Savvy entrepreneurs turn to
commercial real estate for investment opportunities. However, these endeavours
should not be entered into without due diligence on part of the investor.
Although the market has increased in recent years, particularly in the Greater
Toronto Area (GTA) business owners are far better off to own property rather
than rent. Market trends fluctuate and advice that was pertinent five years
ago, may not be relevant in today’s market. It is important to stay up-to-date
with advice and tips for the current trends. Partnering with a reputable
commercial real estate agent is a must, but in that step towards due diligence,
investors should understand some key issues.
Each local market is different so
attention must be paid to where you are buying. Work with an accountant so you
have a clear understanding of your financial state. Lending institutions will
want to see current financial statements showing you are capable of handling
the purchase and any related financing.
It is also important, especially
for newcomers to the commercial game, that you understand
commercial real estate metrics.
- Net
Operating Income (NOI) - This helps to understand the profitability of a
property. It is calculated by subtracting the operating expenses of the first
year by the profit in the same time frame. Obviously, you want to have a
positive NOI for that particular property.
- Cap Rate
– Capitalization Rate calculates the value of income producing properties.
You would use this to assess retail properties, apartment complexes or office
buildings.
- Cash on
Cash – This is a formula used for commercial properties that are purchased
through financing. It takes a look at the first-year performance of competing
properties. For example, the profitability of the plaza across the street from
the one you are investing in. This metric understands not all of the NOI is
kept as profit because mortgage payments are paid on a financed commercial
property.
One of the latest commercial real
estate tips is to "farm” or take a peek at neighbouring commercial properties
before moving forward with a purchase. Attending open houses and evaluate
vacancies within the area. Look at online classifieds and build relationships
with those living and working in the area. Put your finger on the pulse of the
property’s surrounding area.
Partnering with a commercial real
estate agent is a sound investment in due diligence. A commercial agent has training
and education behind them, specifically in real estate law, financing,
mortgage credit, appraisal and inspection and real estate mathematics. With
experience behind them, an agent is your best ally in tough negotiations to
ensure you get the best deal. And at the end of the day, it’s all about the
bottom line! Commercial real estate agencies specialize in the following
transactions:
- Income properties
- Industrial sites
- Family businesses
- Farm and Agricultural properties
- Commercial land uses and
- Office space
For more information on commercial
real estate tips for the GTA, specifically Brampton and Mississauga, look to
the office of JN Asensio. They have an online presence and are well received by
the Brampton Board of Trade. They have many positive reviews online and have
local experience.