The strategy required to succeed as a commercial real estate investor differs from how you would approach investing in residential real estate.
It’s a strategy that involves:
Having the financial resources to pay a larger upfront deposit
Choosing the right type of commercial property to invest in
Finding the right team
You’ve probably already whet your real estate investment appetite with a successful residential real estate investment.
But commercial real estate investment in Jamaica is another kettle of fish entirely.
Be prepared to deal with:
Long periods of vacancy (6 – 12 months) while finding the right tenant.
Complex lease agreements. You’ll need a trust and experienced lawyer to prepare this document and participate in the negotiations with the prospective tenant
Spending large sums of money on improvement projects (if required), insurance, and lending fees.
Managing the property manager to ensure that rents are collected on time, the property is being adequately maintained, and that their charges for repairs and staff are reasonable. You should meet with your property manager periodically and have him or her provide you with status reports.
Multiple tenants. But a good property manager should be able to handle most of the issues on your behalf.
Lenders who may also request periodic updates. Maintain a good working relationship with them as they may be your primary source of capital for future real estate investment opportunities.
Here’s what you need to know about investing in commercial real estate in Jamaica.
Prepare to Dish Out Big Cash
The commercial real estate market in Jamaica is highly competitive. You’ll be competing with established companies, pension funds, and high net worth individuals.
These competitors will be able to pay cash and can move quickly to close good deals. You may not be in that position when you’re starting out.
That means you’ll have to make a larger down payment. Financial institutions typically ask for at least 20% of the purchase price for these types of real estate investments.
Also, the mortgage terms for these properties will be different from typical owner-occupier residential mortgages. For example, the repayment period is shorter and can range from 10 to 15 years.
If you’re a reputable investor, you may also be permitted to make interest-only payments for a specified period. This will boost your cash flow, especially when the property isn’t operating at full capacity. Commercial real estate properties tend not to operate at full capacity during the first couple of years when you’re looking for suitable tenants or working on property improvements.
Lenders prepare a term sheet that outlines the conditions of the commercial loan, and are usually willing to negotiate the terms. But, a lot more documents are required than what you would present for a residential mortgage. These documents include the:
Cash flow projections for the property
Market research on comparable properties
Relevant experience in operating commercial properties
Information about your team (property manager, contractor, etc )
It’s best to get advice from an attorney, insurance broker, and tax or financial planner on the best way to structure and finance your deals, protect your assets from potential lawsuits or loss, and file taxes.
Avoiding advice could lead to you spending more cash than you should. You could even end up with huge losses and a marred reputation! It’s better to invest in expert advice rather than pinch pennies trying to figure things out on your own.
Determine your financial goals and organise your finances so that you’re in a position to take advantage of real estate opportunities.
Do Thorough Research
Spend at least two hours each week learning about the industry and the local market. There are many resources online but they may focus on international markets. So, you should try to get insights from people who work in the industry daily like real estate agents and other real estate investors.
Ask them for tips on:
Finding good properties
Screening for suitable tenants
The best types of lease agreements to use
Selecting the right property manager and managing him or her
Maintaining and operating the property to get the best return
Your research should also include the location you’re considering for commercial real estate investment in Jamaica. Pay attention to the neighbourhood and the social amenities in the area. You may also want to consider proximity to high traffic areas if you’re planning to rent out offices or retail spaces.
Have An Exit Plan
You should also always have an exit plan in mind when investing in commercial properties. An exit plan helps you ensure that you secure the right financing. For example, if you planned to sell your commercial real estate property in five years, you may want to pay only the interest for those five years.
But your approach would be different if you were planning to hold the property. Your focus would be on locking in the best interest rate for the longest possible time.