Tips for Commercial Real Estate Investing for Beginners
Ready to start investing in real estate? Most people prefer commercial real estate investing due to higher returns. To put it another way, you get a passive income and a significant value appreciation with time. But where do you start as a beginner? Before spending your hard-earned money on any investment, it’s always wise to do some research.
In this article, we will discuss various real estate investments. Plus, we list some tips to help you make informed investment decisions.
What is Commercial Real Estate (CRE)?
Real estate investment falls into two categories: residential properties and commercial properties. Commercial investment deals with structures for business purposes. Investors lease space to individuals who use it for work purposes. These properties are prevalent in urban areas, ranging from small offices to skyscrapers. On the other hand, residential properties provide living spaces to tenants.
Supposing you want to invest in real estate, you must choose between the two investment options. If you choose commercial real estate, you can still select from several types.
Let’s have a look at these types of commercial investment opportunities for beginners:
Types of Commercial Real Estate Investing
The commercial real estate investment niche falls into various categories depending on the use. These include office space, industrial properties, hotels, real estate, retail space, special purpose, and multi-family properties.
1. Office Spaces
Office buildings fall into three classes, depending on condition and location.
- Class A is top-rated, with modern offices in the city centers. It’s the best class you can find, with well-maintained buildings that are easy to access.
- Class B is slightly outside city centers. The office may be in good condition or require minor renovations.
- Class C is further away from the city, making it less ideal for business purposes.
2. Industrial Buildings
Industrial properties include warehouses and factory buildings. These structures are found outside city centers because they need larger spaces. Tenants in industrial properties are usually in charge of maintenance. Usually, you only have one tenant at a time. If you lose the tenant, your income is affected significantly. You have to renovate the property before the next tenant(s) come in.
3. Retail Spaces
Retail spaces are properties for businesses like shopping malls, restaurants, shops, and boutiques. Unlike industrial properties, retail spaces comprise many units that serve multiple tenants. The success of these properties is heavily dependent on location. Since you have many tenants in one property, you can still enjoy a consistent cash flow.
4. Multi-family Homes
These are classified as residential real estate. They provide housing to many families, such as condominiums. It’s easier to get funding for these projects. Even though competition is usually high, demand for these houses is always on the rise.
5. Hotels
Hotels and motels are quite lucrative but also volatile. Hotel operations are ideal for areas with more business travelers and tourists. In the case of economic turmoil, returns on investment can reduce drastically, so it’s always important to do your research and work with a commercial real estate agent when deciding to invest in a hotel or motel.
6. Special Purpose
These are structures that can only serve one purpose. They include schools, hospitals, theaters, dormitories, among others. Before investing in these properties, it’s best to ensure that the service has high demand in the area. On the positive side, there’s little competition for special purpose investment.
Why Invest in Commercial Real Estate?
Investment properties provide long-term cash inflow, which gives you financial security. Most investment properties, especially in urban areas, appreciate more quickly. So, within a few years, your wealth is likely to improve significantly.
Furthermore, rent for commercial properties depends on the size measured in square feet. So, it’s a bit profitable compared to residential properties. Not to mention that tenants usually sign long-term leases. Hence, reducing the risk of having unoccupied property.
CRE Investment Options
Real estate investors have different circumstances. So, regarding deciding which investment option is best, no strategy can fit all. Some have more money than others. They can afford to fund larger projects by themselves or with some assistance from banks. That said, most people find working as a team to be much easier.
Below are two options that can help you make a CRE investment:
Crowdfunding
Assuming you want to buy investment, properties and don’t have enough money, you can ask others to join you. Once you pool the money, the next step involves allocating each member shares in the property. Pooling money together can help invest in more lucrative properties.
Real Estate Investment Trusts (REITs)
These establishments bring investors together to raise money for real estate investment. The money usually goes to fund specific property types. For instance, one REIT can specialize in hotel real estate investment, while another invests in office space. If you think office space is a better investment than hotels, then you’d have to choose an office REIT and vice versa.
Some REITs are public companies with shares trading on the stock market. That means you could become a real estate investor simply by buying shares in the stock market. The best thing about REIT is that 90% of their taxable income goes to dividend payments. Since fund managers do all the work, you can receive a consistent income without worrying about management.
Tips for Investing in Commercial Real Estate for Beginners
CRE investment requires due diligence. Take your time to understand the deal, inspect the property, and conduct a background search. Do not give your hard-earned money before knowing the expected return on investment. It’s better to take several investment opportunities and compare them before settling on one.
Take time to study how commercial real estate investing works. Consider the property’s location and how it might impact the expected returns from the investment. Furthermore, analyze the demographics of that location and how the property meets the people’s needs.
If commercial real estate investing looks somewhat complicated to you, partner with investors who have experience. If you need professional advice, Anthony Maccaroni is here to help you. His vast experience in real estate investments will be of great help to you. Call Anthony Maccaroni today for a free consultation.