Commercial property development is the “in thing” now. The rewarding return on investment has made this business a highly popular one; while investing in the residential real estate market has become passé.
Now what makes it so lucrative? As stated earlier, one of its major attractions is a more secure return on investment especially vis-a-vis the unpredictable stock market. Since 1945 the real estate market in the US has seen only a few recessions, and has mostly shown a steady growth.
What makes commercial property development even more exciting, is that anyone with reasonable financial resources can work at it with few risks involved. Not only does it ensure good profits, it can make a money-spinning career for those who have the knack for it. And that is without any prior training, qualifications or business background.
However, investing in the commercial real estate market is a different ball game altogether than the residential market. You first need to know about the mortgage basics. Commercial real estate creditors’ area of focus is the property itself, its condition and it’s earning capacity. They are generally not too concerned about the individual or company that is buying or refinancing the commercial property. Though credit scores do matter, they are not as important as in residential property deals.
Also, you must get hold of a good commercial mortgage broker, one who will get you in touch with lenders with a variety of credit schemes. After you get such a broker, you can either seek the help of a commercial real estate agent to find a suitable property for investment, or do it yourself. If you are a first timer it is better to seek the help of a licensed real estate agent and licensed broker as well.
But if you do it yourself – do it well with proper research, renovation plans for the property and sound capital backup. Also, know about the market or economic cycles, while you deal with development property. Those who propagate the market cycle concept insist that one should buy development property in market recession time, and sell when the cycle is in growth. However, there are many who cite various pros and cons of this theory.
Moreover, most veteran property developers invest in property irrespective of the cycle. There is no steady pattern in macro-economic cycles that can be predicted with great accuracy. It is not always possible to have cash at hand when the cycle is at its peak. There are many layers to the property market. Which in turn, has many sub-markets. These market layers also have different cycle patterns at different times which cannot be generalised at a given time, and hence is a very complex equation. Commercial property development is also related to supply and demand.
When there is more need for housing, property will have to be developed irrespective of the cycle.
As a rule, a regular property developer depends on a financial viability assessment and ‘due diligence’ analysis of a development plan. If these indicate sufficient profits vis-à-vis the risks involved it is considered a viable project. This is the general rule, though the macro-economic factor is often also taken into account in such analysis via such factors as the effect of interest rates and inflation on a particular development project.
All in all, the process is complex and is to be implemented with a great deal of care and caution. But once you get a hang of it, nothing could be more money making than commercial property development.
Source by Nicholas Blackman
