If you want to roll the dice, go to Vegas. If you want to profit from your commercial real estate investment, routinely assess your risk and act accordingly.
Any real estate investment has inherent risk. What separates the winners from the losers is the discipline required to keep abreast of the real estate market, assess the external factors that could put your investment at risk, and take steps to mitigate those risks as needed.
If you are a full-time real estate investor, these assessments are a normal part of your day-to-day responsibilities. But if you are a business owner and your only real estate investment is the office or warehouse space in which you operate, finding the time to assess your risk may sound like a daunting task. And it is easy to become complacent about your work space when the bulk of your attention is on sales, staffing, operations and profitability.
Risk thrives on complacency and is kept in check with regular assessments. There is no rule of thumb on how often you should assess your commercial property. The timing of an assessment is dictated more by the changing conditions in the economic market and how these conditions might impact real estate.
Five Steps to Assessing Risk
- Get educated about the commercial real estate market. Are prices rising or falling? Is inventory scarce or plentiful? Keep an eye on the market through local and national media outlets and association websites and blogs.
- Get professional help. A proper assessment of your commercial real estate will require the assistance of professionals, including your CPA, insurance provider, financial planner and commercial real estate agent. Ask a commercial agent such as CBC Sun Coast to assist you.
- Assess your company’s business growth over the next five years and determine whether your existing space will be able to meet your growth needs. If not, look for opportunities to handle future growth while the market is strong. If you can accommodate future growth, focus on enhancing your property’s value with routine maintenance. Inspect and service your air conditioning units twice a year; change filters regularly; monitor power and water bills to identify irregularities; inspect roof and windows routinely; and make all needed repairs as they arise.
- Examine your current financing. Most commercial mortgages have a five, seven or 10-year “call” that requires a complete restructuring of your loan. With interest rates slowly rising, now may be the time to refinance even if your mortgage doesn’t mature for another two years. You may even want to consider selling your property now if your current space will be too small for your needs in two to three years. The market is strong and buying now will allow you to secure a low interest rate for the next several years. Ask your banker to do the analysis so you can make an informed decision.
- Keep an eye on external threats to the value of your property. These threats could include new governmental regulations, crime, new roadways that will impact traffic patterns, competing new developments, rising or falling interest rates, mortgage financing, property tax valuations, changes in insurance rates and requirements, and more.
Today’s economy is complex. It’s global, often volatile and quickly impacted by events taking place around the world. This economic complexity has made the world of commercial real estate more complex as well. But if you want to invest, you need to keep a sharp eye on external factors, get educated and manage risk. And no one is better equipped to assist you in managing risk than a commercial real estate agent.
To learn more, visit cbcsuncoast.com
Grayson Powell is a Managing Partner at Coldwell Banker Commercial Sun Coast. CBCSC leverages the vast experience of highly skilled real estate professionals and developers and specialize in selling, leasing and managing retail, commercial, and investment property. To learn more about CBCSC, visit www.cbcwilmington.com or call (910) 350-1200.