Becoming a landlord to commercial establishments seems like a great opportunity. If you manage to find good tenants, you’ll have a secure and steady flow of income for years to come. If you get a property in a great location, you might even be the one choosing your tenants instead of waiting for interested businesses to come to you.
However, investing in commercial real estate in Canada is not always fun. Sure, it can be more promising compared to residential rentals but it also comes with more risks. This is why you have to make sure if indeed this kind of investment is the wise choice for you.
To help you find out whether you should invest in a commercial property or not, here are six factors that must be considered:
1. Large capital
Commercial properties tend to cost more than residential properties so you’ll need to have a bigger budget to get one. This means that you can’t make this investment without serious consideration, as it will give you a major debt. While you can make up for it easily if the circumstances turn out to be favourable for you, there’s no assurance for that before you make the purchase. So without a sizeable capital or a good deal, you might end up in hot water by making the wrong call.
2. Your patience
Every expert will tell you that patience is key when it comes to investing in commercial real estate. Why? Here are a few reasons:
The processing time for purchasing a commercial property is much longer than for a residential property. Performing due diligence on these properties takes months and not just days if you want to make sure that you’ll profit from them.
Approvals from the local government can also take a while to process. As there will most likely be a few renovations you need to make on the building, you’ll have to wait a lot on paperwork to push through with your plans.
Finding good tenants might also take a while.
On the flip side, the leases for commercial properties are also longer than residential properties. This can help guarantee that you have a steady source of income.
3. Risks by property type
Assessing the risks of a commercial property is a lot trickier than with a residential property. It’s not uncommon for two buildings that are standing side by side to have different risks if their property types are different. This is why it’s very important to do a thorough risk assessment of the property to make sure that you’ll profit from your investment.
4. Market trends
You also need to be aware of the latest market trends before investing in a commercial property. These can affect the demand for commercial spaces and tell you a lot about the competition. These can basically help you decide whether it’s a good time to invest in a commercial property at the moment or whether you should consider postponing the move entirely.
5. Taking on an active role
A lot of experts also say that anyone who intends to invest in commercial real estate should be ready to take on an active role in managing the said property. It might seem like an excellent passive investment but that’s not really the case. The most successful investors in this field took on active roles so it might be a good idea for you to do the same thing.
The location of the commercial property can also help you determine whether it’s a good investment or not. There are still a few factors to consider alongside this factor, though, including the following:
High traffic, both foot and car. This promises that a lot of people are in the area and can potentially become clients and customers of your tenants.
High visibility. This can make sure that your tenants will be easy to find.
Local demographics. Are there enough people in the area to patronize your tenants’ services? Do they have the spending power to sustain the businesses in your building? Will they actually patronize the services of your business or your tenants’?
Investing in commercial real estate may seem like a scary prospect but it can really be a great opportunity to build your portfolio and income. With ample research, you shouldn’t be too afraid to dive in and give this investment a shot. The tips above can, hopefully, give you a good idea whether you’re cut out for this endeavour. Give them a shot and you might be surprised at how far they can take you.