What to know before purchasing commercial real estate

Many New Jersey residents have probably heard about people accumulating vast amounts of wealth through commercial real estate. With the real estate market slowly gaining ground, now is a good time to purchase property. However, finding the right income property as an investment can be daunting. There are many things to consider before buying commercial real estate.

First, understand who the realtor represents. Ideally, the realtor should be representing the buyer and looking out for the buyer's best interests. Along the same line, look for a professional that is an expert with commercial real estate. A Certified Commercial Investment Member has many years of experience analyzing properties and their income potential.

Remember that the seller's realtor is not looking out for the buyer. Therefore, never trust any information given at face value. Ask for copies of tax returns and research the various fees and taxes associated with the property. Of the income a property generates, be prepared to use 40 percent of it for maintenance and other expenses.

Another thing to consider is what will need to be done after the purchase: property management. This needs to be done by either the buyer or a property management company. If the buyer chooses to have this done by another company, then expect to lose another 10 percent of net income.

Purchasing commercial property can be a good source of income, but it comes with many risks. Make sure that everything is outlined in an agreement. In addition, be sure to understand any rules associated with the ownership of commercial property. Otherwise, there could be a dispute that leads to litigation - a costly process that will eat any proceeds from the investment.

Source: Rapid City Journal, " KAHLER: Building wealth from commercial real estate," Rick Kahler, Nov, 3, 2013


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