Commercial real estate is a whole different playing field compared to residential investment. They are usually more expensive, yet yield higher cash flow. They involve high maintenance expenses, while allowing the investor
to save on scale in the longer run. They require you to observe more legal aspects, but produce a bigger payoff when you decide to sell. There is also an abundance of good, well priced commercial property management companies in Toronto, which means that once you’d made the purchase, running the property will be a simple task.
The one big question that remains is how do you evaluate and compare commercial real estate? There are many properties to choose from, and not all of them are as good. We at HighGate have compiled this list of main key points to follow when looking for your next commercial real estate purchase:
Learn from the business insiders. This field is different, despite many similarities. Commercial real estate is valued differently than residential property. Unlike residential property, the expected income is based mainly on its usable square footage. Commercial leases are also typically longer than residential ones. Using cash when your credit environment is tight is also a great solution, allowing you to negotiate a better price.
Work out a plan. You are operating on a larger scale. Defining a set of parameters can be useful so you don’t overextend yourself or miss something. What is your top price range, how much income do you expect to gain in this deal, who else is involved, how many tenants are already in? Mapping it all out will give you a better understanding of the situation.
Look for problems. If there are damages that need to be fixed and other liabilities, they should be listed and evaluated. Learn to asses risk factors. Making correct observations in this will allow you to gain a fuller understanding of the deal more fully, as well as give you bargaining points for the price negotiations.
Get familiar with metrics and terminology. Net Operating Income, Cap Rate, Cash on Cash and other field-specific terms are important to understand if you are to evaluate the property correctly.
Find motivated sellers. This advice comes with a caveat. While a motivated seller may have his own reasons for selling it, the reasons might be with the property itself. This needs to be double and triple checked to make sure you are not getting a bad deal. If the property is fine, then the motivated seller might be willing to sell below market value.
Research the surroundings. If you want to evaluate a commercial property, studying the neighborhood might prove useful. Go to open houses, talk to neighbors (tenants as well as owners) and get a good understanding of the area.
The final advice is to take your time. Use the internet, browse classified ads and hire a Toronto real estate brokerage to help you find the best properties. Good luck!