Investing in office buildings may offer good investment returns

The Press Democrat recently reported that the economic outlook for Sonoma County continues to shine bright based on strong job numbers, a growing housing market and infrastructure investments. It was predicted that economic growth will continue to accelerate through 2015 due to a growing labor market, record-level business investment and greater bank lending. Earlier this year, the Sonoma Economic Development Board noted that some trends bode well for increased demand for office space. While the overall demand for office space is still in a recovery mode, the good news is that the office vacancy rate-beginning last year-is finally showing signs of "sustained improvement."

Some real estate investors prefer buying commercial property rather than residential property. As observed in the San Francisco Chronicle, if you have the financial wherewithal, investing in commercial real estate "can generate significant revenue or sale profits." The website Loop Net observes that, if you are thinking about buying commercial real estate as an investment, purchasing office buildings as opposed to apartment complexes can be an "exciting prospect" which could offer potentially good investment returns assuming you have long-term tenants.

Fortunately, you do not have to be a Donald Trump to invest in office buildings. While buying a big-city "trophy tower" may be out of the reach of even the most well-heeled of individual investors, it is noted in a Forbes magazine article that "the small stuff" -such as modest two-story office buildings-are within the reach of many would-be investors.

According to Bigger Pockets, if you are interested in investing in office space, you need to consider white collar job growth in the area where you are investing as well as economic growth since this is a leading indicator for office space demand. Also, note if the local economy is growing. A growing local economy increases the likelihood that business will hire more workers on a full-time basis and, in turn, will require more office space for these workers.

Another indicator one should look at is the vacancy rate. A rising vacancy rate in office space leads to a decline in rent per square foot together with increased tenant turnover. One also needs to take into account an area's absorption rate which measures the newly created office space being leased in a given market during a certain period of time. If newly created space is being leased at a rapid clip, rent prices should consequently also be rising.

Beginner's tips

Marketwatch advises that, whether you desire to invest in office buildings, apartment complexes, industrial sites or modest mobile home parks, keep in mind the following suggestions:

· Do not overpay for a property. Good research is critical to finding an affordable commercial property that will ultimately be profitable.

· If you are investing in office buildings, you need to have good long-term tenants who pay their rent on time and do not damage the property.

· You may want to start small in your investments until you get the hang of managing commercial property.

· As a first time commercial investor, avoid entering into partnerships unless you know, like and trust your prospective partners.

Seek legal advice

If you are interested in investing in commercial realty, you should contact a California attorney experienced in handling real estate transactions. An attorney can draft a purchase agreement on your behalf and assist you with the closing. If you are thinking about buying property with commercial tenants already in place, the attorney can review the preexisting leases for you prior to your making an offer to purchase.