Commercial real estate investing is no different to any other investment decision – it carries its own inherent risks, as does any business. But how can you minimise it?
You might be pleasantly surprised to know that a little knowledge goes a long way to creating a strong foundation for your investment as potential hazards can be managed with some degree of confidence if you’re careful and you do your homework. Here are a few pointers to assist you in moving forward.
First you need a strategy
This comprises a few key areas:
- Verify the financial documents of the property
- Inspect the legal documents (such as the building’s title papers)
- Inspect the physical condition of the property
- Check the crime statistics in the area
These tasks alone will go a long way to minimising the risk factor. Ninety per cent of all deals fail during this preparation stage. So you can see the importance of due diligence. The alternative could be very costly indeed. Minimise the hazards early.
Familiarise yourself with market prices. If you overpay, this will only hinder your cash-flow, as too much equity will be tied up in the premises. This can be avoided by doing some solid research on trends, price fluctuations and any impact that could be felt from seasonal adjustments. Research which businesses are doing well – and the ones who appear to be struggling.
Having a flexible exit strategy (or, ideally, several) simply means that you are covered should there be unforseen market change or if your own circumstances change suddenly. Being prepared for the unexpected is another way of alleviating your exposure to risk.
Evaluate and Review
Once you feel you have done your research thoroughly, this is probably the time to step back and evaluate all that you have gleaned. Don’t be afraid to ask questions or go back over something. This is the best time to review your hard work and if there is something niggling at you, now is the time to re-examine it.
Once you have completed your groundwork and purchased your property, there are other strategies that will also aid the cause, such as setting up Property Condition reports (PCR) and optimising your investment.
In conclusion, these are just a few simple risk reduction strategies, but they are key in the planning stages and they can set you on the right path to what should be a profitable investment portfolio for the long term.
And the really good news is that you don’t have to do it alone. If you need expert advice when it comes to finding or investing in a commercial property, HKC are here to help. Call now on 03 9078 4794.