Investing in Commercial Property

Buying commercial property as an investment can be a daunting task for the beginner, with several pitfalls. To enable a smart investment choice, some useful tips have been shared in this article.

In the aftermath of the real estate property market meltdown, people were naturally averse to taking risks, by investing in residential and commercial property. As a seasoned investor would advise you, in such bearish times, there are a lot of opportunities to take advantage of. With the real estate prices hitting rock bottom in recent times, many properties can be bought, at a fraction of the price they would have earned during boom time. While there is substantial amount of risk involved in buying commercial property, with proper research and wise choice, there’s profit to be made. At the outset, let me expound some of the advantages of investing in properties of the commercial kind.

Advantages of Investing in Commercial Property

Commercial properties primarily include office spaces, shops, storage warehouses, industrial spaces or any other piece of real estate that is leased out or used for commercial purposes. Location and space are two of the prime requirements of businesses and leasing a property is a much more affordable option for them, instead of buying it. This presents commercial property investors with an opportunity to make substantial profits.

One of the prime advantages of investing in commercial properties are the long leases and high rent that owners can earn. Compared to residential properties, commercial ones tend to maintained a lot more professionally, which automatically reduces expenses. The high percentage of return on investment, in excess of 8% to 9%, justifies commercial real estate investment.

Properties in prime locations can expect an annual hike of 3% to 4% in rent, which guarantees higher returns in the future. By handing over the maintenance and administration to a commercial property management firm, you can simplify your life and reap profits in the long term. Commercial property that are located in prime business zones are always in demand and hence you can expect a decent resale value in the future, when the prices in that locality appreciate substantially.

Commercial Property Investment Tips

You need to appreciate the prime importance of ‘Location’, when it comes to investing in commercial real estate. Businesses are looking for office, shop spaces, warehouses with all the necessary amenities and resources in their vicinity. So choosing a commercial space in the right location is the first important thing and it requires a substantial amount of market research to find such properties. You will have to network with real estate agents, who have a database of such properties on sale.

Decide on how much you are willing to invest, which will automatically limit your choices and help you focus on what kind of properties you can afford to invest in. Once you have shortlisted a few properties, determine the asking price and the projected returns through lease, after accounting the maintenance and taxation costs. If you are thinking of buying commercial property and plan to arrange for the investment corpus through a mortgage loan, do the math and determine the profits you will gain in the future after maintenance costs and loan installments. If the math shows you that the investment is a feasible one and you are guaranteed that your principal is safe with decent returns, go for it!

If you have a commercial space in a prime location, there is always going to be demand from businesses and the chances of your investment being highly profitable are higher. Work out the yearly maintenance costs for the property, research every aspect of the investment thoroughly before going ahead. Here’s me wishing you all the very best for your commercial property investment endeavors!

How to Buy Commercial Property With No Money Down

Buying real estate with no money down is a reality and many people are already doing it. Seller financing, rural development plans, and veteran affair loans can come to your rescue if you haven’t saved enough to make the initial payment.
About two decades ago, if you did not have 20% of the down payment for buying a property, not many banks would have entertained your mortgage application. But times and changed and how. Today a down payment of around 5% is good enough to buy a commercial property. But is a zero down payment realistic? The answer is yes, but it has its own baggage of certain terms and conditions. Read on to know more.

Seller Financing

Suppose, a property is evaluated at $100,000. You sit down with the bank officials to discuss the interest rates, repayment plans, foreclosure charges etc. The bank is willing to finance 90% of the total amount, leaving you with round about $10,000 as a down payment. What if you propose a second loan of $10,000 at a higher interest rate. If you have a decent credit rating and are willing to pay a little higher interest rate, the bank might finance your down payment, with you buying the property without paying a single dime as down payment. But, you have to keep in mind that every month you would be liable to pay monthly installments on both the loans, and it may take a huge chunk out of your salary. Also, personal loans charge the higher interest rates – roughly around 20%, and you will have to pay a lot extra than you would have taken.

Rural Development Plans

Another way of buying a commercial property is to apply with the USDA rural development plans. It provides you with 100% financing for your home purchases and one does not need to be a first time buyer to qualify. Some of the benefits of buying a home this way is that there is no cap on the purchase limit and you can include the repairs and improvements in your loan. The property that you want to buy should be in a qualifying area as per the USDA rural development guidelines.

Veteran Affairs Loans

Veteran affairs loans allow veterans to buy mortgages with no money down. One has to meet all the requirements set up by the United States Department of Veteran Affairs. People who are eligible for VA loans are veterans, active duty personnel, National Guard members and some surviving spouses. You need to have documented proofs to apply for a VA loan.

These were some options for you if you are thinking of buying a property with little or no initial payment. If you are eligible for a no down payment mortgage loan, should you go for it? You should definitely think about it, but before doing that, it is essential that you have a clarity on its disadvantages.

Disadvantages

If you do not pay anything up while buying a property, you are definitely going to pay higher mortgage rates and your monthly payments would also be higher.
When you buy a property with zero down-payment, you would not get all the choices to make, and you may need to make a few compromises.

The sub-prime crisis was a result of too many people taking mortgage loan and then defaulting on their payments. While a zero down-payment may work for people who are spending more money by paying rents etc., one should carefully think about all the pros and cons of a zero down-payment loan before taking one up. I hope this article would have helped you to know how to buy commercial property with no money down and its financial implications.