Monday, January 14, 2019

Three Questions to Ask Before Investing in Commercial Real Estate

Born in Armenia, Levon Termendzhyan has been living and working in California for more than three decades. Throughout that time, he has worked in the energy industry as a fuel delivery truck driver, diesel truck stop owner, and current equity owner of clean air company Viscon USA and its parent Viscon International. In addition, Levon Termendzhyan owns several commercial rental properties.

Below are several questions to ask yourself before investing in commercial real estate:

Will demand continue in the long-term?

As a commercial real estate investor, you likely have a specific demographic in mind for tenancy. Before making your investment, you should look at the demand that’s currently coming from this demographic. However, you must also look at sustained demand. This refers to the expected demand over the next several years and is crucial for ensuring the property you invest in maintains the expected yield and offers good capital growth.

How can I leave the investment?

There are two ways you can leave a commercial real estate investment: by selling the property, or refinancing it in such a way that other investors may retain their ownership. Before making an investment, make sure at least one of these options is readily available to you. Not having a clear exit strategy is enough to reconsider investing in a commercial property, since it can affect the long-term attractiveness of the investment.

Are the guarantees logical?

When attempting to sell a commercial property, owners and developers will likely make all sorts of guarantees relating to the building’s cash flow, income potential, and associated property taxes. Rather than blindly accepting this information, make sure it makes sense by completing the proper due diligence. To do this, compare your property with similar local properties to get an accurate idea of rental demand and income potential.

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