In making a decision about what investment is best for you, it is important to understand that commercial properties are different from traditional, single-family homes. Commercial real estate investing involves factors beyond market dynamics and location that do not necessarily affect residential investing—such as estimating potential returns and reviewing current tenancy.
You need to consider these factors before investing in commercial real estate, regardless of whether you will invest on your own or through a passive investment vehicle, such as a real estate investment trust (REIT) or private equity firm.
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Your asset's location can have a significant impact on its performance. Several factors influence an asset's value and how much it appreciates, these include its proximity to major highways, airports, and seaports, as well as the condition of the surrounding area. Markets that are specific to certain locations can also affect value.
Additionally, think about the area's future evolution over the course of your investment period when considering the location of a property. It is possible for open space behind an office building to be developed as a manufacturing facility, which could negatively impact the value of the existing building.
Ensure that nearby properties are owned by the right people and are being used for the intended purpose.
In real estate, cash flow is defined as the amount of money that travels through a property. While debt and other expenditures are included in the difference between income and expenses in commercial real estate investments.
It may be an indication of a positive rate of return to see positive cash flow. A REIT, private equity firm or investor receives more money as a result of this increase in cash flow. If the cash flow is negative, more money is being poured into the property to maintain it, which would indicate investors are potentially losing money.
Before investing, you should develop financial projections. Commercial property return on investment (ROI), appreciation, and depreciation benefits are considered here, as well as other tax benefits that may be available.
Consider whether you should invest in new construction or existing properties when making an investment decision. Prior to purchasing commercial properties, new construction might have better pricing options, customization options, and modern amenities than an older property.
Depending on the type and level of the building being constructed, all of this will differ. In today's market, keep in mind that the costs of the building have skyrocketed.
The market shifts that affect conventional investment options, such as stocks and bonds, may not affect commercial real estate investment as much. Property types may be affected by changes in the market in terms of occupancy rates, rental rates, and future demand.
Investing in assets that are stimulating the economy is one way to determine which assets are worth your time. Therefore, it may be beneficial to keep up with commercial real estate trends, research how various types of commercial real estate properties are performing in the current market, and do your due diligence to establish the best commercial real estate strategy for you.
You can tell a great deal about the long-term viability of the asset by looking at the existing tenants, their financial situation, and the terms they are currently on.
In case a vacancy occurs during your period of investing, you will have an idea of what to prepare for based on historical data about lease terms and vacancies. Office space that serves more than one purpose is more likely to get occupied than warehouses or laboratories that serve a particular purpose.
Despite this, the latter can outperform the former due to better capital appreciation and a more stable tenancy situation.
Commercial real estate investments, whether physical property, REITs, or something else, require consideration of certain factors, as do any other investments. Investing in commercial real estate can be overwhelming for investors because there are so many variables to consider, but it doesn't have to be. When investing in commercial real estate, consider working with a trusted and reliable company.
We at Saint Investment Group can help you get into the commercial real estate game if you see tremendous opportunities. Saint Investment Group offers you asset security and appreciation while earning passive income long-term with its commercial real estate funds that have low volatility.
Get more information about commercial real estate investing by filling out our online form or calling 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.