Investing in commercial real estate interests many people, but it is often riddled with challenges which can overwhelm those without a firm grasp on the subject. Like most investments, there are no guarantees in commercial real estate. However, if you have clear goals, a tolerance for risk, and good team behind you, it can be lucrative.
To oversimplify it, people invest in commercial real estate for a few main reasons:
As you move from search to acquisition to management, you will need a strong team in place to help you maneuver through the process. Below are some of the key positions you may need to fill and a brief description of their services.
They will help you identify properties that match your criteria and analyze them to determine if they will accomplish your goals. When you are ready to acquire a property, they will negotiate on your behalf to get you the best deal possible.
In addition to reviewing any purchase/sale contracts, they should also review any leases with your future tenants and a number of other documents that will pop up when you own a commercial property.
They can help you understand the tax implications of the deal and how it will impact your profit.
With good financing, you may be able to generate a better return and maintain more liquidity than if you pay cash.
A good property manager will save you time and money by managing payments, maintenance, and various problems and tasks that arise with the property. They are often underestimated, but the services they can provide are often worth every penny.
It is important to identify the types of property that interest you. Many choose to invest in a product type they understand. For example, someone who has worked in offices their entire life may be more inclined to invest in an office property, as opposed to industrial or retail. Having a general knowledge of the product type may prove valuable and help the owner understand the various issues they may have to contend with. These are a few of the main product types:
It is also important to understand different types of real estate Investment and their corresponding risk. These are several types of real estate investments:
Stabilized Leased Asset
One of the most sought-after Investments due to its relatively minimal risk and stable returns. An example of this would be buying a property with a 10-year NNN Lease tenant in place. This gives the investor stable predictable cashflow and return for the next ten years.
In this type of investment, you are seeking a property to buy at a discount due to poor conditions or a problem. In theory you improve the conditions and sell or lease the property at a higher rate. This provides more potential for a higher return yet also increase the risk level.
Arguably the most complex type of real estate investing with the highest risk yet highest potential for return. Development takes extensive analysis and due diligence, a substantial amount of time, and usually copious amounts of money.
While monetary gain is arguably the most important aspect, for some the value of shaping and influencing the development around them is highly rewarding as well.
If you want to learn more about the topics touched on above, discuss finding your first investment property, or need assistance with commercial real estate in any capacity, please contact me, firstname.lastname@example.org. I look forward to speaking with you.
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