In making a decision to either buy or not to buy a piece of property an investor needs to look at four different types of analysis. They are: Market & Competitive Analysis – Location & Site Analysis – Financial Analysis – Political & Legal Analysis. Although all of these overlap to some extent, each needs to be analyzed separately and completely. All four of these areas need to be examined in an effort to determine the potential risk in an investment. Let’s look at some of the items with each one.
Market and Competitive Analysis: This requires a close look at both the supply and demand for the property. What is the current vacancy rate in the area? Is there new construction in the pipeline that will bring additional product on line and when? What are the current rental rates for the area and how do they compare to the subject property? Run comparatives of other properties in the area.
Financial Analysis: An in-depth look at the income stream as to the current level but also the potential increase. Examine the operating expenses and look for any unusual items. Explore available financing to determine whether to leverage or pay cash. Figure the CAP rate and the IRR (internal rate of return) to determine if the property will meet the requirements of the investor.
Location & Site Analysis: Location is always important and each type of property will have its own special requirements. With retail it means exposure and or traffic counts – Property access and adequate parking nearby. With industrial access to major highways of major airport or a rail siding might be important. Raw land will want to look at the direction of growth and or the Demographics of the area. These items will be important to all types of property but probably more so with retail or apartments. Proper zoning is always important when doing a site analysis
Political & Legal Analysis: What is the political view and direction of the city or county officials? Are they proactive and looking to expand and encourage growth? Are there any design restrictions in the area? Are there any other restrictions on the use of the property? What is the tax base and how will it affect the property? Is the property located in any kind of improvement district that might have some tax incentives?
There will be other thing to examine with each one of these analyze depending on the type of property. What is important to understand at this point is the importance of each one of these and how they will overlap. Political issues will directly affect the location. The financial analysis will be directly affected by the market. Do you have a property where this type of information might be helpful? If so please contact Mike Sloan at Group1 Commercial Real Estate Consulting 208 946-5271 or email firstname.lastname@example.org