Real Estate investing has become healthily popular today in Pakistan owing to a range of reasons: the investors with a commercial property had it survived even during the first wave of the corona pandemic, it was thriving prior the world was forced into the lockdowns, even with the struggling economy of ours, it has still endured. This leads us to believe that real estate investment is never a major-risk entailing investment.
This topic covers one of the gamuts of real estate, which is a commercial property for sale in Lahore. It with its many nuances requires you to focus on one of its types solely. An instance of this could be someone who is better at understanding the office buildings, a shade within the commercial real estate should therefore opt to focus on this one aspect of this very real estate type only.
That being said, it is not necessary to have one limited to only one category while also not making oneself expanded overly. It can only be a successful investment when its respective market is better understood. Also however the more markets you’ll penetrare for the sake of learnings, things would start becoming complicated.
There exist pros and cons for every investment type, and this one kind of real estate is no expectation. The cons however weigh less than the pros when it comes to the real estate property. This article seeks to explain that how to better find commercial real estate for one’s business and the list follows as:
1. Investment is for commercial plots; to accumulate is for the stocks
Learn the difference between what to accumulate and what not to; where to invest and where not to. That said, investors invest in the stock market with the sole purpose of accumulating the shares, that is, there exists an expectation of having the shares rise from their original value in the near future. Some of the companies pay dividends; however this payout is insignificant; reason being the small amount of such payouts.
As opposed to the stocks’ investment, the investment made in commercial real estate is with the aim of choosing such commercial property which has sufficient investment returns so that a positive cash flow is generated. This return on investment is generally received after a defined period, which in most of the case is monthly, till the time the property is not sold.
What differentiates the investments made in the real estate with those made in the stock market is that in the former the investor gets to know, after a brief period if not instantly, whether or not the investment made has been successful or would be unsuccessful; while in the former investment, one do not gets to know if the investment is being profitable or not, while many of the investors remain uncertain about the outcome throughout of what they had invested.
2. Keep a long-term repairing plan for your commercial property
Real estate investors, the commercial investors precisely, would always keep some amount of money aside which is known as the ‘replacement reserve account’. The reason for having such an account aside is quite straightforward; it is used for: making replacements and maintenance related issues, or when commercial plots start getting weared out. A simplest example of making use of such an account is when there is a need to get the roof of the property repaired and in some cases replaced.
This very account however is not for dealing with those maintenance tasks which could be considered as the ‘daily based’. An example of this can be when the tenants ask to have the sink repaired or replaced; the very account is not to be used for any such instance however for some of the primary tasks of one’s property.
Nonetheless, the amount of money which is to be reserved in the replacement reserve account varies from one scenario to another; along with depending on some factors as well. How old the property is what primarily determines the amount of the money to be reserved; for the older buildings are likely to receive more maintenance and replacements in comparison to the newer or relatively newer buildings.
3. Diversify in your commercial property investment opportunity
Three Property types involved in the commercial kind of real estate are office properties, industrial properties, hotel properties, multi-family properties, and retail properties. Each to its own, some like to go for the hybrid kind of the properties, the ones with a combination of more than one type; some like to go for a relatively underdeveloped property. Nevertheless, since every commercial property type is further divided into its subtypes of subtle variations, the multifamily category for instance is further divided into duplexes, large apartments, garden apartments, etc, it is very much therefore necessary to have a focus solely at one type only. Some of the investors also like to subdivide their property in terms of the square footage of the property.
With that being said it is also pertinent to mention that many of the investors do begin from investing in one of the types of the commercial plots, however from there they do move on to other types as well. It is nonetheless only possible after: exclusively focusing and acquiring suffice knowledge in a particular type first.
4. Find a commercial property mentor
Real estate is afterall a little risk-worthy and complicated venture; it therefore requires to have a great openness to learning. Although investors learn about the do’s and dont’s of the commercial property while being onboard their investment journey, finding somebody experienced in real estate can increase the learning pace tenfold.
While a good mentor in real estate can be a bit expensive and can cost you a little money, however not a fortune, this additional investment can be a profitable venture; thanks to their hands-on experience.
Property buy-rent is, thus, always just a call away from providing such mentors.
5. Considering environmental effects for the commercial property for sale
Carelessness is always seen to be shown by the investors when it comes to considering the ‘likely to be’ environmental effects due to the operations being run on your commercial property. One can eat its hate, if someone can get away with the respective laws on the environment protection. Had it been a thing in the bygone decade, you might have gotten lucky; however as of today, things are more strict than they were before in Pakistan; also the respective authorities today are immune to any kind of pressure put on them and do their job as they are told to.
