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Latest Commercial Real Estate Tips Urge Investors to Complete Due Diligence

 

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.