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Considerations for commercial real estate investments

Many California investors would like to invest in commercial real estate. If done well, doing so can provide a steady income stream and help people to become wealthy. People should know that investing in commercial real estate differs from investing in residential real estate, and act accordingly.

An important distinction is how commercial property is valued. While residential property is often derived based upon sales of homes in the surround neighborhood, commercial property is valued based on the amount of its potential cash flow. This means a thorough analysis should be undertaken concerning the predicted cash-flow for the building's intended use.

One way to improve the ability of successful investment is to invest in commercial properties in the sectors for which the person is knowledgeable. This provides them with a better ability to assess the likely profitability of a property. Another caveat is understanding that different formulas are used for investments in commercial real estate, including loan-to-value ratios, cap rates and the building's net operating income. Making certain to gain a thorough understanding of the formulas used can be helpful. Finally, maintaining a diverse portfolio is important. If a person already has residential real estate investments, they should keep a portion of those properties when adding commercial ones to their holdings.

Commercial real estate investors also need to take steps to make certain the leases they offer to tenants are legally sound, thorough and clear. This can help prevent lease disputes that could lead to litigation. For this reason, many savvy investors obtain the advice and counsel of attorneys who are experienced in real estate law. An attorney may be better able to draft a lease that will pass muster.

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