Investing in a commercial property may seem like a lucrative venture. The passive income generated by operating hotels, warehouses or apartment complexes can generate a steady flow of income. Still, anyone thinking of placing their money into commercial real estate should first figure out whether the investment will pay off.
Your first inclination may be to study the current state of the economy to determine if the overall market is on a positive swing for the kind of business you want to operate. The Motley Fool describes a number of other issues you could investigate before committing money to a commercial property.
The local economy
Even if you have already looked at the national economic picture, you should also examine the local economy to see if it can sustain the kind of commercial property you want to establish. Even if your preferred property is doing well across the country, you might have an oversaturation in your area that will not support an additional property.
If you discover an undersupply of a property type, it could signal that now is a good time to establish your own operation in the area. Still, stagnant growth of a specific commercial property might also indicate low growth potential. Conducting market research to make sure your kind of real estate can prosper could tell you if your investment has a chance of generating profit.
Zoning regulations
If you have found your ideal location for your property, make sure the local zoning authority will permit you to build or renovate the property as you wish. Zoning laws may permit different kinds of commercial real estate only in certain areas, so you might not be able to place an apartment in an area intended for retailers. Additionally, you should know the fees and permits you will need for your property, as some properties may prove costlier than others.
Possible setbacks
You could run into problems if your timeline for developing your property is too rigid. Unexpected events that delay the building or renovation of your property are quite possible. As you conduct due diligence on your property, consider any possible event that might slow you down and factor it into your development plans. Setting up a contingency fund could help you keep things on track by giving you funding when you suddenly need it.
Going through with market studies and due diligence will probably not prevent all the setbacks that could happen, but they can put you in better shape to deal with the challenges of renting commercial property.