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The basics of commercial property investing

The rewards of commercial real estate investing in Texas and around the country can be great, but navigating a profitable path around the pitfalls involved takes a combination of careful planning and a willingness to take risks when opportunities present themselves. Success in this area also requires an understanding of the commercial property market and familiarity with the terms and calculations experts use when assessing the merits of real estate deals.

The capitalization rate is perhaps the most important commercial real estate calculation. Cap rates reveal how much income a property generates relative to its value and can be a valuable tool when comparing investments. Usable and rentable square footage figures are also useful in these situations, and they can be calculated by deducting the space taken up by common areas like stairwells, hallways and corridors or adding shared areas such as lobbies and bathrooms.

Prospective landlords may be wise to learn about any right of first refusal or sublease clauses. A right of first refusal gives tenants the first opportunity to lease any space that becomes available, and a sublease clause could allow them to rent the space they are leasing to third parties. Assignment clauses work in much the same way as sublease clauses, but they prevent tenants from reoccupying the space in question.

Attorneys with experience in this area may be able to help commercial property investors to avoid potentially costly mistakes by performing thorough due diligence. In addition to checking rent receipts, ledgers and other financial records to verify the claims made by sellers or their agents, attorneys may scrutinize lease agreements for unfriendly provisions. Attorneys could also provide input regarding the impact that other property developments or pending environmental or financial legislation could have on commercial real estate investments.

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