3818 today.