In a market as big and complex as the real estate market, investments can translate into opportunities that mean huge successes. You’ll notice that a big portion of wealthy investors are used to being in the real estate market. While owning residential real estate properties can be an adequate source of income, commercial real estate takes the cake when it comes to making the big bucks. But with bigger profits, comes bigger risks. We’ve created a brief overview that should help you wrap your head around the most important things you should know about commercial real estate.
Range of Commercial Real Estate Properties
It’s important to note that commercial real estate is a general term that includes a very wide array of properties. But no matter what’s the type of the property, it’s the nature of its operation that makes it a commercial property. Amongst the most common forms of commercial property are office spaces, apartment complexes, any form of retail property, factories, storages, and many other forms of properties that are purely used for making a profit. These properties provide passive income to their owners or investors, making them quite lucrative for many people.
Considerations
If you’re going to invest in a location known for a diverse range of commercial properties, such as Austin, you’ll want to make sure that you’re finding the exact type of property that you want. As explained on AustinTenantAdvisors.com, choosing to lease from over 18,000 commercial properties in Austin can be a daunting task. Consider looking for a property at least 6-12 months before the date you have planned to begin the project.
Benefits of Investing in Commercial Real Estate
The multitude of income streams that can be obtained through investing in commercial properties are simply too profitable to ignore. For example, renting a multi-unit commercial property means that you don’t have to worry about one or two tenants leaving because you’ll have more than one way to offset the loss of vacancies. The size and location of commercial real estate properties play a major role in determining its total profit, allowing you to generate huge sums of money if you invest right. The variety of leases that are attainable in commercial properties is much better than its residential counterpart, from taxes to liability. While the expenses of investing in commercial real estate are high, it’s not necessarily hard for new investors to find their way into this market.
Property Appreciation
When investors look for commercial properties to invest in, one of the first things that spring to their minds is the potential appreciation. Investing without knowing whether the property will appreciate properly is a blinding mistake that can cost a lot to fix. If you want to follow a general procedure to determine the appreciation of a commercial property, you should find out whether there is high demand in the location, population increase in the local area, the trend of rental prices, and the number of new businesses in the area. Knowing these details should help you determine whether a property will appreciate properly.
Real Estate Investment Trusts
If there is one simple and straightforward way to invest in commercial properties, it’s through real estate investment trusts (REITs). A REIT is a company that creates a pool of capital from many different investors that allows it to heavily invest in profitable commercial properties. The company then proceeds to provide its investors with dividends according to the amount invested. The government provides hefty tax cuts to REITs that pay more than 90% of their income as dividends. There are different types of REITs with varying risks, so ensure to research them enough before getting into a deal.
Financing
Naturally, one of the most important factors of being able to invest in commercial real estate properties is funding. Fortunately, the price tag of these investments is usually high but there are many different ways to secure its financing.
- Conventional Loan: The main criterion for securing a conventional loan is having at least 20% of the total price of the unit as a down payment. The repayment plan can be negotiated to be short or long, from one year to 30 years.
- Government Loan: If you manage to secure a small business or development certifications from the official channels, you’ll have the ability to secure government-backed loans that are much better than their traditional counterparts.
- Syndication: Purchasing the property in cash by combining the investor’s money, then either paying through dividends, equity splits, or both.
- Owner: The owner of a property can set their own terms and repayment plan.
Diving head-first into the commercial real estate business without knowing a lot about it is a pretty bad move. These investments need more than capital to succeed; whether you’re an individual or a group of investors. From market fluctuations to recessions, a lot of factors can affect the nature and outcome of your investment.