5 Insider Tips to Buy the Right Commercial Property in Atlanta
Buying a commercial property can be an exciting investment, but it involves a detailed process with many aspects to consider. To help you navigate this journey, here are 5 tips for purchasing your next commercial real estate property.
1. Know the Types of Commercial Properties
A commercial property is a type of real estate used for business purposes. It consists of storefronts, income-generating land, and rental properties, and operates under distinct laws, financing, and tax regulations compared to residential property.
Examples of commercial properties include office buildings, factories, malls, grocery stores, restaurants, manufacturing plants, and more. Investors interested in commercial real estate can choose from five categories:
- Multi-family properties
- Office spaces
- Hospitality
- Industrial
- Retail
Office spaces are further classified into A, B, or C classes. Class A represents high-end, competitively priced offices that may be recently renovated. Class B spaces need upgrades, while Class C spaces require immediate attention and are typically over twenty years old.
The industrial category comprises plants, warehouses, and factories used for manufacturing and distributing products. Retail spaces include malls, stores, and shopping centers designed for selling goods and services.
Hospitality real estate means short-term rentals, hotels, and motels. Multi-family properties qualify as commercial if they have five or more units, such as condos or apartment buildings.
2. Know Your “Why” Before Investing
Before starting the search for commercial properties, it's crucial to understand “why” you want to make such a significant investment and if it aligns with your goals. Without clear objectives and a realistic understanding of property ownership, you may end up regretting your decision.
To identify your “why”, consider the following questions:
- Is location a crucial factor?
- Will you require a property manager?
- What are your plans for the property?
- Are you open to having a business partner?
- What level of risk are you comfortable taking?
- What professional services will you need to hire?
- What type of commercial property interests you?
- Do you have the time to manage and care for the property?
- How much effort can you invest in maintaining the property?
- How familiar are you with the commercial real estate industry?
- Are you prepared to take on the responsibilities of being a landlord?
- Are you looking to purchase the property, or would you consider leasing?
- Are you ready for the financial commitment involved in such a substantial investment?
- How much can you afford as a down payment, and what is your current financial situation?
- Do you intend to use the space for your business, as a rental, for building equity, or for another purpose?
3. Location
Wise and experienced real estate investors recommend investing in a property near a recently renovated area if possible. This strategy follows the concept of the 'broken window' theory, but in reverse. The theory suggests that less appealing properties contribute to the decline of a community.
Opting for a newly renovated property in a vibrant area with thriving businesses can attract considerable foot traffic. Depending on the type of business you plan to open, this can enhance your visibility.
Choosing a property that requires some improvements but is located near a growing area may offer a better price. Additionally, you benefit from built-in marketing due to the property's favorable location.
4. Be Familiar with Real Estate Lingo
When you start researching commercial real estate, it's essential to familiarize yourself with various terms. It might take some time to feel comfortable with the vocabulary, so be patient with yourself.
Here are some commonly used phrases:
- Cash on Cash: Annual income over the amount you invested, which could be your down payment or more.
- LTV (Loan-to-Value): The ratio of how much you want to borrow from your lender compared to the value of the commercial property you're considering.
- Vacancy Rate: The percentage of vacant suites in your properties at any given time.
- Ad Valorem: A specific tax based on the assessed value of a property.
- DSC (Debt Service Coverage Ratio): The ratio of operating income over total debt, indicating the amount of debt you can cover annually based on income.
- Cap Rate (Capitalization Rate): The income of your property divided by the value of the property.
5. Find Trustworthy and Experienced Professionals
Regardless of the type of property you're buying, it's crucial to be on the same page with your business space consultant. While finding an expert in commercial properties may be straightforward, establishing a good working relationship is essential.
In your local area, you likely have numerous options, so it's important to find someone who shares your goals. Given the complexity of the process and the extensive knowledge required, working with an expert is preferable to prevent potential loss and regret later.
An experienced local consultant in the industry can be one of your most valuable assets. You can trust Terra Alma if you are from Atlanta and already looking for a local, experienced, and trustworthy team of real estate consultants.
Ever dreamed of landing a location on Marietta Boulevard?
Land with:
- Excellent visibility + access on Marietta Boulevard
- Significant daytime population and residential population surrounding the site
- Less than a 5-minute drive from Westside Village and Publix at Moore’s Mill Center
- Walkable from 1,700+ homes in immediate area with another 349 flats + 41 townhomes as part of the subject development
If you said “YES”, call us now before someone else makes their dreams come true with this opportunity.