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Deciding to invest in commercial real estate

On Behalf of | Feb 4, 2016 | Uncategorized

There are several reasons to consider purchasing a Missouri commercial property rather than leasing out space. Some business owners may find that the idea of owning a property allows for a sense of stability. Others may find the idea of property management attractive, realizing that there is potential to thrive by maintaining and renting office spaces to other businesses. However, the economy can play an important role in the final decision between buying or not.

A commercial property should be considered in light of how its value appreciates. When value keeps pace with or exceeds the rate of inflation, the investment may be worthwhile. However, a community that is declining may have properties with values increasing at less than the rate of inflation. In such situations, the investment in one’s own property may be less attractive. To determine the earning rate of a property, it is necessary to compute the difference between the annual income a property brings in and the costs related to operation and ownership. This amount can be divided by the purchase price of the property to determine the percentage rate of earnings for a given year.

Planning for the operating costs of a commercial property is also important. While some expenses are predictable, others can be variable based on issues such as weather, the age of the property, and community dynamics. By evaluating commercial real estate activity in the community such as average rental rates per square foot and by estimating the expected costs to own, prospective buyers may calculate the maximum price they would be willing to pay to purchase a specific property.

A new business owner who has limited experience in dealing with commercial properties might benefit from professional advice before looking for a property. A commercial lawyer might assist in identifying key issues to consider related to locations, zoning and finances.