In the past, commercial real estate investing has proven to be a powerful and relatively good investment vehicle for people who wish to preserve their wealth and build their portfolios at the same time.
Investors who seek direct co-investment in real estate continue to increase, creating a growing market for deal-by-deal allocation of capital. With the economy growing steadily and interest rates at historic lows, now is always the best time to invest in commercial real estate.
There are several factors that affect your ability to purchase in commercial real estate investing, including the market conditions, which are largely influenced by the economy, and the type of property you want to buy. There are, however, a few things you can consider to help you make the best decision.
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When investing, you should generally do so during times of economic recession, or at least after the market has cooled off. When a recession occurs, commercial real estate prices tend to decline. However, when it comes to financing your purchase, a recession may make things more difficult for you.
When considering if investing in commercial real estate is good for you now, you should consider the current state of the market. Like the moon, commercial real estate undergoes a series of predictable phases.
Throughout its predictable life cycle, four distinct phases are identified: recovery, expansion, hyper supply, and recession.
In commercial real estate, the recovery phase occurs after a previous downturn. A trend of increased demand must exist before the recovery phase can begin. As soon as this demand is established, it is easier for buyers and sellers to agree on prices, allowing the market to stabilize.
Certain factors must be present for the market to fully recover. These contribute to the growth patterns, such as job growth, population growth, construction activity, and consumer spending. As soon as these conditions are met, investors and developers will return to the market in search of new investment opportunities.
It is important for commercial real estate investing to have a recovery phase so that prices can stabilize and investors can take advantage of the opportunity.
You will see an increase in demand for space as the market enters the expansion phase. It is also typical for jobs and gross domestic product (GDP) to grow during times of economic growth. A rise in rents and an improvement in occupancy rates are also signs of improvement.
In this expansion phase, commercial real estate development returns and new construction is justified. The supply and demand will balance as the expansion phase reaches its peak.
It is common for the commercial real estate market to experience significant price declines during the hyper supply phase. In this phase, there is an excess of properties that the market cannot support.
Even when you are a part of a co-investment, it becomes increasingly difficult to find exceptional deals when supply exceeds demand. As a result of this excess, prices can decline, and bidding wars can occur.
A positive note is that the commercial real estate market will eventually self-adjust. Demand for properties will increase, thereby balancing supply and demand. There is, unfortunately, a risk that hyper supply will eventually result in a recession.
Commercial real estate sales, occupancy, and investment values are typically affected by the recession phase. As businesses are less likely to purchase property during the recession phase, sales tend to be slower.
Additionally, occupancy rates are declining due to businesses closing down or consolidating rather than investing in properties that may not generate profits. A high level of caution is also felt by investors in a sector perceived as increasingly risky, resulting in a decline in investment value.
Fortunately, once the recession ends, sales, occupancy, and investment values tend to rebound rapidly as the cycle moves forward into the next phase of recovery.
In comparison with other popular asset classes, commercial real estate investment provides investors with steady cash flow, appreciation benefits, and substantial tax advantages.
Saint Investment Group offers commercial real estate funds with low volatility for long-term asset appreciation and security. The commercial properties we select for investment are thoroughly inspected by our professional team, providing greater security for our investors. As a result, investors have a customized real estate portfolio that fits their needs.
There has never been a better time to invest than now. If you’re interested in taking the next steps and learning more about what we can offer, get in touch with us at 949-881-7128 at Saint Investment Group today!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.
