At the height of the housing bubble in 2007, investing in real estate seemed like a winning deal. When the recession hit however, home prices plummeted and the money for development dried up. Today, with the economy slowly recovering, investors are cautiously climbing back into the real estate sphere.
If you’re interested in getting into the real estate market, now is a good time to make your move. Home prices are once again on the rise and rents in popular areas are as high as ever.
Of course, any investment is not without its drawbacks. Read on for three things to consider before buying commercial real estate and determine if it is the best move for you financially.
Is it a good idea to purchase a commercial property?
In a word – yes. But the caveat here is you need to have the capital; and like any investment, you need to be able to assume some risk. Whether you pour your funds into a 401K, commodities, or land, that money is not in your pocket. Real estate is a relatively safe investment but it’s not fool proof. Do your research, study the long term potential for profitability, and review the economic cycle of the area. When you’re armed with information you can make the most intelligent decision for yourself.
How much time, effort, and money can you dedicate to a project?
Undeveloped land is typically less expensive upfront but requires more work to turn a profit. A commercial building filled with tenants will likely require less immediate work but cost considerably more to purchase. Figure out whether you have the time or the team to oversee construction projects, acquire existing building space, or if you’re better suited to simply purchase land and hold onto it. You can manage property yourself or hire a management company but again, you need to consider the cost benefits of that decision.
What are the risks?
Leaders in the commercial real estate market like Franklin Haney Company started small and built up their assets over time. Don’t expect to profit immediately but rather invest in property for the long haul and you will likely reap the rewards.
Make sure you do your homework. What are the tax implications of the various properties you are considering? How will the area change over the next year? What about the next five years or fifty? Investing in real estate is typically a safer bet than investing in the stock market but there are always risks involved. Be aware of the potential drawbacks associated with the property you are considering before you’re all in.
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