What Risks are there in Commercial Real Estate?
When purchasing commercial real estate in Northwest Arkansas, even though this is a booming market with lots of development, there are still several risks to consider. A real estate agent can provide valuable guidance, but it is important to be aware of potential risks independently.
Market risk is a significant factor. Economic fluctuations or changes in local business conditions, as in layoff’s, or changes in technology can affect property values and rental demand. Conduct thorough market research to understand current trends and forecasted growth in the area.
Financing risks include interest rate fluctuations and the availability of loans. Changes in interest rates can impact borrowing costs, affecting your investment’s profitability. Ensure you have a clear understanding of your financial capacity and work with lenders who specialize in commercial real estate.
Property-specific risks include maintenance and repair costs, zoning restrictions, environmental issues, and potential legal complications. Conduct due diligence, including property inspections and title searches, to identify any potential issues or liabilities. This all can be done during the due diligence phase of the contract, which is typically 45-60 days, depending on property size & type.
Additionally, there may be leasing risks, such as tenant turnover, vacancy rates, and rental income fluctuations. Assess the local market demand and consider potential lease agreements to mitigate these risks.
Working closely with a real estate agent can help navigate these risks, as they can provide market insights and assist in due diligence. However, it is essential to conduct your own research, consult legal and financial professionals, and thoroughly assess the risks involved before purchasing any type commercial real estate in Northwest Arkansas.