What to Look for When Investing in Commercial Real Estate

Canada offers many incredible commercial real estate investment opportunities, but that doesn’t mean mistakes cannot be made, or that every property is a good deal.

Whether you are a first time investor or you are investing in your 100th commercial property, these 6 mistakes could trip you up.

1. Failing to Diversify

Investing in commercial real estate is a great way to diversify your investments and savings. However, putting everything you have into one commercial property, especially a single unit one, or only investing in properties in one small locale can be equally as dangerous as having all of your money in stocks or precious metals. Consider investing smaller amounts into multiple properties, preferably ones that have multiple tenants. Also look into spreading your investments out in different areas.

2. Failure to Check Leases

It may sound basic enough, but even experienced investors sometimes breeze over leases and only look at what they are told a building’s income is. What if this is that one property where the seller lied about everything? What if all the leases are expiring? What if tenants are actually paying a lot less than is stated, or their leases run longer than you had hoped? This should all be verified before getting in too deep and spending money on the deal.

3. Not Reading the Fine Print on Financial Documents

If obtaining financing to leverage your next commercial investment property, it is crucial to read and make sure you understand all of the fine print. Besides adjustable mortgage rate fluctuations, you need to understand the potential recourse in case of default. Also, pay special attention to any pre-payment penalty clauses. On commercial loans, these can be notoriously complicated and lengthy, as well as expensive.

4. Room for Improvement

While you could benefit a lot from appreciation and growing equity, it is also smart to choose properties with potential for improvement and growth. This could be in the form of further development potential sideways or upwards, or making upgrades.

5. Buying at the Top of the Market

All real estate is local, so there are always opportunities for great investments. However, some areas are currently overheated and leave little room for growth and appreciation, while others have passed their peak and are on a long spiral downwards, along with the local economy.

6. Declining Sectors

While Canada is strong as a whole financially, some real estate sectors are definitely outperforming others. You need to know if the property you are considering buying is going to be in high demand in the near future or not. For example, the office sector has been extremely buoyant in Alberta over the last couple of years, but it is expected to see a decline in demand moving forward. Similarly, the industrial sector is pegged to see a big swing towards a demand in properties 50,000 square feet and above, while smaller ones may not be so hot. The most consistent demand going forward appears to be in shopping plazas.

Do you want to learn more about picking the best commercial properties in Canada, or get more information on some of the great opportunities that are on the market right now? Contact Howard today by phone at 866-986-8673 or email him now at howardm@redevgroup.ca.


Thank you for reading.

Richard Crenian
www.redevgroup.com