Investing the existing money to make more money is always a wise idea until you bear a loss on your investment. Many investors feel that if you have enough spare money, you should purchase or lease a commercial property.
I had no interest in investments or purchasing assets to make a profit until last year. While swapping channels on my Contour Tv, I came across a business talk show that caught my interest. It talked about investing in commercial properties and how to do it wisely. The following factors must be considered:
A very essential factor to consider before investing in a commercial property is the location of that property. Because you would want your property to earn you profit. And commercial buildings can only do so when people visit them to make purchases. So, if you plan to operate your own business in the property bought, you should consider the nature of your business.
For example, in case of a clothing brand, you would want the premises to be accessible to the customers with ease. Not only will the ideal location help you in earning more employees but it will also make it easier for you to hire employees. Because people do not prefer working in areas that do not have sufficient commute links.
Apart from that, it may become difficult for technical support people to reach you easily in case of an emergency if the location of the property is not favorable.
Positive Cash Flow
In case you are a start-up, then you should put a considerable amount of thought into how much will you be paying for renting or purchasing that property. The process of choosing a commercial property is considerably harder for start-ups than established businesses. Because start-ups are not sure about their cash flows for an initial couple of months.
Hence, putting greater pressure on new business owners as well to make sure that they do not overspend on renting or purchasing a commercial property.
However, established businesses have to face this scenario as well. At the end of the day, any business aims to earn a profit. Greater the profit margin, more you will have to re-invest. Therefore, make an informed decision when it comes to renting or purchasing a commercial property.
To Lease or to Buy?
Another considerable factor is whether you want to lease the property or purchase it. As a general rule, it is a preferable practice for start-ups to resort to leasing the space. That too on a short-term basis. Preferably a year. This will allow you to restructure your lease in a year. By which time you will also have an idea about how your business is performing. Or is it performing at all?
In case you are purchasing the property, you will also need to consider if the area is worth investing in. Ask yourself a question. If you were to sell the property in the future, will it hold its present value? Evaluate if you will be able to earn a good return on the property or not. Some areas provide the investors with a lucrative return in both renting and selling the property cases.
The decision for leasing or purchasing a commercial property comes with a lot of things to consider. Holding time is one from the many factors that you, as a business owner should keep in mind. While some places can be leased almost immediately, for others you have to wait.
In case you are not familiar with the approximate time it takes for you to start using a property, here’s a list that can help you:
On average, the value adds properties have a holding time between one and three years.
If you invest in a cash flow property, you can use the generated income to invest in another property.
No Failing Business Models Allowed
In case you are to lease the commercial property further to a business, you should pay attention to the business model of the expected tenant. If his business model includes online business as well including a bookstore or an online bakery, the chances that he will default sometime in the future are high. Keep an eye for failing businesses and do not offer them your place.
Also, ensure that the property that you are about to lease or purchase is not disconnected from the rest of the world. Be sure Fiber Internet Providers must be available in this area. You can choose to opt for any company that you please.