Critical Items to Consider When Investing in CRE outside of the Top 25 Metro Statistical Areas
Commercial real estate investors use the Top 25 Metro Statistical Areas as a guideline for purchasing and pricing properties. The Metro Statistical Areas, or MSAs, provide a wealth of information, such as labor markets, average income, education, spending patterns, housing demographics, and much more. While investors use the data provided by the Top 25 MSAs when looking at properties in those areas, there are many who prefer to invest outside of those areas, because the initial capital outlay and potential profit margins are higher. However, investing outside of of the top MSAs has its own risks.
The farther outside of the top MSAs one looks, the more limited the property markets become. Many areas cater to residential properties. Yet even within those markets, income and access to work will greatly influence the ability to generate revenue through buying and selling, or rentals. Some outside areas cater to businesses that require office space or manufacturing facilities. This also opens up potentially lucrative property transactions for commercial real estate investors.
Renovating a property on Long Island, NY or in Austin, TX may be very different from non-metro areas like Macungie, PA or Burgoon, OH. Over-renovation may eat into your budget and place the overall price of the property outside the upper limit of potential buyers in an area. On the other side of the coin, under-renovating a property simply because it is not in a major metro area may drive away buyers looking for more amenities. Sometimes it helps to talk with local realtors to get an idea of what people are looking for, and what renovations would be a big plus for a given property.
Not Everything is a DIY Project
Property investors sometimes get the impression that just because something is not in one of the top MSAs, the renovation projects will be small. For new investors looking to renovate a property to rent or sell, this can quickly become an expensive trap. When looking at properties in a given area, it helps to research local contractors to find the ones who can make the larger or more complex renovations while still staying within your budget. Also, hiring local contractors helps to build up a rapport which can lead to discounts on labor and materials for future projects in the area.
Getting the Right Financing
Understanding which types of financing to use on a project can keep things on track and start generating revenue faster. Many properties outside of the top Metro Statistical Areas do not require anything more than conventional commercial real estate loans. Others, due to the extent of the renovations or construction needed, may require other special financing.
In the end, properties outside of the Top 25 MSAs offer a number of lucrative opportunities, if you are careful and do your research. Your investments may start bringing in buyers and renters who will move your target area into one of the top MSAs in the future. CounselPro Lending offers guidance and financing for commercial real estate investors. If you are looking to undertake a new project and turn a property into a revenue-generating investment, contact our offices today.