Therefore it makes sense to have some research performed pertaining to the property that you are aiming to buy: learning about the history of the very property, finding if the property structure was built over some chemical plant, finding any existing news on the business which were previously operated on the very property, seeking answers from the respective municipality.,
6. Means and ways for obtaining strong financing and funding
The investment rate in commercial real estate is and has always been high; as supported by the fact that even the down payments in many of the cases can be quite high. Owing to this, investors with low to medium financial capital often find hard in making investments in real estate’s commercial plots. For that reason, such investors do seek and require others to finance or fund them. Such investors can partner-up with some private investors for the required capital in order to fund the investment of commercial property. However, prior to partnering-up, it is very important to make sure that the private investor is interested in the same type of property as the fund-requiring investor is. Some other options include making use of the real estate crowdfunding or syndication, which basically is a pool of funding for the commercial real estate; however this one option may not be available in Pakistan’s real-estate industry for now.
7. Making use of the Asset Protection
Though not seen often however some of the times there is a tendency for a situation to occur where the owner of the property is put at risk.This risk posed can be minimized and mitigated by having the business protected by the ‘asset protection’. An asset protection is aimed at safeguarding the interests of the property owners and their property from their creditors’ claims; thus limiting and hindering the access of the creditors to the valuables or the assets of the property and at the same time continuing the operations within the very domain of the debtor-creditor agreement and law.
The investopedia best defines the asset protection as:
“ Asset protection is the concept of and strategies for guarding one’s wealth. Asset protection is a component of financial planning intended to protect one’s assets from creditor claims. Individuals and business entities use asset protection techniques to limit creditors’ access to certain valuable assets while operating within the bounds of debtor-creditor law.”
Therefore a strategy should be made which covers: seeking the insurance policies on properties purchased, persuading the common interest into making a union, performing due diligence on the vulnerabilities which could arise in the future.
As an advice from us: start leveraging your investments as it can be handy in fighting while being in a lawsuit if ever there.
8. Acquiring the services of some market research expert
In the real estate industry just as in any other industry the investment timing matters a lot. After you have learned better about the ‘good’ investment timing you would better know when to invest and when not to.
The Experts of the market research are better familiar with the investment timings and the market circumstances. They possess the stats and the data which enables them to better perform the analysis of the market and thus come out with its proper investment timing. Doing and even trying doing it at your own entail lots and lots of risks; for even a slightest misunderstood data can pave the way for many of the troubles.
That said, many of the investors do rely on their instinct (or gut-feeling), and it might work for some sometimes always and for some always sometimes; it is however still better to have some market research expert in your array of successful property investment strategies.
As an example consider a commercial property for sale in Lahore, acquiring the services of some Lahore-based market research expert would help to land a much better land-deal.
9. Performing proper due diligence; even for a commercial property for rent
Performing due diligence holds quite a significance if you are to make your investment turn into a successful venture. This can make or break your business; it can change the face of a business; it can make a whole lot of a difference.
Emphasizing the factors in the very early stages, which can make your business vulnerable to any of the risk in the future and were not brought into consideration while the deal was being made, is very crucial. It is better to negotiate the deal in light of those factors. If there is no way out, better to walk away with a give or take instead of starting the investment function with those risk factors involved and unresolved.
10- Better know the Real Estate Cycle
There are four cycles involved in real estate: recovery, expansion, hyper supply, recession. Those who better understand or become able to better understand this cycle make the most of what they had invested. The phases with a brief follows as:
Recovery- While the prices are lower while this period lasts, this phase can tend to make the prices become low further. However this can also prove to be a good time to buy with the rate of the vacancy being higher which lessens the rental income.
Expansion – Experienced investors make the most out of this phase when the neutral or uninterested investors do not weigh-in in the market; leading endless opportunities for the interested ones.
Hyper Supply – The neutral or the uninterested investors (or the buyers as discussed afore) finally start penetrating the market and leave no stone unturned to make the investment using the financial capital that they have. It is when the smart investors who had invested vastly during the expansion period start milking their cow.
Recession – Many would be familiar with it; for those not, it is the market scenario when the supply is in excess while the demand is less. Now this the feasting period for the smart investors, while those who were fence-sitters with big pockets for investment start resisting their heels.
Final words
Investment in the Commercial property can be profitable if not the cash cow and a failed venture both. The former however is more often than not, while the former is a possibility.
Many people make themselves a fortune by working their whole life on one successful formula which they have learned either from their mistakes or success or somebody else’ mistakes or success. The expense on your business should be way less than what it is generating, while the excess should better be invested nonetheless sensibly. Some prefer placing all their bets (the excessive cash) into the stocks; this however entails equal profit and cash probability. That said, an investment from a part of what you have in excess in the commercial market can be profitable without any significant risk.
Nevertheless, investment in commercial real estate is not risk-free either. However, it is due diligence that can help counter any risk. Making adjustments in commercial real estate also holds significance. A ‘not so well’ performing property for example won’t make much difference when sold-off. For that very reason, making investments in the commercial plots has always been preferred in comparison to other investment sets.
