Ask a Broker

Whether you’re a new commercial property investor or an experienced one, having a strong team behind you can mean the difference between success or failure. One of the most important members of that team should be a commercial real estate advisor. While having such a professional working with you who knows the details of your specific circumstances is certainly an advantage, we want to make sure that you have access to expert knowledge no matter your situation. One way that we’re helping to make that possible is through our monthly Ask a Broker series. In this series, our brokers will be answering your questions about commercial investment properties. In this article, we’re focusing on what a commercial investment property is and what makes a good one.

What is a Commercial Investment Property?

A commercial investment property is a property that usually isn’t lived in by the owner that has the potential to generate profit. This can be either through capital gain or as rental income. An investment property can come in many forms including a residential townhome or duplex, an office building, retail space, or a warehouse. No matter the type, if you can make money from leasing it out or reselling it, it’s a commercial investment property.

What Makes a Good Investment Property?

There are a number of factors that make a good investment property, but a few stand out above the rest. Our brokers offer these answers to that question.

Emilee Collins

Location, depending on the user. Different types of users will have different location needs. It’s important that you identify its best use based on its location, who your target users/buyers will be, and how you will market to them.
Quality tenant. Having a tenant that will pay the rent on time is clearly most important. It’s not a good investment for you if your tenants don’t pay at the agreed upon time. It’s also important that any needed tenant upfits will pay off in a relatively short period of time.
High probability of appreciation. You want to make sure that the property that you are considering is in a location where the surrounding area is going to grow or be stable in value. Most commercial property will appreciate at some level over time

Graham Storey

Good location. Location is almost everything when it comes to what makes a good investment property. If the surrounding commercial properties or neighborhood are declining and have many vacancies, in most cases, it doesn’t matter how low the price of the property is. It’s not going to be a good investment.
Stable tenant. The stability of your property depends on the stability of your tenants. Having tenants that have a strong likelihood of staying in place and/or in business for at least the term of the lease makes it easier for you to control your occupancy rate and when and how the space turns over. Of course, you also want to have tenants who can pay their rent on time. This often depends on the location and/or type of tenant that would be attracted to the property. If it is a type of property that is going to primarily be attractive to small startups or businesses in a high turnover industry, you need to factor that into your decision when determining whether to buy it.
Good cash flow. Cash flow is your profit minus all of your expenses. As a commercial property owner, you want a property with strong market rent and that doesn't have a lot of overdue maintenance.

How to ask us a question

Our brokers will be answering your questions every month through the Ask a Broker series. If you have a commercial real estate question that you want answered, we’d love to hear from you at marketing@westandwoodall.com.