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Fundamentals of Commercial Property

27 Jan 2020

The commercial property has been rising in popularity for the past five years. It is because more and more people have been realizing the true potents of this niche. And they want to turn their 9-5 job down and switch to this kind of investment projects because the high return on investment it offers.

the investment in commercial property can be a great idea to build your finance empire because it can grant you tons of benefits in the future. The fantastic benefits that you can enjoy are the high return, low budget investment part, join investment, renting option, tax rebates, and so on.

But when it comes to the commercial property investments, you will want to understand these fundamentals before proceeding.

Fundamentals of Commercial Property

Commercial Property Basics

Is commercial property investment is the right choice for you?

The due diligence is very important in commercial property investment on Consorto. You surely have your own financial goals. But you will want to make sure that the commercial property investment is the right thing to do for supporting your specific goals. The strategies of property investments can be different for each property. To find out your best choice, you will want to identify your expectations and manage them. If your goals is a good cash flow, for instance, then your strategy will be more of a passive investment. But if your goal is value add, there will be some work involved in your mission.

The Multi-family investing

It is also an important fundamental in the commercial property investment. You will need to determine if the multi-family investing is the right financial strategy for you. When investing the multi-family properties, it is up to you to decide what to purchase.

Therefore, you will want to determine from the cash flow project, value add project, or hold period project. If you go with the cash flow project, then you must make sure that the property will have high occupancy rates. The value add project does not mind with the low occupancy rates, but the units are leasing below the current market rates. When it comes to hold period project, you might be between the cash flow and value add project.

NNN fundamental

NNN is another word for triple-Net. It refers to the specific agreement which enforce the tenant to pay all taxes, maintenance, as well as the building insurance. You might want to pick this NNN fundamental if you want to conduct a passive income strategy. Although the ROI might be lower, the risk will also be lower. It is also much easier to manage because all of the costs are on the tenants. But most NNN does not have property manager.

The Financing of the commercial property investment

You shouldn’t neglect this fundamental. Without a good financing, you will not be able to proceed profiting in the commercial property sales. The large financial commitment gets involved in this mission. So, you will want to consider the interest rates. Work with the reputable bank or other institutions to help you with the financing from the beginning.

When browsing around the financing options, it is crucial to consider the length of the loan and its amortization period. The terms of loan for different properties can be different. Consult with your experts for the funding.

Financial analysis of the property

It is important to assess the revenue, vacancy rates, and the expenses that are possible challenge you in the future. the gross revenue’s other words are the revenue that you will attain when the property is entirely occupied. Well, there’s a chance that only some footages are rented to the client. The operating expenses derived from the maintenance, taxes, utilities, management, and so on. The NNN lease property won’t be paying these expenses. Then there are also other languages that you will need to comprehend such as Debt Service, NOI – Net Operating Income, CAP Rate, Cash on Cash, Internal Rate of Return, etc. Discuss these terms with your expert and learn well from your mentors before proceeding.

NNN Lease

You will want to understand the Triple Net Lease concept. If you are just like many other investors, then it will only be natural that you want to enjoy your passive income with lower risk. Obviously, the Triple Net Lease is a great option for you. But here is the catch. You will need to be the sole owner of the building so that you will have that kind of exclusiveness. Then the tenant will be paying all the taxes, maintenance and insurance fees. In this case, you can either ask the tenant to pay you back on a monthly basis, or the expenses will be billed directly to the tenant. But your passive income won’t likely to happen if the tenants are not trustworthy. Therefore, choosing the right tenants is also a crucial step to consider.

The importance of commercial property management

the role of the commercial property management is important to make a successful investment at your part. The commercial property has range of responsibilities depending on the type of commercial property you are working on. Consider to discuss with your experts to assign the property manager for you.

Utilizing advanced software for commercial properties can also help you manage your investment more efficiently and keep track of important metrics such as occupancy rates, rental income, and expenses. This technological integration not only optimizes day-to-day operations but also enhances the overall profitability and sustainability of the investment.

Do you need help from asset manager?

the asset manager or investor assistance can help you a lot if you hire them. They are the experts who are able to find the prospective properties in the real estate market. If you are managing multi-tenant properties, you will want to get help from the asset managers. They will help you to manage certain types of assets and help you with all the processes.

Being the Certified Commercial Investment Member

In order to know the nature of the commercial investing market, you will want to learn from the best. CCIM is one of the best platforms which provide you with the 101 class about commercial investing market. When you become the CCIM, you will know that your missions will be smoothly carried on.

Building the solid team

the commercial property investment is indeed a big deal to handle. Therefore, it is not a one-man show challenge. It comes with a great number of perks from the high ROI, lower vacancy rates, good cash flow prospects, as well as high grade tenants. But it comes with a lot of effort to take as well. Therefore, you will want to build a team of experts and perform the right due diligence.

Comments on this guide to Fundamentals of Commercial Property article are welcome.

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