How to know if a Commercial Property is a good buy?

Buying a commercial property in Lagos is quite different from buying a residential property. The basic function of a commercial property is to make money.
Also known as Commercial Real Estate, Investment Property, or Income Property, they are meant for business purposes and these include a wide range of property types like office buildings, retail stores, warehouses, industrial facilities, restaurants, shopping malls, and the like.

Investing in commercial properties can be very lucrative but it is important to have a clear understanding of some of the key points like; the property you are choosing to invest in, how the commercial real estate market works (the trends, what’s new, prices of properties, market influence etc), the type of commercial property that will match your goals and the best location that will be perfect to invest in depending on your investment goals.

Piercing into the scope of Commercial Real Estate, let’s concentrate on “How to Know if a Commercial Property is a Good Buy”.

Step 1:
By Location: The location of the property is one of the most important factors to consider when evaluating a commercial property. Proximity to transportation hubs, population centers, major roads, and amenities is a prime location that can positively impact the property value, customers, and potential returns.

Additionally, you would want to consider the convenience and accessibility of the property to your customers; the location of a business is meant to be considered as it shall determine the accessibility. Considering other features of the property like; adequate parking space, these makes investing in a property effectual.

Location is crucial to commercial properties in Lagos, and some tips to consider when looking out for the location of your commercial properties include:

• Central Business District
• High foot traffic
• Commercial hub
• Prime location

Step 2:
By Following the Market Conditions – Evaluating the current and projected market conditions such as supply and demand dynamics, interest rates and economic trends is also important in determining the profitability of a commercial property investment.

Conduct a thorough market analysis to understand the demand in the area. A strong market with favorable conditions can indicate a good investment opportunity. Also, consider the growth potential of the location of the properties and it environs. Consider these Market Conditions when doing your due diligence:

• Supply and Demand
• Vacancy Rates
• Sales activity
• Market trends and sentiment
• Government policies and regulations

Step 3:
Check out the Condition of the Property – The condition of the property is another critical factor to consider. This can affect the value, the cost of repairs and maintenance, and the potential for generating income. Any sign of deterioration and damage can put the commercial property at risk.

Assess the overall condition of the property, including the building structure, electrical systems, plumbing, and any potential renovations or repairs required. For example, a solid and well-maintained structure is highly desirable, it provides stability and reduces the risk of costly repairs in the future.

Also, ensure the property meets safety standards and complies with relevant building codes and regulations. Properties that meet safety requirements are more likely to be a good buy, as they reduce liability and risks and provide peace of mind.

With a good understanding of the property, a well-informed decision can be taken.

Step 4:
Expenses and Cash Flow – Assess the property’s expenses including maintenance costs, property taxes, insurance, and utilities. Calculate the net operating income (NOI) by subtracting the operating expenses from the gross income. Positive cash flow indicates a good investment, while negative cash flow may require careful consideration.

The expenses and cash flow of a property are crucial factors in determining whether it is a good buy. Evaluating the financial aspects helps you assess the property’s profitability, return on investment, and overall investment potential.

Proper due diligence on commercial properties can make it a very profitable venture. Keep the following in mind when establishing the cash flow of a commercial property:

• Appreciation Potential
• Investment goal
• Operating Expenses
• Can flow analysis

Step 5:
Investment Goals – It is important to define your investment goals before purchasing a commercial property, this will help you determine what type of property to invest in, how to finance it, and how to manage it effectively to achieve your investment objectives.

The suitability of a property depends on how well it aligns with your investment objectives and strategy. Also, consider your investment time horizon; if you have a long-term investment horizon, you may be more tolerant of fluctuations in cash flow or property value. Shorter-term goals may require properties with more stable cash flow and less potential for market volatility.

Align your investment goals with your risk tolerance, financial capabilities, and market conditions. By clarifying your goals and objectives, it will help you invest in commercial properties that will be a good buy for you.

By considering these key factors, you will be well-equipped to identify a commercial property that offers a solid investment opportunity in Lagos. For more enquiries about Commercial Properties in Lagos, contact us.