The rise of online shopping has led many entrepreneurs to consider reducing or eliminating their in-person operations and investing in commercial real estate. While brick-and-mortar locations do come with challenges, it can be a worthwhile investment with proper due diligence. Forbes Business Council members shared strategies for entrepreneurs to protect themselves and their businesses when investing in commercial real estate. These include looking at the big picture, researching the market, conducting a financial analysis, examining current and future needs, assessing cash flow, and considering local and larger market trends.
It is essential for businesses to have a good location for operations, customer visibility, and potential resale value. Entrepreneurs should avoid buying property in a bad location to save money, as this can lead to additional costs in logistics or advertising. Thoroughly researching market trends, assessing growth potential, and calculating ROI before investing are crucial steps to ensure a wise investment. Hidden costs, market volatility, and over-leveraging financial resources should also be taken into consideration to mitigate risks.
Entrepreneurs are advised to conduct a comprehensive financial analysis, including projected cash flow, ROI, and a sensitivity analysis, to assess the property’s financial feasibility and potential for positive returns. It is important to factor in various scenarios, such as changes in interest and occupancy rates, to understand the investment’s risk-return profile. Being honest about present and future needs is also key to avoid overbuying commercial real estate that may not align with the business’s growth.
Assessing the business’s cash flow is crucial when investing in commercial real estate, as it can help determine if the investment will create value, reduce operational costs, or save on interest rate expenses. Entrepreneurs are advised to gather insights and data to achieve more accurate results. Thoroughly researching market trends, local economies, property locations, and hidden costs like maintenance and taxes can provide crucial insights for a wise investment. Consulting a knowledgeable real estate advisor can also help entrepreneurs make informed decisions.
Entrepreneurs should ensure that the commercial real estate investment aligns with their long-term business goals before making a financial commitment. It is important to check the area’s market conditions, growth potential, and room for expansion. Reviewing the terms of lease or purchase agreements, conducting thorough due diligence, understanding zoning laws and regulatory changes, and developing a property management plan are additional steps to protect investments. While real estate is a long-term investment, entrepreneurs are advised to invest only when expanding a profitable business to facilitate borrowing from banks during periods of business expansion. It is crucial to align the space with the business plan and anticipate future needs to support growth and operational requirements effectively.
