How to Determine the Best Time to Buy or Sell Commercial Real Estate
Timing is everything, and that goes double for commercial real estate. In the past decade, we’ve seen the difference between a raging seller’s market and recession. Properties lost up to 50 percent of peak values following the Great Recession. Commercial real estate is not immune to the dynamic real estate market. For this reason, buying when the market is low, and selling when it is high is to your benefit.
Buying Commercial Real Estate
Commercial real estate has income-producing abilities. When you find a great money-making property, it is a wise time to buy. Owning commercial property brings rental cash flow and bigger payoffs when you sell. Successful investors begin with the end in mind; have an exit strategy before you buy.
Additionally, owning commercial buildings brings you depreciation tax deductions to offset generated income.
Have a sharp eye, look for needed repairs and learn to assess risks. Break out your calculator and figure out if the property works for your financial goals. If not, walk away.
Understanding key commercial real estate terms helps you determine a good buy. Know that positive net operating income (NOI) means it makes more money it costs in expenses. Further, the property’s capitalization rate (cap rate) estimates its value. It does this by estimating the net value of future cash flow, or how much you will make net of expenses.
Selling Commercial Real Estate
Seller’s markets exist when conditions are right to realize the greatest potential. There are a few signals a commercial property owner should be aware of.
Take advantage of high price points for a greater ROI when a property is maximizing its potential. On the flip side, when a property has lost its earning potential for some reason, selling might be the best move. Only you can decide to invest in improvements to increase its potential, or cut your losses and move on.
Leveraging is another consideration. A high equity position might indicate its time to sell and use the funds for other investments. Alternatively, if over-leveraged in a property, selling can give you peace of mind.
Knowing a great deal, or partnering with a real estate pro that does, is key to finding the best commercial real estate deals.