admin / June 13, 2022
Overview of Commercial Real Estate Investments for Beginners
By: Evan Bole
Investing in commercial real estate interests many people, but it is often riddled with challenges which can overwhelm those without a firm grasp on the subject. Like most investments, there are no guarantees in commercial real estate. However, if you have clear goals, a tolerance for risk, and good team behind you, it can be lucrative.
To oversimplify it, people invest in commercial real estate for a few main reasons:
- Cash flow aka “mailbox money”
- Equity and appreciation which one can capitalize on while owning the property and at the point of sale
- To invest substantial amounts of money for extended periods of time while reaping tax benefits, but without being subjected to the volatility of other investments, such as the stock market
As you move from search to acquisition to management, you will need a strong team in place to help you maneuver through the process. Below are some of the key positions you may need to fill and a brief description of their services.
Broker
They will help you identify properties that match your criteria and analyze them to determine if they will accomplish your goals. When you are ready to acquire a property, they will negotiate on your behalf to get you the best deal possible.
Attorney
In addition to reviewing any purchase/sale contracts, they should also review any leases with your future tenants and a number of other documents that will pop up when you own a commercial property.
Accountant
They can help you understand the tax implications of the deal and how it will impact your profit.
Lender
With good financing, you may be able to generate a better return and maintain more liquidity than if you pay cash.
Property manager
A good property manager will save you time and money by managing payments, maintenance, and various problems and tasks that arise with the property. They are often underestimated, but the services they can provide are often worth every penny.
It is important to identify the types of property that interest you. Many choose to invest in a product type they understand. For example, someone who has worked in offices their entire life may be more inclined to invest in an office property, as opposed to industrial or retail. Having a general knowledge of the product type may prove valuable and help the owner understand the various issues they may have to contend with. These are a few of the main product types:
- Office
- Industrial
- Retail
- Multifamily
- Medical
- Hospitality
It is also important to understand different types of real estate Investment and their corresponding risk. These are several types of real estate investments:
Stabilized Leased Asset
One of the most sought-after Investments due to its relatively minimal risk and stable returns. An example of this would be buying a property with a 10-year NNN Lease tenant in place. This gives the investor stable predictable cashflow and return for the next ten years.
Value Add
In this type of investment, you are seeking a property to buy at a discount due to poor conditions or a problem. In theory you improve the conditions and sell or lease the property at a higher rate. This provides more potential for a higher return yet also increase the risk level.
Development
Arguably the most complex type of real estate investing with the highest risk yet highest potential for return. Development takes extensive analysis and due diligence, a substantial amount of time, and usually copious amounts of money.
While monetary gain is arguably the most important aspect, for some the value of shaping and influencing the development around them is highly rewarding as well.
If you want to learn more about the topics touched on above, discuss finding your first investment property, or need assistance with commercial real estate in any capacity, please contact me, evan@cipaustin.com. I look forward to speaking with you.
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All information provided has been obtained from sources deemed reliable. However, neither CIP Austin nor any of its brokers, agents, employees, officers, directors or affiliated companies (collectively, CIP Austin and Related Parties) have made an independent investigation of the Information or the Information sources, and no warranty or representation is made by CIP Austin and Related Parties as to the accuracy of such Information. The Information is submitted subject to the possible errors or omissions, and no person or organization should rely on the Information, unless such person or organization has conducted and independent investigation to confirm the accuracy thereof.
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