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Determining the risk of your commercial property

Some entrepreneurs may look at a successful apartment complex operating in a Philadelphia neighborhood and think that operating a similar piece of property will turn out just as well. However, a comparison of similar commercial real estate properties may not be as informative as you believe. If you plan to purchase a piece of commercial real estate, you will have to dig deeper into the property to figure out whether you are making a wise investment.

Forbes explains that property comparisons work differently when it comes to commercial and residential real estate. Usually, two successful residential properties of a similar type will enjoy success for the same reasons. However, commercial properties, though alike, can perform very differently. This is because there are a variety of factors that can drag down the performance of commercial real estate.

One of the keys to understanding whether your property has a good chance of success is to assess the risks specific to the property that could pose to your investment. For instance, a similar commercial property to yours could possess a solid profit margin. On the other hand, the property you plan to purchase might have a recent history of weak profits or even be running on a deficit.

Another article in Forbes identifies a number of factors to determine the financial status of the property and see if you invite substantial risks to your investment. These include, but are not limited to:

  • Real estate taxes
  • Profit and loss statements
  • Maintenance invoices
  • Utility statements

Looking at the property's performance history can forecast whether the property might do well in the future. However, other factors, such as the property's history of unpaid taxes, environmental infractions, or current litigation, can also impact your investment. A professional commercial real estate attorney can investigate the property for such investment risks to help ensure that you are not caught by surprise after you purchase the property.

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