You may already have a residential condo for personal use and you are looking for another investment that can balance your portfolio. Instead of putting down money for another residential unit, why not consider investing in commercial leasing? With the rise of the real estate industry and the increasing number of people putting up businesses, the demand for office or sales space is at an all-time high.
Before you contact your agent for property referrals, you have to understand first that managing commercial leases is a big responsibility and that investing in commercial real estate is vastly different from putting your money in residential properties. Here are some of the reasons why leasing commercial condos is a smart investment move.
- It is valued differently compared to residential leasing. The income that you will derive from your commercial property will be calculated per usable square footage. Residential properties do not necessarily follow this rule.
- The location of the condo spaces is practically a goldmine. Condominium buildings are primed for their locations, which are strategically at the center of cities. This alone makes condos as a smart investment and guaranteed to attract more customers to your space, not just condo residents but also people from the outside, especially those who make convenience a top priority.
- There’s greater cash flow per square foot of a commercial property. Compared to a single family residential dwelling, there’s more income to be earned from a multi-unit commercial property.
- Leases are usually longer compared to residential ones, which can help ensure a more stable cash flow if you invest in commercial condos.
- You can easily think of a good business plan. Condo residents are mostly families and working professionals, so you already have your target market all figured out. You just need to lease the space for businesses that cater to the necessities of everyday living. Laundry shops, convenience stores, and beauty salons are practically no-fail ventures, provided that you keep your prices and services competitive. Residents are more likely to stick to businesses within the building as long as they are satisfied with the goods and services. You can easily house businesses that offer delivery services, since this will add little or no costs given that most of the customers are within the building.
- Condo units are great as office spaces. For start-up businesses who can only afford smaller and cheaper spaces, commercial condo leasing is a sensible practice. Tenants can get everything they need from a standard condo unit and will make good use of the kitchen, bathroom, and sleeping quarters.
- Security is part of the package. If you hold your business inside a condo building, you can take advantage of the security staff, the CCTV cameras, and other surveillance equipment.
If you’re already convinced that investing in commercial property is for you, then it’s time to figure out a good blueprint for finding a good deal. Here are the steps in evaluating what works for you:
Learn to think like a professional
Although you may never get the expertise of real estate agents, it helps to have a more comprehensive understanding of commercial real estate. Do your research on the value, income, and cash flow in comparison to residential properties. Anyone worth his salt in commercial real estate field knows that greater income comes with multi-family dwellings compared to a single-family home and that commercial leases are longer. If you have a tight credit, you have to muscle your way with ready cash. At least 30% downpayment is needed before property lenders approve loans.
Do your assessment homework.
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Set your parameters
You should prepare the answers to common questions when it comes to brokering a deal in commercial real estate. Set the amount you’re willing to pay for a property and a clear estimate of the rental space you need to occupy. Identify the key players in this negotiation and set the expected amount of cash you will generate from this deal. Also, do your homework on the number of tenants who are paying rent. These details will be very instrumental in evaluating a good deal.
Look for a seller who’s willing to negotiate
The pros will tell you that the best people to negotiate with are the motivated sellers. These are the people who are actually willing to part with their properties below market value. It could be that they really need the money, hence the reason to sell it for a lower price. But whatever the reason is, this is a great opportunity for you to strike a great bargain and get yourself a good deal.
Know how to spot a good one
Take some pointers from the pros in discerning the value of a deal. For them, the best deals are the ones you can afford to refuse. Also, they know how to assess a property just by looking at it. They are always on the lookout for possible repairs and they can calculate how these damages are going to cost them and how it can affect financial goals.
Skylounge, Royal Palm Residences, Taguig City, DMCI Homes
Familiarize yourself with the key metrics
There are common metrics that you should understand well to be able to assess a commercial property competently. Getting to know terms such as Net Operating Income, Cap Rate, and Cash on Cash should be part of your learning process.
Use all available means to find potential properties
You don’t have to rely on your agent alone to find potential buys. There are classified ads and online listings that can point you in the right direction. If you’re unsure of something you find, you can ask the help of your agent to evaluate it. The referral fee you will give is worth the agent’s expertise in helping you sort out the good from the bad.
You shouldn’t hesitate to part with your cash if you already have a chance to invest in a smart commercial real estate deal. Condominiums are going to be more popular and valuable in the future and you have to cash in on the growth. Opportunities are everywhere waiting to be discovered, so start evaluating your options.
