Are you thinking of taking a deep dive into investing in commercial real estate? Great! It’s an exciting venture that can have an extraordinary ROI and open many new opportunities for greater success. But, it’s quite different from investing in the stock market, despite having similar investment risks and strategies.
As one of the top commercial real estate development, leasing, and management companies in Phoenix, Plaza Companies partners with organizations in healthcare, retail, hospitality, industrial and more to ensure they invest in extraordinary properties. Read our article below to learn the basics of investing in commercial real estate properties.
Where Do You Get Started in Investing Into Commercial Real Estate?
Before you invest in real estate, you need to ask yourself a plethora of questions. According to U.S. News, the most prominent being you need to decide whether you prefer to invest with a crowdfunding approach or invest in a single property.
Investors who choose to crowdfund with a group of others should look at the track record of the firm they’re investing with. Recognize their rights and obligations concerning whether to withdraw or not withdraw their funds from the investment during the period of time.
If you’re investing in a single commercial property, you should identify unique characteristics that improve or detract from the attractiveness of the property or trends in the area that could be problematic.
Identify What Type of Commercial Real Estate You Want to Invest in
You might not know this, but commercial real estate is a general term used for several different types of properties. These spaces are typically categorized into five main areas:
- Office space
- Multifamily
- Retail
- Industrial
- Medical
Commercial real estate can be purchased by a business to be owner-occupied or as an investment for cash flow. Similar to residential real estate, this type of real estate provides passive income to the owner from leasing spaces to tenants.
Understand Your Market Area and Identify Supply and Demand
Another important thing you need to consider is that every market is different. When you invest in commercial real estate, you are investing in a specific geographic area with its own supply and demand. Certain property types may be doing well overall, but you may find that certain areas are oversaturated with those kinds of properties.
However, this can be avoided by conducting thorough market research on prospective areas. If you identify a property type that is undersupplied in a specific market, you can get a study to outline the future growth and likelihood of success in that sector. Organizations such as Deloitte, CBRE, and Mordor Intelligence are great resources for this.
Have a Contingency Plan and Capital Reserve Fund
Just like with any investment, there is always a level of risk and uncertainty. Regardless of how much time you spent on research and preparation for this investment, there will always be unknown factors that can impact your overall ROI. One way to counteract this uncertainty is to account for cost contingencies.
Cost contingencies are additional funds you set aside as a part of your initial acquisition costs to help with unexpected expenses that arise as you lease
-up, raise rents, change management, renovate, rezone, or build. They can help cover your debt service until the property is stabilized. They’re especially helpful if there will be a negative cash flow while you work to improve the property’s overall performance.
Partner with a Commercial Real Estate Agency
Not sure where to even start? Do you lack the time to adequately search and research markets and property types? No problem! Many commercial real estate agencies are experienced in taking the load off your back and finding the right properties for your goals.
Plaza Companies are Experienced Commercial Real Estate Professionals
Whether you’re looking to expand your real estate portfolio or find the perfect spot for your business, Plaza Companies is the go-to choice for commercial real estate services. Our expertise includes everything from property management and development to brokerage services, and we’re proud to be one of the best in the Valley. Contact us today and one of our representatives will be in touch with you as soon as possible.