Buying Commercial Property for Sale in Columbus, Ohio? 5 Tips for Beginners. Friday, March 30, 2018
Are you a newcomer to buying commercial property for sale in Columbus, Ohio? Welcome to our thriving community! Not only is our neighborhood home to some of the largest U.S. retail and restaurant headquarters, but the Columbus real estate and job markets have seen remarkable growth, too. As such, there has been no better time than now to seek out commercial real estate in Columbus.
Now that we’ve piqued your interest in our fantastic city, it’s time to dive into commercial property investment. Regardless of whether this is your first purchase or tenth, investing in or buying commercial properties for sale come with a unique set of challenges. So, with that thought in mind, we’ve listed five tips for beginners, which may prove helpful to savvy moguls, too.
The Upside (and Downside) of Buying Commercial Property for Sale in Columbus, Ohio
As with homes and vehicles, there are pros and cons to buying commercial real estate. For a business owner or investor looking for a long-term property, buying tends to be the best choice; however, it does come with its own set of risks. Naturally, as the owner, you are not only responsible for repairs and maintenance, but also the health and safety of the occupants. Additionally, purchasing commercial property may include significant upfront costs to bring the building up to code, adhere to environmental regulations, or secure a loan or line of credit.
Nonetheless, there is a significant upside to ownership. Your property is an incredible asset with potential for increased equity and appreciation. In Columbus, many real estate owners are excited when asking the question, “What’s my commercial property worth?”
Consider this: According to Crain’s Chicago Business, Columbus saw the most substantial increase in total home value in the country. That’s great news for commercial real estate, which traditionally follows the residential market trends. In addition to the prospect of skyrocketing property values, buying commercial property for sale gives you control of the property and allows you to dictate usage, rental agreements, and types of tenants.
Make Sure Your Investment Pays Off
If you are entering the world of commercial real estate investment and purchasing a property for the first time, remember three letters: ROI. Having free reign over a commercial property to call your own can be exciting; however, ownership can quickly lose its allure with real estate sinking in value. If “Less than what you paid.” was your answer to, “What’s my commercial property worth?” then you probably need to rethink your strategy.
That said, avoid the “doomsday” scenario and consider these five tips before you invest in Columbus real estate:
Tip #1: Ensure the area suits your needs.
For first-time buyers entering the commercial real estate world, start your property search with communities you are familiar with. Many buyers start out by purchasing property in the same area in which they reside because of the natural familiarity. Exposure to a specific region or city eliminates much of the research required; this typically involves knowing the general population, main attractions, and major employers within the area.
Having a keen sense of these things off the bat helps a buyer figure out the predicted economic atmosphere within the coming years. If, however, your current neighborhood does not appear to be optimal for real estate investing, perform the necessary research and take your investment elsewhere.
Below are some questions to consider regarding the proposed location:
- What is the commercial real estate market climate? (Is it growing, stable, or declining?)
- What is the rentability of the area?
- How is the current job market? What industries are strong in the community?
- What are the prospects for the area? (For instance, what is the cost of living?)
Tip #2: Determine your capitalization (or “cap”) rate.
As a novice in the purchase of commercial property for sale in Columbus, Ohio, the cap rate of a property is a critical element. Fundamentally, the cap rate is the relationship between the property’s net income with the property’s purchase price. For investors, the cap rate is a way to determine the property’s ROI potential.
Commercial property appraisers will tell you that cap rates do not signify value. The basic equation for determining cap rate consists of taking the annual rent of the property and subtracting all yearly expenses (such as maintenance, management, and utilities). Cost of vacancy should also factor as an expense. Estimated at roughly 7 percent, cost of vacancy stands for the approximate amount of time in which the property may not be occupied. Once net income is determined, it is then divided by the purchase price.
Realtor.com describes optimal cap rate percentages as being between 4 percent and 12 percent. It is worth noting that properties with high percentages (over 12 percent) can be just as risky as those with low percentages (below 4 percent); therefore, it is essential to look at a set of factors instead of the cap rate, alone.
Tip #3: Decide on your role.
“Management” isn’t just a line item expense; it is a critical part of the profitability of your Columbus-based commercial real estate. As such, you must determine how involved you will be in the day-to-day administration of your property.
If you are purchasing the property for your business purposes, you must be prepared to keep that space occupied. The mortgage payments, utility fees, and maintenance costs are all on your shoulders. On the other hand, if you are purchasing a commercial property to lease to tenants, you have two choices when it comes to running the show. You can choose to act as the landlord, handling the typical day-to-day responsibilities; or you can consider hiring a commercial property manager who will administrate those aspects for you.
For first time buyers, hiring a property manager is recommended. It takes work in the beginning to find the right person to manage your investment. And, while it is an extra cost, having a property manager can make ownership less stressful. When searching for a property manager, personality and experience are essential. Other criteria include ensuring that you’re both on the same page with how to screen tenants, collect rents, and successfully market any vacancies within the property.
Tip #4: Avoid fundamental mistakes.
As a buyer of Columbus real estate for sale, you might come across the term “balance sheet” in your research. The balance sheet discusses the state of the property as a whole; not just the level of cash flow, but also the appreciation, equity growth, and tax benefits. Failure to address all four of these topics can result in poor utilization of your asset, as well as hinder profits.
Another mistake, and perhaps one of the more obvious (and, consequently, most detrimental) is contracting the commercial property for sale in your personal name. From a risk management perspective, if for whatever reason the purchase eventually goes downhill, your private assets (e.g., retirement accounts) can be included as fair game in a lawsuit. To prevent this situation, purchasing a property with a business name, such as a limited liability company (LLC), is highly recommended. Consult a real estate attorney before establishing a business entity.
Tip 5: Hire a professional real estate appraiser to assess the commercial property before signing.
In addition to hiring an attorney, assemble a team of experts, particularly professional commercial property appraisers to assess the property prior to signing.
Appraisals performed by experienced professionals offer comprehensive analysis; not only of your property, but also the surrounding area. A real estate appraiser will help you learn the exact size and condition of the property. An appraiser will also demonstrate how your property compares with others, which will assist you in determining your purchase price.
Ready to Embark on Your CRE Investment Journey?
Having read all the tips and information above, we’re confident that you’re ready to purchase a commercial property for sale. That said, it is best to partner with an experienced commercial real estate firm to ensure that you make the best decision.
With 80 years in the Columbus, Ohio real estate market, The Robert Weiler Company offers a comprehensive array of services, including brokerage, consulting, development, appraisal, and property management. What more can you ask for when investing in commercial property for sale in Columbus, Ohio? Contact us at 614-221-4286 and begin forging your pathway to CRE success!