It is quite noticeable that investing in commercial real estate is far better than investing in residential real estate as the CRE will provide high rental and capital appreciation compared to residential real estate. On average, if you see, in the Metro cities, the residential rental yield is about 2-3% of the property value, the CRE can be around 4-5% and higher. Therefore, if anyone plans to invest in commercial real estate, nothing can be a better choice than this. Furthermore, CRE is a good investment option as the capital appreciation is high, ensuring a constant flow of income and high returns on investment.
The development of commercial buildings and high-end business spaces is growing exponentially in popular cities, creating a huge demand among property investors. However, if you plan to invest in commercial properties, there are some rules to keep in mind.
Steps to Follow While Investing in CRE (Commercial Real Estate)
HAVE A GOOD KNOWLEDGE ABOUT THE LOCATION
When you plan to invest in commercial properties, you must check the location. Not all the locations are fruitful and will yield high returns. The commercial properties located in good areas well connected with the metro cities have higher demand than those located in the outskirts.
To be sure about the location, you should check the occupancy level of commercial projects built around the area. Locations having less vacancy, around 5% or less, will ensure high rental value. Conversely, the CRE with a high vacancy rate will challenge the ability for investors to make a high income.
KNOW THE SUPPLY AND DEMAND DYNAMICS
It is worth analyzing the balance between supply and demand. The best way to analyze the demand for an apartment development is to find out the list percentage of tenants that have already entered into a lease contract, even though the project is under construction. You can also get feedback from the existing owner if the buildout is complete or if it is an existing and established building. Finally, talk with the sales department to know about the vacancy rate. If you find out that there are a small number of units left and the property is in a prime location, you may conclude that the demand is high.
On the other hand, if you find a huge amount of vacant units, it means that the demand is low. This gives the investor a fair idea of supply-demand dynamics.
CHECKING THE PROFILE OF TENANTS
When you think to invest in commercial real estate, be sure that you check the profile of tenants. If you find that the large Multinational chains are on the list of leaseholders, the builders get an additional benefit to attract the property investors. In addition, when the commercial property has morebranded retail chains on the list, the interest expected will be quite high, and the investors can reap major benefits from it.
TERMS OF LEASE
Knowing the lease structure before you invest in CRE is very important. The investor will be interested in investing in the property with a lock-in period for leasing that includes a good rental increase escalation clause in the process. A commercial lease is higher as compared to a residential lease.
These are some important rules to keep in mind while investing in CRE. If you want to invest in commercial properties, you can take help from the team of Wealth BCI, who is helping investors to find potential properties and invest in them.