Beginner’s Guide: How to Buy an Investment Property for the First Time?
Are you planning to invest in real estate for the very first time?
It must be so exciting to take a leap and begin the first step towards a financially-steady future!
You can indeed make massive money from real estate. But the trick lies in making all the right decisions to ensure that your very first investment is a success.
As a beginner, you may find yourself looking at real estate properties that you like—the houses you want to live in, the stores you love and the business spaces you want to work. But investing shouldn’t be an emotional or sentimental decision. There are so many different factors that you need to consider to ensure that your first investment reaps you good money.
In this blog, we will look at some important factors that you cannot ignore during your first investment in commercial real estate.
4 Things to Watch Out When Making Your First Investment in Commercial Real Estate
It’s alright to feel a bit overwhelmed at the beginning. Understandably, it’s a huge decision to put a huge portion of your savings, which is why you need to have all the facts straight. Let’s take a look at the four things you absolutely should consider for investing in commercial properties.
Where Is the Property Located?
The location of the property matters a lot when you consider the return on your investment. Depending on the type of commercial property you’re planning to buy, you can analyze if the location is right.
You don’t want to invest in a property like a supermarket or a bakery in the middle of nowhere. As much as the type and quality of the property matters, you need to think about the long-term vision.
Ask these hard questions to yourself:
- What kind of tenants do I want to attract?
- How can this locality help me to get a good return on my investment?
- Is this the kind of locality in which such a business will flourish?
- What’s the future scope of having a property in such a location?
- What’s the closest amenities and major landmarks in the proximity?
- What factors in the location can drive the tenants towards renting or leasing out my property?
When you get answers to all of these questions, you can decide if the location of the property will add to the value.
How Is the Property’s Condition?
Once you feel that the location is perfect for investing in, look at the condition of the property. The structure of the property should be sturdy and safe enough for the businesses occupying the space.
Keep in mind that the investment you make is not just the buying cost for the property. You will also invest in terms of revamping and maintenance of the property. Therefore, the current condition of the property will have an impact on investment.
Calculate the cost of the property along with additional charges to clean it up and see if it’s feasible.
What’s the Return on Investment (ROI)?
Of course, ROI should be your focus! The return on your investment should be considerable enough from the beginning to cover any loan or mortgages you have taken.
You can follow the 1% rule that’s commonly used by real estate companies. It’s a thumb rule to determine if a property is worth investing in. Ideally, the property should fetch you at least 1% of the total investment you made, including all the refurbishing and maintenance costs.
You can use this 1% rule to evaluate the worthiness of the property in terms of the ROI.
What Are the Risks Involved?
As much as we hate risks in real estate investment, you cannot avoid it. While you cannot just go by the risks, it’s better to prepare yourself for some common problems like:
- Changes in the market conditions
- Problems with the tenants
- Structural issues in the property
- High costs for maintenance
- Rise of property taxes
- Unfavourable confrontations with evasive tenants
It’s good to have a backup plan just in case you are prone to any of these risks.
As a first-time investor in industrial properties, it’s better to tread cautious and get the help of an experienced and trustworthy real estate company. GW Partners is a well-known firm in Texas that has handled several noteworthy real estate properties in the state. Call us at 512-852-7930 to find out how the real estate firm can help you get a good return on your first investment in commercial real estate.