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The financial industry greats will be the first to tell you that real estate investing has the potential to bring in serious profits. They will also gleefully inform you that the risks in some cases far outweigh the potential, especially if they are among the more cautious investors in the industry. Those who have made their fortunes in real estate however will tell you that investing in real estate is worth every ounce of risk when you manage to work through the rough patches and find your way to real estate investing fortunes.
Commercial real estate is somewhat unique among real estate investment types. This is the type of real estate that requires a high investment to get into the game, much higher than most residential property and poses equally great risks depending on what you plan to do with your commercial real estate investment. Of course, you will also find more than a few options for your commercial real estate investment that many investors find appealing.
Commercial real estate refers to the class of real estate that is primarily meant for investing money for profits later on. Examples of such properties include:
- Restaurants (including franchises)
- Retail
- Office buildings
- Self-storage (Mini-storage) / industrial
- Strip malls
- Hotels (also called “hospitality”)
- Multifamily/apartment buildings
Why invest in commercial property?
Unlike residential real estate, Commercial real estate investment is evaluated, bought, and sold based purely on numbers – on a set of factors that describe what kind of return on investment you can expect with the property. Most Commercial real estate investment is expected to make a return for you on an on-going (monthly) basis.
Remember though! Commercial real estate investment is a long term opportunity. Do not expect to increase your net worth over night. No one is going to profit all the time. Real estate investors have to be patient through times of little to no cash flow – it is part of the game.
This may discourage many an investor but if you can stick with it for the long term, cash flow will increase significantly. Investing, especially in real estate, is not for the weak of mind or body. It can be frustrating, and stressful. But for successful investors the rewards are priceless.
Some investors find the path of leasing office space or warehouse space to businesses to be the safest route to take when it comes to commercial real estate investing. They feel that this is a relatively steady source of income because most businesses prefer to establish and keep their locations as long as possible. Smart business owners are well aware that customers, clients, and vendors need to be able to find them in order to do business with them and for this reason, prefer to keep their business in the same location whenever possible rather than reestablishing themselves in different locations year after year. However, with the recent Covid-19 pandemic, office space was decimated and may never look the same. The risk is always there!
Commercial real estate investing is a bit of a different animal than traditional residential real estate that many of us are more familiar or comfortable with. However, investing in multifamily properties (apartment buildings) can be a less risky venture because it is residential and is always in demand. You will need to do a lot of research before jumping in with both feet with this particular sort of real estate investment.
Commercial real estate investments can take on many forms. From strip malls and outright shopping malls to business and industrial complexes to sky scrapers and high rise condos, you will find all manner of commercial real estate interests. Whether your interests lie in business or personal types of commercial real estate there are significant profits that stand to be made.
Unfortunately, beginners often find the path to commercial real estate investing laden with thorns. You will generally need a considerable contribution to fund your commercial real estate pursuits and it is probably best if you can find a group of investors in order to share some of the risks. Real estate, in and of itself, can be a high-risk venture. Commercial real estate bears a little more of the risks in the beginning. However, once you’re well established and people, particularly investors, who know your name and favorable reputation, you will find that path to real estate wealth is much easier through commercial real estate.
To create even bigger profits, it is often best to work as part of a team of investors when it comes to commercial real estate investing. Not only does this approach spread out the risks to some degree but it also helps in your search for good buys, spreads the labor pool, creates an environment to spawn new ideas, and allows you to bounce those ideas off one another. It is a great idea for those who are looking to build a prosperous future in the field of commercial real estate investing and can be extremely profitable for all involved.
Commercial real estate investing can be extremely intimidating if you allow it to be. Avoid putting yourself in a situation where you feel out of control or completely uncomfortable. Make sure you do your research first, understand the risks and partner with people who are seasoned and experienced. This will help mitigate the risk and uncertainty. If you have the means, the price is right, the deal appears to be solid, and you feel you are ready for the challenge, commercial real estate profits can be a serious motivation.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.
