Looking to buy your first property but not sure which points are important? Here we help you to avoid these mistakes when buying commercial property.
5 Main Mistakes to Avoid When Choosing Commercial Property
Millions of investors enter the commercial property market each year. Yet most people fail to realize the risks that come with it. In 2020 alone, the international commercial property market lost 36% of its volume and remained at $306 billion. While most of the losses came from COVID-19, some of them happen constantly, no matter what the circumstances are. Avoiding five common mistakes mentioned below will help to cut your losses if you are to buy property in Dubai:
Mistake #1 – Poorly Managed Budget
Investing in commercial property takes a lot of planning. Things can go sideways very fast if you don’t manage your budget with great precision. Mistakes at the point of budget forming can result in thousands of dollars in loss. It’s quite challenging to keep track of everything on your own. That’s why, if you are planning on major investments, it’s reasonable to involve financial advisors. They will help you to establish a detailed budget that will serve as a base for your plans.
When planning a budget, pay attention to extra expenses such as property taxes, service and utility charges, insurance, agent fees, furnishing costs, etc. Always be open for advice. Try to stay focused and don’t speed things up.
Mistake #2 – Choosing the Wrong Building
There is always a chance of you choosing the wrong building. You can accidentally get into some kind of scheme like investing in illegal construction. By contacting a real estate agent, you can avoid making those types of risks.
To bypass all the obstacles, try to narrow down the search to two or three places. Arrange multiple viewings. If possible, get a surveyor. He or she will inspect the condition of the building with precise detail. Surveyors can play a major part in building choice. From the history of the building to its current condition – everything matters.
Location is another important aspect when choosing the right building. You want your building to be in an area that is typical for a particular kind of commercial property. For example, in Dubai, if you want to invest in office spaces, it’s the Business Bay area. If you want to buy a multifamily asset, the Jumeirah Beach Residence area is an ideal choice.
Mistake #3 – The Building Doesn’t Fit Its Purpose
Remember, each real estate asset has its special purpose. Spend some time learning about a commercial property type you want to manage. One-day research can prevent you from making any hasty decisions. Here are four main types of commercial property:
- Office (Class A, Class B, and Class C);
- Industrial (heavy manufacturing, warehouses, and light assembly);
- Multifamily (high-rise apartments, mid-rise apartments, and garden apartments);
- Retail (regional malls, out parcel, community retail centers, etc.).
Don’t be afraid to do a renovation or reconstruction of the building as long as you have permission from the government. For instance, an old warehouse could serve as an economic base for the development of office spaces. Yet, you have to keep in mind that not all modifications are possible.
Mistake #4 – Ignoring the Market
Ignoring market trends is another mistake that property investors do. Not paying attention to market trends can result in buying the wrong property and paying more than you could.
Understanding the bigger picture puts you in a position when you can predict fluctuations in the market. It can highly influence your profitability rates.
Data analysis is a perfect tool to learn the demographics of a particular area. It will help you to understand whether the market will support the service or the product your company will supply. Among other things, you should look out for:
- price rates per square foot
- competitive returns
- capitalization rates
- population growth
- unemployment and occupancy rates
- property taxes
Finding an opportunity to invest early is a chance to gain more income. Try to search for new construction projects and get to know the zoning ordinance of the area.
Competitive returns are the most relevant thing in the real estate business. Multifamily property has a higher average annual return than any other type of commercial property. Between 1992 and 2017, the yearly return of multifamily property averaged at 9.75%.
Mistake #5 – Failing Legal Compliance
The last thing you want to do is to break the law. Discuss your plans with a financial advisor or a surveyor before doing any reconstruction work.
You can find information about current Dubai real estate laws at dubailand.gov.ae. There, you will be able to search for any type of information concerning real estate services and legislation. You can also go to dc.gov.ae and find an attorney in case you need legal help.
Professional lawyers can be rather pricey. If you want to have a more affordable option, visit Metropolitan.realestate. Metropolitan is the best real estate company in Dubai. There you will find top-shelf specialists who will consult you on the best commercial investments in Dubai.
You will face multiple objectives on your road to commercial success. Market navigation and an analytical approach will definitely improve your investment returns. One of the major problems is the human factor, and we can’t prepare for everything that will inevitably unfold. However, with the awareness of those mistakes, it will be much easier to make your way to the top. Contact us, and we will help reach your goals!