Having a smart commercial property investment, it can deliver stable and long term returns – yet getting it right, is not easy. Evaluating a commercial property is the most important thing any investor must do.
How would you evaluate a commercial property? As per Quinn, the first thing you must do as an investor is try to look at a property you are buying or its below replacement value? If not, then there is a risk of potential overpaying. Why? Investors should not be interested in an asset that has cash flows yet lacks solid property fundamentals. Every investor should look at the so-called “pure quality” of its investment and how it can be economically and efficiently regenerated while maintaining your cash flow.
Golden Rules For Evaluating Commercial Property
Never Fall in Love with the Property
You can’t get emotional about a property you are about to invest, instead treat it like a commodity. “If you fall in love with a property, you might be blinded to its weaknesses or hang onto it longer than you should” – Quinn.
You Will Never Go Broke Making a Profit
Always remember that property always works in cycles. Though we are in a very long cycle, the desire for commercial property goes up and down that cas impact on pricing. If you have extracted the required and intended value of the asset, you should not try to squeeze to the last dollar out of it.
Never Be Blinded by Cash Flow
Remember that cash flow is not the “be all” of commercial property investment. Keep in mind the replacement value. Right for example, you are paying more than replacement value because of the cash flow in the asset and when that cashflow expires at the end of the lease, you are left with nothing but the price you have paid.
Always Buy Below Replacement Value
The only reason why you would pay more for an old asset than a new one is simply because it has running cash flow.
Always Buy Property that Could Own Vacant
If you are about to invest in a potential property, you should look if you could happily own it, even if it is vacant. Always check the quality and the location of the assist if it’s good to own or good to purchase.
Bottomline, never underestimate the impact of capital expenditure programs or regeneration of an asset that can catch new investors. As per Quinn “sometimes get blinded by the cash flow can lead to overpaying the asset”.