Real estate investments have the potential of generating large returns especially when the investors are able to purchase under valued properties with high growth prospects. Nonetheless, to identify such opportunities one has to be very observant and employ proper tactics. Here are five tips that investors interested in identifying potential future stars among commercial properties should follow.
1. Thorough Market Research
The first key activity to help in the determination of undervalued commercial property investment opportunities is market research. Knowledge of the current market conditions such as the current trend, the vacancies, the current rent charges and the future prospectus of the area gives a good insight of the area. When selecting the markets for investment, the investors should focus on those that exhibit signs of economic development, better infrastructure, and growing need for the commercial properties.
For example, districts that are in the process of receiving infrastructure projects for instance transport networks or business facilities are likely to experience increase in property prices. Thus, investors will be able to determine which areas are likely to experience an increase in property values, as a result of these developments, and hence, buy the property before its value increases.
2. Analyze Property Fundamentals
It is quite important to investigate the basic characteristics of the property in order to evaluate its actual value and further development. The major considerations include; the location of the property, the physical state of the property, size of the property, and the occupancy level of the property. Properties located in areas like central business district or areas of high human traffic normally have higher growth rates.
Also, an assessment of the physical state of the property and what can be done to the property to add value can be looked at when estimating value. Repositionable properties or properties that do not need a lot of capital to put back into the property are often preferred. It assists the investors to single out the properties that are cheap because of some aesthetic problems or mismanagement instead of a bad location or some other structural problems with the property.
3. Assess Economic Indicators
Analyzing economic factors helps to understand the general trends that affect the prospects of property. Employment status, population growth and economic activity status in the area may affect the commercial real estate value. High growth investments are usually identified in locations that have sound economic characteristics and favourable demography growth rates.
For instance, increase in the employment status within a given region may suggest a growing economy which in turn may translate to higher demand for business premises. Likewise, places that are inhabited by a large population will have increased demand for services and businesses hence the price of properties will be high. Through such indicators, investors will be in a position to see regions that are suitable for commercial property investment.
4. Guide from the experts when investing
Experience tips from other investors can help an investor improve his or her chances of finding properties that are undervalued. Real estates brokers, appraisers and market analysts are privy to specific details which are vital in the market. Investors can get valuable investment property tips by building relations with these people or attending related conferences/ seminars.
Also, reading investment newspapers and magazines, becoming a member of the real estate investment associations, and use of online forums are some of the ways through which investors can keep abreast with the market trends and opportunities. It may be possible for experts to reveal properties of the firm that may not be seen through analysing the firm in the usual manner.
5. Incorporation of a Capital Preservation Plan
The capital preservation approach makes sure that the investors do not take a lot of risks while at the same time searching for properties with high growth potentials. It entails the spreading of investment over many properties and areas so as to reduce the effects of market fluctuations. Through diversification, the investors will be in a position to safeguard their capital and avoid having all their investments in one basket.
For instance, an investor might invest in office space, or retail or industrial space, in different regions. These diversification measures are useful in reducing the impact of a specific area’s poor performance on the overall stability of the investment. The technique of capital preservation aims at protecting the invested capital while at the same time seeking to grow it; capital preservation strategy is therefore an efficient way of ensuring that the capital invested grows at the same time as it is being protected.
Conclusion
To find good commercial opportunities that are undervalued and have good growth prospects, one has to undertake market research and analysis, property analysis, economic analysis, and expert advice, as well as manage risks. The following tips will help the investors to improve their chances of identifying good investment opportunities in the CRE market. Thus, the main principles are knowledge, the use of professional opinion and the golden rule of investment: the correct ratio between the growth and preservation of capital.
