If you want to purchase a commercial property in Los Angeles, you’ll need to know how to calculate your profit potential. Buying commercial real estate investments can help you build wealy and add to your investment portfolio. Learn about what to look for when buying a commercial property in our latest post!
Many real estate investors will begin with residential properties, later moving on to commercial investments. These investments can be retail stores, office building, medical facilities, and even large apartment buildings. There are numerous benefits to investing in Los Angeles commercial properties. Below we review how to determine profits as well as some of the great benefits commercial real estate investment can offer you when making investments in Los Angeles!
What Are The Benefits Of Commercial Property Investment in Los Angeles?
There are a number of ways commercial property investment can be beneficial for you. First of all, your relationship with your tenants is likely to be much more professional than the relationships with residential tenants. You’re likely to get your rent on time and will quickly be notified of any maintenance issues. Sometimes, residential tenants can let things slide, whereas, in a place of business, problems are likely to be reported immediately. In addition, your lease terms are likely to be longer. Some leases are valid for up to five years! This can help lower turnover costs, securing passive income for the next several years.
How To Spot a Profitable Investment
A profitable investment will be in a great location. This will ensure demand for the space, and hopefully long-term success for your tenants. A good location will be easily accessible, visible, and preferably with foot traffic to the area. A good location will also appreciate well when you decide to sell off the property. You’ll need to determine how much people are renting their properties in your area, charging approximately the same in order to secure a tenant and make your property competitive. You should always make sure the demand for rental spaces is high. There should be few vacancies in the area, and properties listed for rent should be swooped up quickly. Owning a vacant commercial property can be an incredible waste of money and finding tenants can prove to be more difficult than finding tenants for a single-family rental property. Your building needs to be in high demand, and always kept in the best condition possible! Many investors focus on acquiring building only if there are tenants already in place. This can save time and money on tenant screening.
Calculating Potential Profits
While you won’t be able to know exactly how much you will potentially be able to make, there are some ways you can determine the potential profits on a property. Before making the purchase, commercial property investors in Los Angeles will have to conduct a real estate market analysis. They will also into consideration every expense you will face as the owner. You will need to make these numbers as accurate as possible keep your cash flow from going negative.
Seeing as you will want to secure high returns, you’ll need to break out some equations to help you get a better idea of what the numbers really mean. The capitalization rate is your net operating income, divided by the current market value. You’ll want this number to be at least 10%, while many investors are looking for numbers that are much higher. Having an ROI of 10-20% is considered ideal according to many investors. Of course, the higher the better!
What To Watch Out For
You should avoid properties that aren’t in prime locations, no matter how great the building may seem. These areas aren’t going to attract the long-term tenants you want for your commercial property in Los Angeles. When looking for the right tenant, you need to do screening, just as you would with a residential property rental. Perform background checks, credit checks, and verify references. It can be harder to replace a commercial tenant, so finding the right one is paramount to your success. Don’t rush this process, your success is depending on it!
Are you ready to make a commercial property investment in Los Angeles? Our team can help you calculate the potential profits, the potential costs, and help you understand what to expect from the purchase. If you have never purchased commercial real estate in the past, we can hep you secure financing and find the property that is right for you! Whether you have the cash to buy today, or you are just thinking about buying a commercial building in Los Angeles, our team is here and ready to help you start your commercial real estate investment journey. Utilize our experience to get answers to your questions, so you can feel confident about making an investment in Los Angeles commercial property!