2020 hasn’t been an ideal year for real estate investments, but then again it hasn’t been ideal for almost anything financial. Having said that, many experts and analysts are optimistic about life starting to get back on track in 2021. With things gradually going back to normal, it’s time to talk about financial investments again – and preferably sooner than later, when prices start rising.
While the real estate market did not suffer as huge a blow as other sectors did due to COVID-19, a slowdown was certainly felt. However, in the end of the day, buildings will be built and demand for residential, commercial, and industrial properties will exist whether there’s a pandemic out there or not. That’s also why the real estate market is predicted to be one of the first to recover, and why we’d recommend not waiting with discovering possible investments.
Let’s talk about commercial real estate and try to figure out where you should put your extra pennies right now, if that’s the direction you’re headed. “Since there are so many different types of commercial assets, it’s important to understand what you’re getting into before signing your first check,” told us Ofir Bar, a real estate investor and entrepreneur with over 25 years of global experience. “Commercial real estate is usually not a good place for novice real estate investors, but the COVID-19 has presented some interesting opportunities that are worth looking into.”
Here are some tips
A general distinction is made between urban commercial space and other, non-urban areas such as the suburbs or rural areas. In that sense, there’s great similarity between commercial properties and residential ones, meaning that urban assets tend to cost more and that the closer you are to the city center, the heftier the price is. On the other hand, the monthly rent you get from business owners is expected to be higher as well – but that all depends on the type of lease you sign with the tenant, of course.
When choosing the right asset for you, take some time to consider its history. If one property has hosted a good number of tenants over a short period of time, there’s probably a reason why (and it’s not good news for you). You want a steady income from your asset, without having to worry about needing to find new residents constantly. Also, check out if there are any municipal or national plans for maintenance or construction in the area because they usually tend to scare business owners away and last for quite a while.
Naturally, the rule is that the bigger the property is, the more it is supposed to cost – and the larger your projected revenue will be from it every month. However, taking on a lot of square feet with the hopes of cashing a nice check monthly is not always the wisest choice, since most commercial tenants can’t afford huge spaces. Those who can afford them are usually very rich and powerful people, which means they have quite a leverage over you at the negotiating table. Bottom line: A small but steady monthly income should sometimes be opted.
Another thing to keep in mind is that there may be a difference between the asset’s size on paper and its actual, usable size. For example, store owners will be more interested in how much space they can use for displaying merchandise and less in the property’s kitchen or bathroom – and they will want to pay accordingly. That’s why, when considering the size of the property you want to buy, you should keep in mind its function as well.
In direct continuation with the last point made, since commercial real estate is a very broad term, the way your property is built pretty much determines what it’s suitable for. Ofir Bar explains: “Rent paid from office space is usually cheaper per square foot than what a restaurant owner would pay, but restaurants demand certain facilities such as a large kitchen and storage room, whereas most apartments can simply be turned into offices.”
But it’s not only about what the property has to offer. There are so many regulations that commercial establishments need to abide by, and all of that needs to be clarified before any contract is signed. The problem is that most people don’t even know about these standards, such as the need for a store to be accessible to people with disabilities or the size of the kitchen in a restaurant. It is the business owner’s responsibility to be aware of all these regulations, but it wouldn’t hurt for you as the property owner to know if your asset meets them.