Many people in California begin investing in real estate by purchasing residential properties. After having success in the residential real estate market, an investor may want to consider getting into the commercial real estate market. Commercial properties can be much more profitable than residential real estate, and they can often provide passive income that is valuable during retirement.
There are some important things that investors should know before making the switch from residential real estate investing to commercial real estate investing. The first thing to remember is that commercial properties are valued much differently than residential properties. While residential properties are valued largely by the recent sales prices of similar properties nearby, commercial properties are valued based on projected cash flow. Two commercial properties in the same area could have drastically different asking prices because one generates a lot of income and the other does not.
In addition to understanding a commercial property’s value, it is important for investors to have knowledge of the market sector that they are investing in. For example, a person who is investing in a hotel should have knowledge of the hospitality industry. Understanding what factors affect different industries could help a commercial real estate investor determine what property to invest in and how to develop the property to maximize cash flow.
While commercial real estate investing can be very profitable, it can also be complicated by many factors that do not come into play with residential property investments. A commercial real estate investor may have to deal with changing tenants, lease agreements and zoning issues. An attorney may be able to help a commercial real estate investor to resolve title disputes, negotiate contracts or deal with construction litigation.