Investing properly has become the sole means of securing one’s financial future. Whether active or passive, the investment decisions you make would determine how financially sound your future may become. You can explore several types of investments, including buying stocks, bonds, option trading, and real estate investment. For purposes of this piece, we will focus on real estate investment, limiting it to investing in commercial properties.
Investing in real estate
As inflation keeps surging globally, every serious investor is looking for ways to diversify their investment portfolio to include less risky ones and also hedge against inflation. With real estate having such prospects and being considered one of the safest long-term investment strategies, many are making the sector their target. But wait, before you venture into any business, you would need some expert advice.
Real estate investment comes in different forms and can be done either actively or actively. As an investor, you can decide to go into commercial or residential properties. As already mentioned, we will focus on investing in commercial real estate.
What is commercial real estate investment?
Commercial properties are infrastructures solely used for business purposes. So while a residential property investor may go into developing townhouses and condos for sales or rent, a commercial real estate investor may invest in a mall, hotel, entertainment center, depot, retail store, or office complexes. In some cases, a multi-unit apartment complex rented out for residential purposes can also qualify as a commercial property.
After construction, the commercial property is leased to tenants for business purposes, and anyone interested and meets the terms of engagement can apply for a space. Such investments have significantly eased the financial burdens on new entrepreneurs as they wouldn’t need to put up their own buildings. Any new business or individual looking for an office for rent can just consult the owner or management company for the terms.
What to know before venturing into commercial real estate
Real estate investment requires a lot of money, especially when investing actively. Active investment involves an investor developing and managing the property directly. This requires a lot of time and involvement to achieve the intended returns.
Another way to venture into commercial real estate is by investing passively. Passive investment also comes in two forms, direct and indirect. In the direct approach, the investor purchases a part (fractional ownership) or develops the property, and then hires a management company to handle its operations. The indirect investment is by investing in real estate syndications. A real estate syndication is an investment platform involving multiple investors and managed by a sponsor. One way to invest passively in real estate is by putting your funds in a real estate investment trust (REIT). Investing passively requires relatively low investment.
Why invest in commercial real estate
As with any other real estate portfolio, commercial real estate appreciates over time. Hence, one of the best ways to hedge against inflation. It comes with relatively minimum long-term risk and gives consistent returns over the years.
Having a commercial property at a strategic location can become a cash cow due to high demand and the price tag. With this, you are assured of consistent long-term returns, which may keep rising at each renewal date.
Considerations to make before investing in commercial properties
Not every commercial property is worth your investment, and several things must be considered before making a move. With commercial real estate being a long-term capital investment, it requires planning and being strategic with your approach. Considerations to make include location, budget, demand, tenancy, and market dynamics.
Location: Some areas may best fit office spaces and shops, whereas warehouses may suit others. Before pumping in money, you have to survey the area, identify the need there, and build accordingly. For example, in a business enclave, your best bet should be an office complex and stores.
Budget: After your survey, you should be able to narrow down the type of commercial property to invest in and whether you can afford it. With the help of building engineers and architects, you can have an estimate of the cost of the structure you intend to develop. Afterward, do your cost-benefit analysis and consider financial capacity before making any commitment.
Market demand and purchasing power: The said location may be lacking office complexes or stores, but will there be a high demand for them if you were to invest in such property? A lot of things go into this, including the economy or purchasing power in the locality. Can they even afford the cost of rent? To avoid investing wrongly, you should make all these analyses.
Best types of commercial properties to invest in
In case you are short of ideas or options here are some commercial real estate investments you can consider.
- Retail shops and stores
- Office complexes
- Industrial buildings
- Multifamily residential complexes
- Hotels
- Entertainment centers and other special-purpose buildings.
Any of the above can be a good investment avenue depending on the location and your business strategy. You should always consider the financial implications before making a move.
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