When as an investor you think of investing in a commercial property, you have one thing in mind - the value of the property should go up and the income will continue to increase. However, you also have to plan for the downturn too. There are ways to minimize your risks when you invest in a commercial property in any part of the world:
1. Choose a property with multiple tenants instead of single tenant. This will spread out the risk as you don't put all eggs in one basket. When a tenant terminates a lease, you will potentially just lose a portion of the total income. It's also easy to find a tenant looking for a small unit.
2. Choose a property with long term leases over month-to-month leases. Month to month tenants can move out with short notice when their businesses go down.
3. Avoid having most of the leases expire at the same time. That way in the worst case, you will not have to face with a scenario that the whole building is vacant.
4. Choose brand-name over no-brand tenants when you have a choice. Leases from brand-name companies are sometimes guaranteed by the corporations. So, when they have to shut down the store, the corporations will continue paying rents. According to statistics, brand name tenants are more likely to be in business next year than non-brand name tenants.
5. Ask for lease guarantee. When a tenant is a small corporation, ask the owner of the corporation back up the lease with his or her personal assets. This way you are more likely to get your rent paid during bad times.
6. Have a mixture of tenants with different businesses. For example, you don't want to have 3 barbershops in a shopping centre as they will compete against each other and take the other out of business. When the economy slows down, it may affect a certain industry. By having tenants with different businesses, you reduce the chance that the economy affects most of your tenants.
7. Request seller for rent guarantee. When you purchase a commercial property that is not 100% leased, ask the seller to provide a 12-month rent guarantee for vacant units. That way you have up to 12 months to look for tenants.
8. Invest in a stable and growing area instead of a declining area. Your tenants are more likely to do well and have money to pay you the rent.
9. Choose triple-net leases over gross leases. Maintenance is something varies from year to year. On the triple-net lease, the tenant is responsible to reimburse you with all the expenses so your net income does not fluctuate.
10. Avoid property that has chemical. If you are an investor looking for a passive investment, you should avoid gas station. When there is a gas leak, the soil is contaminated. You won't be able to sell the property as no lender will provide financing.
With all that said, here we are with a few generic tips every property buyer (new or pro) must keep in mind before he enters the market to buy commercial property in Noida –
1) Comprehend the present condition of the commercial real estate market – we are not saying to become pro at investment strategies, we know that it takes years of study and experience. However, we do want you to make an informed investment decision by understanding a few ins and outs of the current market with regard to latest property trends, property price changes, etc.
2) Establish a fixed budget for investment along with a realistic income goals – Commercial property has a broad range – from small retail shops to large corporate HQs and everything that comes in between. When thinking of putting down your money on your first property purchase, it is important to know how much you actually afford to invest or taking the worst-case scenario, afford to risk or lose. Once this is done, it is time for other things – type of property you need and the realistic income goals you are looking at.
3) Due-diligence, research and consult the industry experts – For the first-time investor, it is obvious that at times you will feel that things are getting on your nerves. When this happens, the best you can do is give yourself the necessary time and study all the moving parts of property investing. But, at times even research and due diligence fails (don’t be too hard on yourself, it’s not your field), in such situations never hesitate to take help from professionals who have the expertise in commercial property investments. Take help and ensure you are on the right track.
In short, if you put in the world’s most precious resources (time and effort necessary to understand wise commercial property investing), there’s no reason you can’t significantly increase your bank account.
Important Tip - always remember: research, location and finances come first, and when in doubt, consult an expert.
Comments
Post a Comment