There are many different types of commercial properties that are poised to withstand economic downtown—for instance, Class B office buildings. Investing in these specific properties is a wise decision alone, but there are also a few steps you can take yourself to further protect your asset.
Don’t over-leverage
As a commercial real estate investor, one term to concern yourself with is loan-to-value ratio or LTV. You will want to be careful to invest with a conservative LTV and if possible, using an interest-only mortgage or IO. Look for an LTV of 50-60 percent in order to maintain and protect your asset during times when interest rates are on the rise. The IO also specifies that cash flow is used to handle interest payments, which are lower than the typical amortized loan. Any excess cash flow can then be dispersed to the investor as a return on investment or ROI with tax benefits.
Carefully choose and monitor your asset
As we stated above, it is essential to choose your commercial property types wisely if you intend to withstand any economic climate. Do your due diligence on the location, tenants, services provided and price. You will want to keep a close eye on these factors, updating them often, in order to properly monitor the property’s risk profile and value.
Be realistic about your return
Investors would do well to keep in mind that risk and return typically go hand in hand. But how can you ensure a reasonable return? It all comes down to the asset’s potential to generate wealth over time and your leverage factors as referenced above. Remember your investment should have the potential for long-term growth in asset value that either matches or exceeds inflation.
Understand how much you own
If you are working with any fund managers, legal or financial advisors to make an investment in commercial real estate, it is key to make sure you receive your return prior to any others sharing in the profit. Be careful to read through any terms associated with the investment prior to signing on the dotted line and understand exactly how much of the asset you own if other parties are involved.
Contact Northern Edge Commercial Real Estate today for more information on making a wise investment in Alaska commercial properties and which property types may best suit your needs in today’s market.
