Warning Signs of A Bad Commercial Real Estate Deal
- By seoserviceusa93@gmail.com
- •
- 03 Jan, 2019
If you’ve invested in property before, you know exactly how nerve-wracking it can be signing an agreement with a seller. When it comes to real estate – especially commercial real estate – there’s a lot at stake.
A commercial or residential real investment property that goes bad affects your bank account and your portfolio. Overtime investors are able spot troublesome properties from a distance but investors that are just starting off have a hard time.
Newbies in the commercial real estate market should be on the lookout for the following warning signs:
Problematic Property
There are some properties that look like awful investments right away, others are better at hiding their flaws. At first glance, they may look great but after exploring the building in detail you may identify worrying details.
When investors are desperate, they often overlook warning signs. The sellers or real estate agents may convince them to invest in the property regardless of all its issues.
For buyers and investors, problematic properties rarely pay off; they become a burden.
If you find that your property was built on controversial land, is located in a bad neighborhood or has numerous structural and foundational problems, you should not proceed with the deal.
Bad Neighborhood
You may be offered unbelievable prices for properties in bad neighborhoods but is there really a point in investing in a commercial property that doesn’t attract businesses/customers?
Investors are advised to thoroughly investigate a neighborhood before making any commitments to a seller. It’s crucial to evaluate the sort of crowd that surrounds the property.
You can ask the authorities for statistics on crime rates and see what sort of traffic the neighboring buildings attract.
In addition to the location of the property, you’ll also need to pay attention to the property taxes of the area and accessibility of public transportation
Numbers that don’t add up
A property’s NOI is most important for a commercial property investor. Thankfully, there are a number of online tools investors can use to determine profitability of a property without spending a dime on it.
Put in your numbers and see what online tools have to say. Online tools are objective and fairly accurate; if they don’t show great numbers, you should not proceed with the deal.
It’s way too costly
Investors have a hard time turning away from investing in properties that look lucrative. With that being said, if the property is forcing you to dig into your life savings or cash out your portfolio, it’s simply not worth the risk.
Turn away from properties that are too expensive and go for ones that comfortably fit your budget.
Are you looking for commercial real estate in Toronto? Pivotal Commercial Realty assists investors and buyers with everything from site selection to setting a commercial real estate strategy. Call us today at 800-908-6718 for more information.
Before you go ahead and sign any papers to purchase commercial real estate in Toronto, spend some time learning and understanding the market.
Investors in commercial real estate have to consider the following before they decide where they want to put their money:
Interest Rates
For the first time in 7 years, the Bank of Canada increased its interest rate in 2017. The interest rate set by Bank of Canada has a direct impact of the on the cost of taking out a variable rate mortgage as well as other loans.
Fluctuations in the Bank of Canada interest rates also influences the growth of corporations and consumer spending, which impacts the demand for both residential and commercial real estate.
Investors all over the globe think of Canada’s commercial real estate market as a safe haven. Even though there is some uncertainty about the rise of interest rates, the contrast between tight supply and growing demand for real estate in the country has been a driving force in the real estate market.
The commercial real estate market continues to be viewed positively by international real estate investors with Toronto and Vancouver being the most popular destinations. In 2018, Toronto was considered one of North America’s major real estate markets to invest in. In 2019, both Toronto and Vancouver are expected to be in the continent’s top 3 destinations.
The growth in commercial real estate is being pushed by the increased sales in office buildings. Even the political uncertainty between US and Canada did not hamper the success of commercial real estate in the country.
Major Markets
In 2018, Canada’s commercial real estate sector hit a record breaking $36.2 billion. This growth can be attributed to the increasing demand of industrial, office, retail, multi-family units and ICI land.
Those looking to invest in commercial real estate in Canada should consider Toronto, Vancouver, Calgary, Montreal and Ottawa. In 2017, most of the growth in the sector was driven by office buildings but in 2018, industrial real estate led the way.
In the near future, the demand for industrial real estate is expected to rise due to the increase of e-commerce business in the country that are looking to build fulfillment centers nearby for fast and easy delivery.
The commercial real estate market in Canada is continuing to flourish. However various factors are expected to make bring changes to the landscape in the future.
2018 proved to be a record-setting year for the commercial real estate sector in Canada due to an influx of new projects and high occupancy rates. With that being said, property owners are advised to monitor fluctuations in the market. Like all real estate, the commercial real estate sector of Canada is prone to disruption.
Let’s take a look at the key disrupters in commercial real estate in Canada:
Shared Workspaces
There has been a dramatic shift in the way people work in the country. Canada is experiencing a boom in the start-up community , many of which are led by Millennials.
Traditional office spaces are being replaced with co-working spaces that are designed to enhance collaboration, allow for greater flexibility and lower operational costs at the same time. Open offices are much cheaper than conventional cubicles. Younger professionals have found a way to work with limited office space.
Landlords can’t just lease out their building to select tenants, they have to redevelop their office space so it caters to the demand of the modern workforce. This can involve offering flexible suites or open concept office spaces.