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What to Know Before Investing in Commercial Real Estate

Commercial Real Estate

If you’re an investor look to purchase real estate, perhaps you’re ready to move on from residential to commercial real estate investment. Both options have advantages and disadvantages, and it’s important to understand which one is best for you.

Most investors get started in real estate with residential properties. There is a smaller initial investment and cost to residential property and it can be a good way to gradually move up to larger commercial properties. You might be wondering why it’s in your best interest to eventually invest in larger commercial properties.

There are many benefits to commercial property, such as stability, increased cash flow and tax benefits. It’s advantageous to look into every potential property and understand whether you are in a position to make the financial leap.

One major difference between residential and commercial real estate is the way in which properties are valued. Commercial property valuation is largely dependent on square footage of the property. Since commercial properties are particularly suited to larger business operations, floor space means a lot and can lead to increased profits. Residential real estate, on the other hand, is more affected by surrounding property values, scenic views, and location.

Regardless of the floor space, you will want to conduct a thorough investigation of the property. It’s a good idea to hire a lawyer before purchasing a commercial space so that you will not be surprised by any unexpected easements or other land agreements with a third party. An experienced lawyer will ensure that the seller has clear title and is able to transfer full interest of the property to you. Additionally, a lawyer will be able to review all of the lengthy property sale documents and inform you of your rights and responsibilities in the transaction. It’s a small initial cost to hire a lawyer in light of the value of most commercial properties, and it’s in your best interest to ensure that the process goes smoothly.

Commercial properties will often lead to increased cash flow and stable profits. Commercial properties benefit by economies of scale and will lead to a greater return on investment than a residential property would. If you have the capital and the desire for growth, commercial real estate could be the next step for you.

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