12 Negative Factors that May Impact your Commercial Real Estate Investment
September 18th, 2013 by Diane Moore
Commercial real estate symbolizes a considerable portion of an organization’s wealth. This is particularly true for individuals in the United States with the average American having approximately one third of his total worth confined to real estate. This translates to a valuation of approximately $ 20 trillion for the overall market. It’s essential for a purchaser to analyze the property thoroughly before taking the plunge.
Here are the main negative factors that affect your investment in commercial real estate:
- Higher interest
- Problems with utilities
- Zoning issues
- Strategic locations
- Pending tax abetments
This article briefly describes these determinants along with a few more so as to assist you make an informed decision.
- Higher Interest Rates. Interest rates can have a major impact on commercial real estate markets. A higher interest rate indicates a higher cost to acquire a mortgage. This eventually reduces prices and the demand of real estate.
- Problems with utilities. When purchasing a real estate property, it’s essential to comprehend issues associated to piping, electrical and additional utilities that are required. If you end up buying a property with utility problems, you’ll have to spend extra money on repair work and renovations. You surely wouldn’t want to invest in a commercial real estate only to commence digging into the walls to get the piping system replaced.
- Zoning issues. Zoning is considered of great importance when making an investment in commercial real estate. A great deal of consideration has to be given to zoning issues as changes to the present zoning could result in a heavy impact. Rezoning generally requires a lot of adjustment especially to the interior design of the property. This eventually could result in pumping in of thousands of dollars.
- Strategic Locations. An important factor to consider while purchasing a commercial real estate property is the location as it determines the type of tenants you attract. If you have tenants who do not qualify for credit, it’ll have a negative impact upon your borrowing from any financial institution.
- Pending tax abetments. Getting a copy of the tax history of the real estate is highly essential. Any pending application on tax grievance or tax abetments can have an unwanted effect. It’s suggested that prospective buyers examine at least a year’s history of gas, sewer, water, electric and oil bills.
- Unemployment. Another major factor that impacts the ability to commence upon a commercial development is unemployment of the city. A high percentage of unemployment results in a difficulty for investors to obtain the financing they require.
- Rent restrictions. State regulations on the rent controls will lead to few purchasers. Rental legislations are subject to modification and change based on the state.
- Enhanced Taxes. Tax is another important factor that greatly impacts investment in commercial real estate. Increase in taxes will result in a fall in the prices of commercial real estate. This eventually lowers the confidence level of the purchaser.
- Sluggish Economy. A sluggish economy tends to lower the confidence of the sellers as well as the purchasers. An important ramification includes decreased market activity which will be greatly marked by decreased selling and buying of commercial real estate properties.
- Unavailability of land. Factors such as zoning limitations in the municipalities and land shortage among others would increase the prices of commercial properties, which as a result will negatively affect your commercial real estate investment.
- Public Image. The public image of a property dramatically impacts the demand and therefore the prices to a huge extent. Investors will stay away from purchasing a commercial property with a negative public image.
- High Vacancy levels. High vacancy levels displayed by the region will result in a dip of commercial real estate sales which greatly impacts the confidence levels of an investor and is another important factor in this regard.
These are some of the key factors that have a major impact upon commercial real estate investment. You as a potential customer should analyze all these points before taking your decision.
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