Commercial Real Estate (CRE) is undoubtedly a tempting investment genre as it implies consistent returns, passive income along with growth potential. This field of real estate investing has been successful in garnering the attention of investors in the last decade. Observing closely, it shows that it is becoming increasingly a favorite option for many investors in the form of an alternative investment.
Even though CRE is expected to be profitable, yet it is also true that all properties do not promise the same returns. Hence, it is essential to learn the when, what and how to invest in commercial real estate to enjoy profitable returns in the years ahead.
The answer to ‘How to start investing in property?’ involves not only the way to success but also the mistakes and pitfalls in it, which should be taken into account while investing in commercial real estate.
All property types are not same
There are a wide variety of assets when it comes to commercial real estate. Even though CRE is classified into five top sectors, which are industrial, office, retail, multifamily, and special purpose, there can be other types like elder care, self-storage, land, or hotel. Consequently, the demand, supply, and yield vary to a great extent between each sector.
According to the asset’s particular location, particular property types perform better than others based on demand and supply. However, on the macro-level, many sectors outdo others in performance.
Assess the market area and supply and demand
Another significant factor that shouldn’t be ignored is knowing that every market is different in the realm of commercial real estate investment. So it needs to be understood that every geographic area has its individual supply and demand before making any investment. You might discover that specific property types are doing well on the macro-level, but you may also find an oversupply in the city, or vice versa. In many scenarios, investors cannot do the required market research to recognize if there is any potential risk of market saturation.
The right thing to do would be to begin researching the market supply in the immediate region. Remember to consider both the contemporary rentable square footage plus any additional square footage which will arrive from the present construction and planned developments.
Knowing about market cycles
The conditions of the economy, unemployment rate, and GDP have a mutual connection to commercial real estate benefits. Therefore, knowing how the market cycles function can give you insight into when to avoid buying when the market is high or being forced to sell when the market is low. Besides, knowing particular indicators of different market cycles helps identify the current opportunities to make more informed decisions.
So take your time to consider every factor discussed above and research more before coming into any conclusion. It is said that real estate is the best performing investment in modern times. However, it also has its own set of risks and pitfalls that needs to be carefully dodged to achieve one’s goals.