Investing always involves some degree of risk. This is true no matter what type of asset you invest in – including commercial property.
That said, you can reduce your exposure to risk with the right strategy. So, here are five tips for devising a risk strategy for commercial real estate investments.
What Is Commercial Real Estate Risk Management?
Commercial real estate risk management means identifying anything that could jeopardize your investment. In other words, it’s looking for possible threats, or dangers, to your assets – and your profitability.
Every investor is exposed to a different “level” of risk. Risk exposure is based on factors including:
- Diversity of your portfolio
- Types of commercial property you invest in
- Number of properties you own
- Financial position
Should you care about risk management as a commercial real estate investor? Absolutely. Failing to have a risk strategy could lead to serious but avoidable financial losses. You could also lose your investments.
With that in mind, here are five strategies to reduce your commercial real estate risk.
1. Have a Risk Management Plan
Every successful investor starts with a plan. Consider, for example:
- How market fluctuations may impact your property’s value
- The impact of changing laws and building codes on your investment
- How you will “vet” potential tenants and handle issues of non-payment
- What resources you can draw upon during downtime
- How easy it may be to sell your type of commercial real estate in the future
Having a plan helps you manage risk in the long-term.
2. Know Your Market
From vacancy rates to employment levels, you need to know your local market.
- Consider how short and long-term trends are affecting real estate value in the area.
- Keep a diverse portfolio. This can help you offset downturns in one market, if another is performing well.
- Study trends so you can quickly adjust your investment strategy. For example, remote working trends could mean there’s less demand for office space. And infrastructure development could lead to inflated prices.
The better you know your market, the easier it is to manage risk. Always do your due diligence to protect your investments!
3. Choose the Right Insurance Products
Commercial real estate insurance protects your business against a wide range of hazards, including tenant damage and legal claims. In other words, it helps you manage your risk exposure.
However, no two insurance policies are exactly the same. Commercial real estate investors must consider the type of insurance they need, and the level of coverage required.
For example, check your flood zone risk. Properties at high risk of flood damage may benefit from flood insurance. And if you own a restaurant, you might benefit from specific restaurant insurance.
Having sufficient insurance coverage protects you financially if disaster strikes. Adion Financial can help you find the right policy for your needs.
4. Maintain Your Properties
Managing commercial real estate risk is all about thinking long-term. Property maintenance is a critical part of this.
Remember, regular maintenance protects your property’s value. It allows you to spot and repair minor issues before they escalate.
Without regular inspections and maintenance, you risk downtime due to tenants being forced out of a property for repairs. Such downtime can seriously damage your investment’s value.
5. Expect the Unexpected
It’s impossible to prepare for every risk. However, part of risk management is having the flexibility to respond to unexpected disasters. Examples include:
- Preparing for emergency evacuations
- Repairing unprecedented storm damage
- Responding to personal injury lawsuits
Anticipate the unexpected. Have emergency funds available and a contingency plan to cover business interruption.
Get Commercial Real Estate Insurance Quotes
When you invest in commercial real estate, your priority should be protecting your investment. That’s why you need comprehensive commercial insurance.
Cover all eventualities – contact Adion Financial to find insurance tailored to you. Our team can help you find competitive quotes for every budget and property type. And it only takes a few minutes to start the process.
Contact us to learn more or start your commercial real estate insurance quote today!