In 2022, over $1.1 trillion was spent on commercial real estate transactions. This includes properties like office buildings, warehouses, etc. Investing in commercial Orange County real estate can be an amazing way to generate exponential returns. However, there are certain nuances of the commercial real estate market you need to understand before you get involved.
This will prevent you from dealing with obstacles you may have otherwise encountered.
Let’s explore some of the most notable things you should know.
1. Determine Your Needs
One of the most important steps to take before investing in commercial real estate is assessing your needs. This includes figuring out your desired annual return, what type of property you’re capable of managing, etc. For example, someone might want a substantial annual return on their commercial investment.
However, they might not be able to deal with the nuances associated with managing a property this large. The same can be said about managing a large number of properties. It might make more sense for someone to purchase a warehouse instead of multiple apartment buildings in a case like this.
As long as you take time to plan, you’ll narrow down your potential options.
2. Location Is Everything
Similar to residential real estate, location is one of the most important attributes of the commercial real estate market to consider.
No matter how nice a commercial property is, you likely won’t be able to get the most out of it if it’s located in the wrong area. To clarify, let’s assume that you purchase a brand-new office building that’s already outfitted with plenty of amenities.
Let’s also assume this building is located in an area that is both difficult to access and has a high level of crime. There’s a good chance you won’t be able to easily find tenants, leaving you with enormous ongoing expenses that you have to pay out of pocket. In contrast, a less impressive building in a prime location will perform much better.
It’s not uncommon for there to be a large amount of competition among commercial property renters if the location is ideal. In situations like this, renters are also more likely to overlook the property’s shortcomings. Be sure to consider this when moving forward.
3. Understand Trends
Starting market trends can help you gain insight into the future potential of the property. The city might have a massive boom in commercial real estate development, for instance.
With a sharp increase in overall property volume, the average property value will likely decrease. Trends can be influenced by non-real estate factors, as well. One of the best examples is the mass exodus of residents from certain states during the COVID-19 outbreak.
Thousands of people left places like New York and California in favor of states like Texas and Florida. This subsequently caused the commercial real estate prices in the destination states to rise.
Another factor to consider is government regulations. A common scenario would be a state government passing a law that limits the development of new commercial real estate in certain areas.
This would inherently make existing commercial real estate more valuable, meaning it would be in a buyer’s best interest to purchase property before this law is passed.
The best way to stay on top of market trends is to study them each day. Many people choose to read commercial real estate news in the morning before work or at night before they go to bed.
4. Have a Plan For Financing
You won’t get very far if you don’t have a solid plan to secure financing. Unfortunately, obtaining approval for a commercial property loan is more difficult than obtaining one for real estate.
This is simply due to the fact that commercial properties are typically worth exponentially more than residential properties. They can also take longer to obtain approval for commercial loans.
So, it’s highly recommended that you secure financing as soon as possible. The last thing you want is to find yourself in a situation where you find the perfect property but aren’t able to purchase it. Your prospective lender will tell you everything you need to provide to give yourself the best chance of approval.
5. When to Hire a Broker
Put simply, you should hire a broker unless you have extensive knowledge of commercial real estate investing.
Those who have never handled this process will likely make mistakes that they could have avoided. A broker has all of the required knowledge and resources to help you find the ideal property.
They also have access to a list of available properties they can match you with, allowing you to save a substantial amount of time. When searching for a broker to work with, consider their past reputation. Only choose brokers that have overwhelmingly positive feedback from previous clients.
You should also consider how communicative they are. If they aren’t easy to get in touch with, you’ll find yourself stressed during the transaction process.
Finally, assess if they are interested in helping you meet your needs. When speaking with them, they should go out of their way to answer your questions and concerns.
Invest in the Commercial Real Estate Market
As previously mentioned, the commercial real estate market is an amazing investment opportunity. As long as you consider the above information, you’ll be sure to give yourself the greatest chance of success.
Reach out to us today at (877)-775-9625 to learn more about how we can help. Our team of experts is ready to connect you with the ideal property for your needs.
