Last year’s commercial real estate market saw record-breaking gains with global totals reaching more than $730 billion. Industry-wide reports indicate this is the highest figure on record for the past twelve years. Though an ever-growing number of people enter this field with hopes and dreams of generating ample passive income, only a handful actually reach their goals. Unfortunately, the rest find themselves losing more profit than they bring in.
Turning the Tables
With the right strategy in place, commercial real estate investing can be even more lucrative than the residential sector. Those who buy into this segment of the market have numerous ways to make money from their investments. Still, countless people inadvertently overlook certain opportunities for profitability. Consider the following factors when looking for ways to truly profit from letting properties to businesses.
Location Really Does Matter
No doubt, you’ve heard countless real estate agencies, market analysts and fellow investors chanting the “location, location, location” mantra. It’s not just an empty catchphrase. Purchasing a commercial property at rock-bottom prices could easily lead to losses if businesses aren’t interested in moving to the neighborhood in which it lies. Though properties in more desirable neighborhoods will require a higher investment, it’s bound to pay off in the long run.
Dive into Demographics
Investing in a commercial property based on high average rental rates in an area may be a tempting prospect, but those figures alone don’t tell the whole story. At present, numerous reports are showing a significant gap between price and income in many areas. Setting your rental rates at the highest end of the spectrum could leave your property sitting vacant rather than bringing in business tenants if they find themselves struggling just to cover the cost of the lease.
Research the demographics of a specific neighborhood thoroughly before determining your commercial rental rates. You may have to adjust to accommodate potential lessees, but you’ll ultimately gain more than you give up.
Learn From the Past
In addition to researching local demographics, it’s important to look into the history of the property itself. If a commercial space has had six different tenants over the last five years, there’s a reason behind the high turnover rate. Delve into the average staying power of past businesses to have occupied the property before making an investment. Otherwise, the costs of revamping leases and involving the legal system in collecting delinquent rent and broken lease fees alone could land you in the red.
Keep up with CAM Recs
According to a recent write-up in Forbes, failure to stay on top of common area maintenance and other reconciliations costs commercial landlords hundreds of thousands of dollars. Avoiding this type of paperwork simply because of the time and effort involved can be a costly mistake, to say the least.
Subdivide Services
Charging businesses rent in exchange for the use of your commercial property is an obvious way of profiting from such a venture, but a number of landlords are generating additional income by divvying out additional amenities. For example, you could provide parking space as a separate feature from the use of the building itself. Offer advertising space or signage for an additional fee. The more extras you offer, the more opportunities there are for boosting profits, but don’t take this concept too far.
Bottom Line
Commercial real estate can prove profitable as long as you approach the matter well prepared. Be sure to do your due diligence on a property and its surrounding area before buying, and adjust your prices and services accordingly. If in doubt, don’t hesitate to reach out to industry professionals for assistance. Doing so could save you a great deal of hassle and unnecessary expense.
