Commercial real estate can be a good source of income. If done right, it can be a great source. If you're looking to buy commercial real estate properties in the Augusta area, here are seven tips to get you started:
1. Think like a pro
Valuation is just one difference between commercial and residential real estate because commercial real estate income is directly related to usable square footage, which isn't the case for homes. Commercial property leases are longer than residences. Also, commercial property lenders like buyers to be able to put 30 percent down before approving a loan. The pros already know these factors, you should too.
2. Plan, plan, plan
In commercial real estate, a firm plan of action, which includes setting parameters, should be your number one priority. How much can you afford to pay? How much do you expect to make on the deal? How many tenants are already in place? How much space do you need to fill?
3. Know how to spot a good deal
What makes a good deal? The best commercial real estate deals are the ones you can walk away from, so be prepared to do just that if need be. Also, look for damage that needs to be repaired, learn how to assess risk and finally, crunch the numbers to make sure the property fits within your financial goals.
4. Talk the talk
When assessing commercial real estate, get to know NOI (net operating income), cap rate, and cash-on-cash. NOI equals the property's first year gross operating income minus operating expenses. This number should be greater than zero. Cap rate is used to calculate the value of income-producing properties, and is used to estimate the net present value of future profits for cash flow. The cash-on-cash formula takes into account the fact that the investor doesn't require 100 percent cash to buy the property, but also accounts for the fact that he or she won't keep all of the NOI because some of it will go to mortgage payments.
5. Look for motivated sellers
Find sellers who are eager to sell below market value - i.e., someone with a pressing reason to sell below market value. Without motivation, a seller is less likely to negotiate.
6. Meet the neighbors
A good way to evaluate a commercial property is to get to know the neighborhood. Go to open houses, talk to other owners in the neighborhood and look for vacancies.
7. Be flexible
A multifaceted approach works best. Use the Internet, classified ads and bird dogs (people who can help find valuable leads in exchange for a referral fee).
One bonus tip is to partner with an experienced real estate agent who can guide you through the process and help you learn all about the world of commercial real estate.