INVEST IN COMMERCIAL REAL ESTATE
Among all the investments one can think of in current times, real estate remains the most secure, literally “rooted” and overall, much simpler than other investment vistas. So, whether you are looking for a short-term flip or a long-haul holding, real estate investments duly fit any portfolio. Commercial real estate (CRE) features a bevy of benefits for any investor from big returns to easy trade-offs and financial safety net. CRE is insulated from haphazard market fluctuations and delivers a consistent rate-of-return. Further, the lock-in period of a CRE buffers your investment from sinking and most importantly, specialized CRE in a key location is akin to a goldmine; always sought after by the niche segment of renters and a guaranteed renewal of the investment.
Investing in CRE is a mammoth task. One can do it individually but the favored mode of investing in CRE is through Real Estate Investment Trust (REIT) or fractional ownership. REIT operates like a mutual fund. Several investments are pooled to create a diversified investment portfolio and returns are proportionate to each individual investment. Fractional ownership is somewhat simpler whereby investments are clubbed into a single large asset. This allows investors to own fraction(s) of a real estate asset, obviously as per their risk and capital threshold. The returns are paid out in ratio of the ownership fractions. The difference between REIT and fractional ownership is subtle. In REIT, some of your investment remains barren and the only way to recuperate your investment is to withdraw it. On the other hand, fractional ownership is more robust and guarantees a return commensurable with your fractional ownership.
The basic mantra of investing in commercial real estate is quite explicit – the best time to invest is now and the best place to invest is here (as in close proximity to yourself). Timing is indeed the most perplexing facet of investing in commercial real estate. One may argue that COVID-induced lockdowns have somewhat diminished the need of purpose-built office and commercial spaces and to be perfectly candid, the business world is still reeling from the aftermath of those lockdowns. But large enterprises, like Google, have actually doubled down of their commercial property acquisition. Google earmarked around $7 billion in 2021 for offices and data centers in US alone. This goes on to tell the importance of conventional workspace and its incumbency in expanding corporate footprint. Timing an investment in commercial real estate is critical and that is why, for many investors, the best time to buy is always now. Any risk aversion strategy you may reserve for later can be, albeit with adjustments, implemented now in present. Similarly, the net balance of profits remains the same, although with minor bullish or bearish bent. Learn how to find opportunities in any market condition by consulting with industry experts and assessing the pros and cons. Investors with good entrance and exit strategies are most likely to win the investing game compared to others who wait for what they believe is the best timing.
Secondly, the location is an imperative factor. One can engage a nationally reputable industry professional, but you will be better served by a local expert who knows the lay of the land like the back of their hand. Inquire about the various types of listings that are sold most frequently, the average price point for office spaces, the hottest developments and neighborhoods, and so on. At the end of the day, it’s more than just learning about value statistics. It is about understanding the preferences of the locals and knowing how to be a valuable part of the community.
Investing in CRE calls for patience. Any investment tenure under three years may not be suitable for investing in CRE. CRE investments demand a well-laid and meticulously planned stratagem. Office and corporate spaces are the number one choice for any CRE investors. However, don’t ignore the long-term investment benefits of warehouses, labs, manufacturing units, multi-family, or something mundane such as plain parking places, and wreckage lots.
It all boils down to certain key prerequisites – location, timing, market dynamics, tenancy, and documentation. So, while you may have the capital but lack the gall to undertake the intricate procedures of commercial real estate management. The takeaway is to plan and execute your commercial real estate investment carefully, particularly considering the tenure of your investment, the diversity of asset type, risk of ‘guaranteed returns’, market volatility, vacancy rate and tenancy and the cost appreciation of the asset after the planned period.
Feel free to consult with your local realtor before venturing in CRE investments even if you are not seriously pondering to invest in it. They can share great insight about smart real estate investment or at the least, help you realize your investment tenacity.