As with any investment opportunity, the salient issue to consider when looking at real estate is if it is a prudent investment. Many investors are drawn to real estate for the perceived high ROI it offers, as well as the diversification value real estate provides for many portfolios. However, real estate in general, and more specifically commercial real estate, is very much a unique investment that requires the proper mindset and preparation for an investor. With that in mind, consider these three questions to ask before investing in commercial properties.
What is your purpose in investing in commercial real estate?
Portfolio diversification, asset appreciation, cash flow, tax advantages or some combination of these and others can be a valid reason, but your answer will guide the specific decisions you make. For example, when you buy, where you buy, what specific type of commercial property you buy and whether you will proceed in an active or passive capacity will all depend on your purpose and motives.
Do you understand the different types of commercial property investments?
It’s important that you recognize different types of commercial properties hold their own unique benefits and risk/reward profiles, which require different strategic considerations. The primary asset classes of commercial property are retail, industrial, office, multi-family, hospitality and development. Within each asset class, the investment potential is rated as:
- Core – low risk
- Core plus – low to moderate risk
- Value-added – moderate to high risk
- Opportunistic – high risk
As might be expected, the potential expectations for rate of return parallels the level of risk.
Have you aligned yourself with the right people?
No matter what level of involvement you intend to take, an investment in commercial properties requires working with talented professionals. Even those who choose the self-management route will need to place their trust in a broker, attorney and numerous contractors in a variety of fields. Others looking for more of a typical investor’s role from the sidelines will need even more assistance. Investing in commercial properties can be highly lucrative, but mistakes made can quickly cause any potential return to evaporate.
Primior Investments has a proven track record through various real estate cycles. We offer personalized service tailored to your unique needs and a full range of integrated services designed to fulfill your investment goals. Contact us today.