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What to know before investing in commercial real estate

On Behalf of | Jul 19, 2021 | Commercial Real Estate |

Investing in a New Jersey commercial property may be an effective way to help you diversify your portfolio. It can also be an effective way to generate a steady stream of income while also benefiting from the fact that a property will appreciate in value over a period of many months or years. However, it’s critical that you do your due diligence prior to investing in an office building, multifamily house or retail location.

Where are you in the market cycle?

Ideally, you will invest in a commercial property after a downward correction in market prices. Doing so gives you an opportunity to acquire an asset that has a chance to rapidly appreciate in value. If you attempt to acquire a property closer to the top of the market cycle, there is a chance that it will lose value as the economy begins to stumble.

How will you invest your money?

It’s important to determine whether you will actually purchase commercial real estate yourself or make indirect investments into this sector. If you don’t like the idea of being a property owner, it may be best to put your money into a real estate investment trust (REIT). It may also be a good idea to act as a hard money lender to those who are looking to buy or develop their own commercial properties.

You’ll need sufficient capital reserves

It’s unwise to assume that a property will always be occupied by a paying tenant. It’s also unwise to assume that you won’t have to pay for major repairs to an office building or multifamily home. Having access to a line of credit can help to ensure that you don’t need to sell your holdings because of cash flow or liquidity issues.

As a general rule, it’s a good idea to have an attorney review the terms of a commercial real estate acquisition before it goes into effect. Doing so may help to ensure that you’re giving yourself a legitimate opportunity of obtaining a return on your investment.