Are you considering an investment in commercial real estate but feeling unsure where to start? You’re not alone. Many new investors seek expert guidance to navigate this complex field. To support you in your investment journey, seasoned commercial real estate broker, Jhanvi Thakar, has created a roadmap covering the essentials of commercial real estate investing. Keep reading to learn more.
What is Commercial Real Estate?
Commercial real estate essentially means properties used solely for business or commercial purposes. These properties include buildings, industrial warehouses, retail stores, multifamily dwellings (such as apartment buildings and assisted living facilities), and mixed-use developments that combine office spaces, retail shops, residential apartments, and dining options in one location. These properties are intended to generate profits through increased value over time or through steady rental income.
Why Should You Invest in Commercial Real Estate?
The upfront cost of investing in commercial real estate is generally higher than investing in residential property, but the rewards are greater too. The long-term appreciation potential is much higher as the value of the property increases over time due to property improvement and market growth. These factors make the world of commercial real estate investment less volatile than the stock market. Adding commercial property to your investment portfolio also helps diversify your assets. Moreover, these investments have the potential for higher returns due to factors like longer lease terms and higher rental rates.
What are the Different Investment Strategies?
There are 5 main types of investment strategies for commercial real estate:
- Core – The core investment strategy involves investing in fully-leased, high-quality properties that are in prime areas having high demand. It is suitable for conservative investors seeking low-risk, income generating properties.
- Cash flow strategy – This strategy focuses on properties that generate immediate, positive cash flow through rental income. This strategy prioritizes properties with tenants that provide regular income right away.
- Core plus – This strategy comes with a slightly higher risk than the core strategy, but it offers higher returns. Investors seek properties that may require minor improvements, or have the potential for making improvements, or are influenced by other factors that impact the value.
- Value added – This investment strategy comes with greater risk but also offers higher returns on investment. It involves investing in a commercial real estate property that is underperforming, needs major improvements (like renovations and upgrades) to increase its value, and often might have high vacancy rates. It is suited for investors who are willing to spend initially on operational costs or repairs, to get higher returns in the long run.
- Opportunistic – This investment strategy is suitable for experienced investors who are ready to take significantly high, but calculated risks for higher returns. The investments are typically in development projects and distressed assets in high-growth areas.
Why Work with an Expert When Investing in Commercial Real Estate?
As a first-time investor in commercial real estate, defining your investment goal is key. Are you seeking a stable, low-risk investment, or are you ready for higher-risk, high-reward opportunities? Understanding your risk appetite will help guide your decisions moving forward. Additionally, familiarizing yourself with local market trends is key to making informed choices, and this is where seeking the services of a seasoned commercial real estate broker can be invaluable.
Get Started with Your Commercial Real Estate Investment Journey
Investing in commercial real estate can be profitable when approached with a clear strategy, a solid understanding of market conditions, and a reliable team of experts. Aim High Realty is here to help you assess your goals, understand local market trends, and select properties that match your financial objectives. We guide you through negotiations, ensure due diligence, evaluate potential exit strategies, and provide clarity on legal and financial matters. With careful planning and the right advice, we will help make your commercial real estate venture a rewarding step toward financial growth and stability.
At Aim High Realty, our mission is to help you achieve your commercial real estate goals to support your business success.