Canadian entrepreneur with Investing worldwideon a mission to help people invest in real estate to create wealth for generations.
Many first-time investors consider building, renting or buying a home. However, this is not the only way, nor is it always the most profitable way for investors to profit in the long run. Investors may also consider buying a commercial property. The rent and income from the property can enable investors to realize their dream of owning property.
A commercial property allows investors to get involved in various activities. Investors should be meticulous when processing a commercial investment as it requires significant financial transactions.
In an acquisition process, there are several steps that investors should know to avoid setbacks. Thus, care should be taken in pre-learning about the acquisition of commercial real estate. Investing in real estate is not just about building a long-term asset. However, investors’ money can grow and become fruitful over time, increasing the value of their building.
Pros and Cons of Commercial Real Estate
Commercial and residential owners do not have the same reality. Despite the existing limitations of this market, there are numerous advantages to entering a commercial space. Tenant stability and flexibility are the two main benefits of commercial leases.
Entrepreneurs are typically looking for ways to grow their business. A constant change of premises is therefore not suitable for companies. In general, customers need references and a permanent site to easily find businesses.
In principle, commercial leases are long-term; they are often valid for a period of five or ten years. That said, commercial leases often have flexible terms that can be negotiated by both parties. According to their objectives, investors can agree on a net rent, a double net rent or a triple net rent. In the event that the same building is occupied by several companies, insurance premiums and property tax are then sent.
Before embarking on a project of this magnitude, investors should be aware of the risks involved. First of all, commercial real estate down payments can be very high. In addition, renovation and costs can be exhaustive as the new owner will approve the reimbursement of these costs.
Another important consideration is the owner’s responsibility for the maintenance of the building. In addition, the owner of a commercial building should always have a safety cushion to deal with the unexpected. Finally, there is the issue of tenant management. Signed leases and good relations do not relieve tenants of their responsibilities. To avoid bad profiles, tenants must be managed with a lot of energy and time. Plan a good research strategy and credit check before negotiating commercial leases. It sounds simple, but it is a huge task.
Buying commercial real estate
To understand commercial real estate purchases, investors need to evaluate their needs. To find out what’s best for them, investors should consider the following questions.
• Is it too early for my company to make long-term decisions?
• What are the advantages and disadvantages of buying commercial property for my company?
• Does the desired building meet my expectations?
• Do you want to settle in the same location in the coming years (usually within 5 or 10 years)?
Making the right decisions can influence the growth of investors’ businesses.
Getting a commercial mortgage to finance the purchase
I have found that the most challenging part of buying a commercial property is the search for financing. Investors can go through profile screening to get a loan from financial institutions. This screening includes investor earnings, a balance sheet and a fairly promising budget forecast.
The lender usually does not finance the project in full, but in part, taking into account the value of the business premises. In general, I have found that the financing rate varies between 75% and 85%, taking into account the type of building, the probability of resale and many other parameters. The loan amortization period is usually between 15 and 25 years. This period can be extended when investors’ companies have short-term liquidity.
Business insurance is a critical part of the purchasing process. Business insurance protects investors and their team of employees in the event of dismal results. This allows investors to provide cover for high-risk situations as the company’s finances cannot handle the damage incurred or caused. Due to unforeseen events, financial consequences can be irreversible and lead to the bankruptcy of investors’ companies.
Taking out insurance is not a trivial matter; professional activities of investors should be considered. Commercial insurance can cover design flaws, breach of contract, disappearances and embezzlement leading to losses. The various clauses of this insurance are listed and studied.
Accounting Policy and Taxes
Before looking for mortgages from banks, it is important to consult with accountants. Accountants can determine the required budget for the realization of investor projects. The aim is to determine the profitability of commercial real estate through various evaluations.
An accountant is typically responsible for the financial planning of purchases and business plans. The expertise of accountants enables investors to find solutions to finance the purchase of commercial real estate. They are the right people for sound advice on commercial real estate and guidance in decision-making. I’ve found that unaccounted investors’ real estate projects are less likely to survive competition and external risk factors.
Notaries and real estate law
In addition to being an accountant, notaries can play a major role in the success of an investor’s real estate project. As landlords, investors must be aware of the laws that apply to their relationships with tenants. These laws protect investors from irregularities and their various sanctions. It provides investors with strategies to safeguard their investments.
Because investors must rigorously examine title deeds, a notary must examine all of their documents. The notary can detect the smallest deviation that could hinder the acquisition of a building. Certain leasing conditions can be financially disadvantageous for investors. A civil-law notary specializing in corporate law acts as legal advisor to investors.
Investors don’t have to limit themselves to corporate offices. Workspaces for professionals or businesses like commercial real estate can also house rental apartments. Investors can also decide to manage their real estate themselves or delegate this task to competent managers. In any case, investors will likely need a team to assist them in acquiring their commercial real estate.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.
Janice has been with businesskinda for 5 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider businesskinda team, Janice seeks to understand an audience before creating memorable, persuasive copy.