Why should you invest in Commercial Real Estate?

Commercial real estate has its benefits over residential real estate:
 

• Compared with Residential Real Estate, Commercial real estate is valued differently. The income produced by commercial real estate is directly related to its size and usable square footage. This is not always the case with residential.
• Commercial real estate property helps diversify risk. For example, if you own a commercial multi-unit building and you lose one of your 10 tenants, you only lose one-tenth of the income for that property, instead of the entire rent as you would if you lost a tenant in a single-family house.
• Cash flow is often higher in commercial real estate. The yield is often higher per square foot and on an initial investment basis than it is in residential. If you lease or rent a multi-unit commercial property, you have more tenants to generate income than you do with a similar residential property.
• Commercial real estate leases are generally much longer. This helps with the stability of your cash flow and planning for your future investments.
• Commercial property is appraised by the lenders differently. You'll need to find a bank that works with commercial real estate (most major lenders do), and it'll want a higher down payment than for residential property--usually 30 percent or more.

Steps of Purchasing Commercial Real Estate

Every few years, the real estate market suffers through a crash or a correction and underscores a perpetual dilemma for investors: Is it a good time to buy, is it better to rent or own commercial property?

Buying commercial real estate is a complex undertaking that is difficult even for experts to time right to maximize their investment value.
Why should you buy? To get a greater control over the cost of the real estate component of overhead, as opposed to leasing, where you can be victimized by the market if the lease rolls over when the market is tight and, as a result, you have higher rental costs. The other benefit would be investment benefits, including depreciation of the property for tax purposes and, over the longer term, asset appreciation.
 
There is no one-size-fits-all strategy for purchasing commercial real estate. That decision must be weighed by you. The following steps will help a buyer/investor to take the right decision, assemble a real estate search team, choose a location, and purchase the property.

Deciding what’s better for you: to Buy or to Lease?

When deciding whether to buy commercial real estate, it's important to understand the potential risks. The last thing you want is to buy property and realize a year or two later that you would have been better off renting. Here are some of the potential risks a business faces when buying:

• Location it’s very important. Today's "hot" location can become tomorrow's "bad" location. Locations are trendy. The market may go bust. The area you choose one day may become undesirable the next. Of course, the reverse can be true, as well.
   
• Loss of liquidity. Businesses may tie up much of their liquidity buying real estate. It's not always easy to sell real estate, particularly in a slump. At the same time, businesses that own real estate at least have something to sell if they need a cash influx to revive a lagging business.
   
• Lower cash flow. Tenants sometimes stop paying their rent. Other times, buildings are in need of unexpected and expensive repairs.  Your cash flow can become compromised, especially if you are forced to simultaneously pay repairs and attorney fees to handle a tenant situation.
   
• Insurance. The requirements the underwriter will have are often different (and more) than what the owner is currently and usually carrying. The buyers will have to comply with the underwriter's insurance requirements.
   
• Management fees. Costs will vary depending on your set-up. If you will be taking care of things like landscaping contracts and building maintenance, you may be charged a simple flat fee for managing the tenant administration. If you outsource everything to the firm and the building has several tenants, the fees may be based on a percentage of the rentable square feet or usable square feet for each tenant.
   
• Replacement reserves. These are funds set aside for the replacement of things like pavement, HVAC and other systems that have a limited, predictable lifespan. On many transactions, replacement reserves are established by having a Property Condition Assessment done by a qualified engineer. The amount of reserves required will be determined by the engineer's estimates of the remaining life of the major systems.
   
• Tenant Improvements and Leasing Commission. Expense to improve the property to attract new tenants to new or vacated space, which may include new improvements or remodeling. This expense applies to office, retail and industrial properties.
   

In order to be aware of risks, do your homework. Undertake extensive due diligence before signing any contract. The decision ultimately comes down to the economics. You need to have a real estate professional help you by providing you thorough market research & analysis, investment and valuation analysis, a rent versus own analysis, etc., taking into account growth forecasts for your business and real estate market trends. It's really beneficial to sit down with an expert that can lay out options for you and discuss scenarios, such as in three, five or ten years this is where business will be in terms of revenue, size, or people. A real estate expert can also help you figure out the costs of renting versus buying, factoring tax benefits such as depreciation.

Assembling a Team of Professionals

before you start, it's important to surround yourself with the right team of professionals. They can help you determine the right time to buy or sell, the right locations to consider, the right price and help you with the negotiations and closing the deal. Here are some of the experts you may consider contacting:

• Commercial broker. A real estate broker can help you identify potential properties and what you can afford.
• Lawyer. A lawyer can help you with any legal issues and complete the transaction.
• Commercial property inspector. A commercial property inspector can help you identify defects and problems with the property.
• Commercial Environmental Inspector. A commercial environmental inspector can help you identify environmental issues regarding the property.
• Mortgage broker. A lender or mortgage broker will help you sort through financing options, from bank.

I  and PLANITRealEstate,offer some of the best in class buying services of Commercial Real Estate properties, in the business. My  services allow you to find the best property from many options I offer you, that best fits your needs in a timely and cost efficient manner.
I also master the art of negotiation, so you can rest assured that I will be getting the property at the lowest possible price for you.

Bellow you can find the full list of services offered:

• Review of Client data and requirements
• Management of the Real Estate Buying Plan
• Define and fine tune the Requirements
• Survey the Market
• Selection of the most Qualified Properties
• Technical review and Valuation of the most Qualified Properties
• Selection of the Appropriate Property
• Negotiation of the Purchase
• Management of the Agreement and Closing
• Planning and implementation of the Move In, Closing and Follow-up  

   

  Please click here to Contact me if you have any questions about buying any commercial property in Toronto or elsewhere in Ontario.