The mixed-use commercial development trend has made its way to Puerto Rico, with a project valued at $41.3 million approved near the old San Juan Historic District. Unsurprisingly, the recent trend of investing in residential real estate in Puerto Rico has now spread to commercial property. If you want to take advantage of investing in real estate in Puerto Rico, you need to understand what goes into a commercial property valuation.
Factors Impacting Commercial Real Estate Value
Creating a valuation report for commercial real estate includes several factors that are unique to the property. Because of this, it's helpful to work with a local property management firm that can give you an accurate picture of the local market conditions.
Location
As in the United States, Puerto Rico has zoning laws. The Planning Board establishes Zoning Maps. You must verify your chosen real estate is compatible with your intended use.
In addition, you must consider the surrounding area and its approved usage. Factors like public transportation, other business proximity, and amenities can impact the value of your investment. Property near more populated or tourist areas will have a higher value than those located deep in the remote jungle.
Condition
Commercial building quality goes beyond the curb appeal. Consider factors like the building's age, structural integrity, and size. Also, consider any past significant renovations or repairs.
Because Puerto Rico is an island in the Caribbean, many older commercial buildings have evidence of environmental wear and tear or natural disaster damage. Confirm that the necessary repairs were made correctly to prevent future issues.
Demand
Some types of commercial property are more in demand than others. This impacts value by representing the potential for marketability. For example, a retail space in a bustling shopping center will have a higher demand than a remotely located warehouse.
Tenant Turnover
Properties with long-term tenants show stability and profitability, making them more valuable than those with high tenant turnover. These buildings have consistent income and reduced marketing and screening costs.
Market Trend
Your property management company should be an expert on local market trends. They can tell you if an area is up and coming or on the decline. Ideally, investors want to buy real estate in markets that are set to grow to increase future property value.
Taxes
Real estate investors are not immune to taxes, even when investing in Puerto Rico. However, the Tax Cuts and Jobs Act (TCJA) was enacted to encourage real estate investors to consider new markets. Under this law, investors can buy and sell real estate in Opportunity Zones.
When doing so, they can enjoy tax benefits that reduce capital gains tax liability. Many of Puerto Rico's real estate markets qualify for this tax benefit.
Commercial Property Valuation
Accurate commercial property valuation is essential for property your financial well-being. The first step to investing in Puerto Rico is knowing what type of valuation you need. Then, understanding the factors that go into determining the value.
The property management team at PMI Puerto Rico has first-hand knowledge and experience with the island's commercial real estate market.
Request a free rental analysis and get an accurate commercial real estate investment valuation.
