Commercial real estate investment can be a lucrative way to add to your overall wealth. If you are new to investing in commercial real estate in Massachusetts, here are a few things that you should know before diving into the deep end of the pool.
Do your market research
Thorough research and due diligence is the first and most important step in commercial real estate investment. Engaging the services of real estate professionals who understand the market is tantamount to your success. No matter what type of commercial property you invest in, you must understand the supply and demand for that kind of property and the expected revenue that it will be able to generate.
Expect the unexpected
There is always something that doesn’t go as planned, such as problems discovered during demolition/remodeling or changing permitting requirements. Often, projects are delayed at key inspection points while waiting on city officials to come inspect the property. It is difficult to maintain a timeline with these types of challenges, and of course, time is money.
You will need more money than just the purchase price
You will need to establish both a contingency fund and a capital reserves fund. A contingency fund of 5%-10% of the initial development budget should be established to cover those things that are anticipated, such as construction cost overruns.
A capital reserves fund of 3%-5% of the gross receipts for the property should be established. This money is reserved for long-term improvements and unforeseen expenses over and above your initial investment.
Be cognizant of the legal aspects of property ownership
Buying a commercial property is much more complex than purchasing a private residence. There are zoning and permitting requirements that often involved multiple visits to local and/or state agencies. Environmental impact studies may be required to build on certain types of land, and it is not uncommon for rezoning to be required in order to complete your project. All of these will require the use of experienced experts to guide you through this legal maze. If you are planning to invest in commercial real estate, you may find that the services of a real estate attorney to be helpful.
