Whether you are thinking about investing in commercial real estate on the Emerald Coast to diversify your portfolio, create wealth,or provide a passive income stream for retirement, NBI Properties has developed successful strategies and tips to help you be successful. Keep these tips in mind and you will be well on your way to reaping the benefits of your investments.
1. Realize that knowledge of the market is crucial your success. If you are well versed about a specific commercial sector, stay with that sector. On the other hand, if you have no knowledge about a particular sector, obtain the knowledge you need before investing. Even if you’re investing as a landlord, it doesn’t bode well to invest in a restaurant if you don’t know anything about the food service or hospitality industries. This is especially true with the manufacturing sector. It’s wise not to purchase raw land or an industrial strip if you don’t know the best use of the property to maximize cash flow.
2. Be aware of the fact that commercial real estate is valued differently than residential. While residential properties derive their value based on recent comparable sales of similar properties in the area, this does not apply to commercial real estate. The value of commercial property is calculated based on cash flow. Two buildings of the same size and located on the same downtown block may have drastically different asking prices. A single tenant barber shop will have less cash flow than a four-tenant professional building with dentists and pharmacists.
3. In addition to market and sector knowledge, you should make it a point to learn new profit and loss formulas before investing in commercial real estate. These are not difficult to comprehend, but you need to fully understand what each means and how they affect your profitability.
4. Determine the long term impacts before investing. Other than the immediate cash flow, make an effort to understand what is predicted to happen to commercial real estate in the surrounding area in the coming years. For example, if your properties are located in a city where the core infrastructure has been neglected for years, eventually businesses will begin relocating to better areas. Consider the tax base of the community and how major employers are faring. All of these things should be assessed objectively prior to making investments.
5. Stock advisors never recommend putting all of your eggs in one basket, and this advice also applies to commercial real estate. If you’ve experienced success as a residential investor, hang on to some of your holdings in residential. Whether you’re investing in stocks or real estate, savvy investors always aim for a diversified portfolio.