Before the JOBS Act, accredited investors should have personal relationships with the real estate brokers to get in touch with the direct real estate investment parts. With the help of the real estate crowdfunding portals, anyone can really and easily invest passively in quality commercial real estate investment opportunities. Though the access to these deals is great, it is up to the investors whether they will follow the important steps and evaluate the worth of these properties before they invest.
Real estate property investors need to be very careful about the risks associated with private real estate deals. Here are some of the steps to be discussed below that will help evaluate the value of the commercial properties that will help further invest in the real estate properties.
Ways to Evaluate the Value of Commercial Properties
- Determine whether the type of deal you are reviewing is best for you or not. It is one of the initial things that you must keep in mind while evaluating the value of the property. If you are investing for the very first moment, the experts prefer you to invest in low-risk stabilized properties rather than high-risk properties. But, if you want to have more returns, you will try out the high-risk stabilized investment deals. Though making commercial real estate investments has higher risks, the returns are also huge compared to residential properties.
- Evaluating The Experience of a Manager Is Also Important. If you have chosen the right deal, the next step is to evaluate the manager’s experience level to ensure that they are knowledgeable and experienced to help you make the best deals. While there are several exceptions in this rule, generally, the experienced property managers will have a high probability of giving you success than the beginner managers.
- Then, you should look for the preferred returns. Most experienced passive property investors will tell you that they will not consider the passive deal unless it has good returns. A good deal ensures that the investors will get the initial portion of any available profits for the profit distribution before the managers get their portions. Thus, it will help the investors recoup the original investment as the main priority.
The preferred returns will depend on the experience level of the managers, but the commonly preferred return will be 8% as a whole. Anything above this measure will be considered to be profitable for the investors. So be careful when considering this deal that does not have a good return for the investors unless the profit gets split.
- The next step is to review the profit splits from the properties. Determining the profit split is said to be one of the largest factors that will help determine the ROI and, therefore, one of the crucial items when considering the passive investment. The profit splits depend upon the property manager’s experience and how much they work to bring out the best returns from the commercial real estate investment company. Some commercial properties have “one-level” splits, and some have “three-level” splits depending on how the managers have pursued the properties.
- Now, you should look for the conservative assumptions in the projections. One of the best methods to determine whether you are dealing with the aggressive or with the conservative manager is to check their assumptions in the projections. Remember, your goal is to get a deal that is passive and profitable for long. If the assumptions are aggressive, then you can pass the opportunity to others.
- Knowing the business plan and strategy of the manager becomes the next step while you are evaluating the passive property deals. Understanding and then assessing the manager’s business plan and strategy are crucial, and they might not go with the proposed plan for the property investment. For example, suppose you are evaluating the ground-up development of the apartment complex with a 1-bedroom unit. You will think that the surrounding area has several families who need to have 2–3-bedroom units. In that case, you want to pass the opportunity for passive investment.
- After this, you should access the location of the property and the demographics of the same. Considering the location is very important when you are investing in commercial properties. In the same manner, you should also review and consider the area of the property and the demographics so that you can know whether the area is developing or not.
Apart from evaluating all these steps, do not forget to check all the legal documents related to the commercial properties. If you want to passively invest in commercial properties and have higher returns on investment, choosing and consulting the team from Wealth BCI is a good decision. You can also check out the commercial properties listed on the website for investment so that you can make an easy decision before investing in the same.