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Using Data To Guide Commercial Real Estate Acquisition

using data in commercial income property purchase

 

Vetting a potential commercial property deal using real data instead of mere assumptions is an essential part of the due diligence process.

Once you’ve investigated the specifics of a particular property, understanding the location surrounding a potential investment is the best way to predict profit potential or likely pitfalls. At the same time, savvy investors must also consider both the present and the future of a location, particularly when rapidly changing markets and globalization continue to play a strong role in commercial real estate.

In the past, a walk around the prospective property would give you a wealth of qualitative data. For example, taking note of how the people are dressed, what types of stores are located in the area, and whether businesses appear to be flourishing.

Today, however, many of these observations can be quantified by carefully analyzing data, cluing you in on critical trends that could make or break your property.

What stage of development is the neighborhood in?
Neighborhoods grow or decay in a predictable pattern.

There are four stages in the neighborhood growth cycle, and as a smart real estate investor, finding a property in a neighborhood before it explodes with popularity – at the revitalization stage- is a sure way to increase equity and cash flow.

Technically called gentrification, the easiest way to determine whether or not a neighborhood is on its way to becoming a rising star is to investigate the property values over time. If they are decreasing, it means the neighborhood is still in a state of decline.

However, if you start to see an increase over time in property values, that’s a good sign that gentrification has already likely begun.

Examining crime rates over time can also give you important information about the area. These statistics can be found readily online by searching for “crime statistics + name of city.” If you’d like to compare cities, then you can search for “crime statistics by city,” which will give you a list of cities, their sizes, and the crime rate over time.

Comparing crime rates over time and in comparison to similarly sized cities will give you an idea of where the neighborhood is headed.

Is there a plan for future development?

Neighborhood development

Neighborhood development can occur either from within or from without. If it occurs from within, it’s often a last-ditch effort by residents or a beleaguered municipality to save a declining area.

On the other hand, if it occurs because outside forces decide to invest in the neighborhood – in particular, private companies – then there is a fair possibility that the neighborhood is undergoing a revival.

A common example: a large company announces its intentions to build new offices in a previously overlooked area, with apartment buildings in the area following suit through extensive renovations or demolition and redevelopment. If you are considering purchasing the apartment building next door, then there is a strong possibility that the property will increase in value once the development is completed.

This information can be obtained by contacting the city or county’s department of planning and development. An online search for “department of planning and development + name of city” will give you contact information, and if you’re lucky, a website where future developments will be listed.

Examine quality of life factors

High-quality tenants often attract employees who are above average in education and earn higher salaries. The certain quality of life factors are important in attracting and retaining these employees. Considerations like the quality of healthcare, educational facilities, as well as recreational and cultural amenities can give you concrete numbers about the quality of the area, especially for apartment buildings.

Though nothing is guaranteed, a careful examination of this data combined with the results of the due diligence will give you a clear picture of how you can expect the property to perform.

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Tags: Acquisition, commercial real estate, due diligence