Office properties have always been considered a perfect choice for inexperienced investors. Although they feature all the inherent benefits the real estate market brings to the table (stable income stream, tax benefits, long-term financial security, etc.), commercial properties still feature enough volatility to keep things interesting and your investment rewarding.
However, this potential for higher turnaround also raises some flags and forces you to take a bit more careful approach than you would when putting money into family rental properties. Let us take a look at a couple of tips that will help you along the way.
Keep track of national and local economic growth
Unlike other property types that tend to play by their own rules (at least to some extent) commercial properties are pretty closely tied to the fortune of local and even national economies. When the local market is booming, companies expand and need more office space. When the market declines… Well, you get the point. So, besides being a savvy investor, you also need to keep a very close eye on the local economy, as well as put some money aside during booming periods to make up for the eventual losses during downtimes.
Choose the optimal office property type
A closer inspection of the local market will also give you an opportunity to see what industries and business branches are experiencing growth in the area of your choosing. Based on this insight, you will be able to choose to invest in one of these three property types:
- Class A – These are the industrial-grade properties equipped with all imaginable amenities built for users who can afford to pay a premium price. They are usually located in downtown areas and occupied by corporate headquarters, law and banking firms, etc.
- Class B – Usually located in the suburbs and older than class A properties, class B properties are usually rented to groups of physicians and small healthcare centers.
- Class C – These properties are aimed at tenants who are seeking lower prices, in most of the cases independent legal and medical practitioners.
Consult a property investment company
No matter how thorough you are in your investigation, the fact remains that you are still a newcomer to the real estate world that, as we briefly mentioned above, to great extent, plays by its own rules. With things as they are, we strongly advise that you ask for help from an experienced property investment company. What are you getting for the money you are going to spend? Great knowledge of the local market, less time spent searching, an established network of professional acquaintances, and open doors for various discounts are only some of the benefits.
Research the previous tenants
If you have previously invested in residential properties, you know that previous tenants usually don’t matter that much. Things couldn’t be more different once we move into the world of commercial office properties. Imagine the property you want to invest in was previously occupied by a successful company? The local residents already have a habit of looking for products and services at this particular place and the competition should be kept at a safe distance. Your future tenants would have a strong foundation for developing their business and you would be able to charge them more.
Take into account co-working spaces
As of recently, co-working spaces have become a very popular rental option for all self-employed experts and entrepreneurs who are trying to exploit current economic trends. This development brought a great deal of vibrancy in the commercial office property market where things, traditionally, tend to move really slowly. So, betting on this horse can prove to be a very prudent move at this very moment. As long as you leverage some of the inherent drawbacks associated with shared working spaces (e.g., high tenant turnover rates) you should be able to stay on top of the game.
Avoid obsolete business models
The business world is gradually but irreversibly moving into the cloud environment. Having this exciting option, a lot of businesses out there are relegating a part of or their entire workforce to telecommuting in order to cut their costs and stay competitive. This is exactly what you want to avoid. Therefore, do your best to focus on the business branches that still rely on traditional walk-ins like tourist agencies, law and consulting firms, medical practices, and so on. Otherwise, you may see your tenant base slowly degrading with each passing year.
We hope these few tips will help you find the ideal pick for your first commercial property investment. The real estate market is inherently more open to newcomers than virtually all other investment options out there. But, that doesn’t mean investing in property is without its perils. So, keep an eye on some of the perils we have pointed out and try to be as thorough as possible. We are sure you’ll be able to make a safe bet.