In recent years, the popularity of online shopping has made many entrepreneurs consider reducing or even eliminating their in-person operations. While brick-and-mortar locations do come with challenges, commercial real estate can be a worthwhile investment when due diligence is a priority.
From researching the market to making sure the investment aligns with your long-term business goals, there are numerous strategies an entrepreneur can employ to protect themselves and their business. Below, 16 Forbes Business Council members share additional steps entrepreneurs can take to ensure they’re making a wise investment in commercial real estate for their business.
1. Look At The Big Picture
Businesses need a good location for operations, customer visibility and resale if necessary. Some entrepreneurs will try to save money by buying something in a bad location but then spend more on logistics or advertising. Others sometimes buy real estate to later resell, but suffer when their business needed a different kind of facility. Study the big picture before buying. – Ryan McFarland, Strider Bikes
2. Research The Market
An entrepreneur should thoroughly research local market trends, assess potential for growth and calculate ROI before investing in commercial real estate. Caution should be exercised regarding hidden costs, market volatility and over-leveraging financial resources. – Salvador Ordorica, The Spanish Group LLC
3. Do A Financial Analysis
Conducting a comprehensive financial analysis, including projected cash flow, ROI and a sensitivity analysis, helps entrepreneurs assess the property’s financial feasibility and determine its potential to generate positive returns. This includes factoring in various scenarios, such as changes in interest and occupancy rates and operating expenses, to understand the investment’s risk-return profile. – Johan Hajji, UpperKey
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4. Examine Current And Future Needs
Be honest about your present and future needs. When entrepreneurs purchase commercial real estate, they often want to buy more than they need to accommodate their future growth. – Seth Gellis, Community Preservation Partners
5. Assess Cash Flow
The business’s cash flow is an important factor to take into account when investing in commercial real estate. My advice is to ask yourself some of these questions: Is this investment going to create value? Will it reduce operational costs like leasing? Will it save on interest rate expenses? By gathering insights and data, you will achieve more accurate results. – Onahira Rivas, Florida’s Cotton Clouds
6. Consider Local And Larger Market Trends
To wisely invest in commercial real estate, thoroughly research market trends and the local economy. Assess the property’s location, growth potential and fit for your business needs. Watch out for hidden costs like maintenance and taxes, which can affect profitability. Consulting a knowledgeable real estate advisor can offer crucial insights. – Andrei Neacsu, HyperSense Software Inc.
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7. Ensure The Market Aligns With Your Goals
Before jumping into commercial real estate, do your homework. Check out the area, see how the market is doing and determine if there’s room for growth. Also, keep an eye out for sneaky costs like upkeep and taxes. And don’t forget about the lease–make sure it matches up with what your business needs now and down the road. – Pavel Stepanov, Virtudesk
8. Review Contract Agreement Terms
Entrepreneurs should carefully review the terms of the lease or purchase agreement. Consider factors like long-term viability, hidden costs and potential renovations or upgrades required. – Eran Mizrahi, ingredient brothers
9. Conduct Thorough Due Diligence
Owning a commercial property can save you money or be a considerable drain, so entrepreneurs must determine if it is a good investment before buying. Check on insurance rates and property taxes. Determine how old the roof and AC unit is, along with other appliances. Also, if you can rent part of it out, it is better to let the renters cover the full mortgage or a good portion of it. Remember to put money aside for routine maintenance so you do not have any surprises. – Allen Kopelman, Nationwide Payment Systems Inc.
10. Become Familiar With Zoning Laws And Regulatory Changes
Before investing, ensure you’re familiar with every zoning law and any regulatory changes that could affect the property. This step is critical to avoid investing in a property that cannot be used for your intended purpose. Be cautious of areas with strict zoning regulations or pending legislation changes, as these could limit your property’s potential use or lead to increased costs. – Ran Ronen, Equally AI
11. Understand The Long-Term Investment Required
Understand that real estate is a long-term investment that undergoes cycles, unlike the current environment. Evaluate your risk tolerance under this premise and prepare a plan to address the challenges. – Francisco Ramirez, The ACE Group (TAG)
12. Know The Law For Landlords
Whether you’re an active or passive investor, you should know the landlord laws of the market you’re investing in. This is important because landlord laws in places like LA and New York cater to tenants and that can kill a great deal if you don’t account for them. However, investing in places like Texas and Florida gives you more room to work with because they’re landlord-friendly. – Joseph Kimbrough, Apex Real Estate Investments
13. Ensure Alignment Between Your Business And The Space
Before diving into commercial real estate, ensure your business plan aligns with the space. Consider future growth, location and operational needs. Partner with a broker who specializes in your industry for tailored insights. Selecting the right commercial real estate property is crucial for any business. Aligning your space with your business plan ensures it supports your growth and operational needs. – Mohammad Bahareth, MBI
14. Keep An Eye On The Future
In commercial real estate, entrepreneurs protect investments by future-proofing. This means analyzing current needs and anticipating market trends and tech advancements. A savvy investor watches for shifts in consumer behavior, regulations and infrastructure. It’s about betting on lasting qualities, not fleeting trends. Watch out for high-tech amenities that could become outdated. – Michael Shribman, APS Global Partners Inc.
15. Develop A Property Management Plan
Develop a plan for effectively managing the property to get the most out of your investment. Ensuring you manage the property efficiently plays a significant part in your return on investment. Whether you’re using property management software to streamline processes or outsourcing for a more significant fee, factoring in your plan and the cost of management will help set you up for success. – Ryan Barone, RentRedi
16. Only Consider It When Expanding A Profitable Business
Generally speaking, I do not recommend that startup entrepreneurs invest in commercial real estate. However, when the startup becomes profitable, in order to facilitate borrowing from banks, real estate investment is effective as a cash flow measure during the period of business expansion. Still, entrepreneurs should not acquire real estate that is unrelated to their business. – Karita Takahisa, UNIFY PLATFORM AG