According to Statista, the total value of all CRE transactions in the United States was around $400 billion in 2019 and approximately $280 billion in 2020. This is obviously a vital business with a significant source of economic activity and employment.
Real estate investors are aware that the commercial real estate industry is quite lucrative and capable of providing an excellent ROI. However, for investor newbies looking to expand their portfolio, it can be beneficial to seek the advice from experienced investors.
That is why we are here to help, for anyone starting out or searching for methods to diversify their portfolio, keep reading for some insightful tips and advice.
Invest in REITs
REITs usually pay higher dividends than regular stocks. Due to its unique tax structure, REITs can earn larger returns. These trusts possess real estate assets that generate income.
Many REITs are also listed on secondary markets and provide investors substantial liquidity. These securities invest in a non-public portfolio of commercial real estate properties.
REITs can provide diversification advantages due to their tendency to follow the real estate cycle, which normally lasts at least a decade, while bond- and stock-market cycles typically stay only 5.75 years.
Real estate investment trusts are a viable hedge against increasing inflation rates. For instance, REITs with commercial interests are able to adjust rents in step with inflation.
SecondRE’s marketplace enables your investors to buy and sell fractions of cash-generating residential and commercial real estate properties, at an agreed price, and with your blessing as a sponsor. Sign up today to meet new investors.
Start with Fractional Ownership
Fractional ownership allows people to invest in real estate without bearing the financial burden.
Sharing property ownership eliminates the need for a large sum of cash or costly debts.
All investors are deemed equitable title owners and partake in both the facilities’ benefits and maintenance costs. This makes it an inexpensive option for otherwise unattainable commercial buildings.
Fractional owners can also participate in the profits and losses associated with ownership. If the building’s worth increases over a period of five years, so does everyone’s ownership percentage. If the property generates money for the co-owners, they receive their proportionate part. Each co-owner is also liable for their proportional amount of the property taxes, which may increase as the property’s value rises.
Discover the benefits of fractional commercial real estate ownership with SecondRE. With our investment platform, investors can fractionalize their investment in office buildings, retail centers, warehouses, and more – without the hassle and expense of traditional ownership.
By fractionalizing their investments, they can spread their risk across a portfolio of properties and reap the rewards of commercial real estate ownership without being tied to a single property. And because SecondRE is a digital platform, they can track their investment performance and stay up to date on market trends anywhere in the world.
SecondRE’s marketplace enables investors to buy and sell fractions of cash-generating residential and commercial real estate properties, at an agreed price, and with the blessing as a sponsor. Signup today to meet new investors.
Have a Reserve Account
Commercial real estate investors establish a replacement reserve account. This account is used to replace necessary property management components as they get worn or broken. A new roof is an example of something requiring replacement.
This account is not used daily. For example, a tenant contacting the building management about a blocked sink would not be an expense that the replacement reserve account would cover.
The amount put aside for a replacement reserve depends on several variables. The building’s age plays a role; the older they are, the more renovations they need.
Related: Commercial Real Estate Holding Period Explained
Know the Market
Whether someone is developing or investing in a mall, hotel, apartment complex, or hospital, they will need to know whether their money is going to provide an adequate ROI. They must not only comprehend the present status of the real estate market, but also the background of the economy as a whole.
In the retail industry, for instance, a thorough awareness of the present market might be the difference between a thriving property filled with paying tenants and an empty mall of shuttered stores that invite vagrants and criminals.
It is also essential to learn the legislation, so consult with a commercial real estate attorney who is familiar with the local laws and regulations. Imagine purchasing a four-story low-rise office building with the intention of adding three more stories, only to discover that the maximum number of floors permitted in that location is five.
Perform Proper Due Diligence
As with any real estate acquisition, investors must ensure that the business property is a wise investment when they acquire it. Due diligence encompasses three primary components: physical examination, financial analysis, and legal research.
Physical Examination
Examine the property for any visible signs of damage. Make sure to hire someone who really knows what they’re doing when checking out these buildings. During this phase, investors should determine which renovations, repairs, and upgrades must be completed. Use these results to decide whether the building is worth the investment, considering all restoration and maintenance expenditures.
Financial Review
During this phase of the due diligence process, investors should employ a real estate accountant with expertise in CRE investing. This expert can examine the property’s historical returns, the potential for future profit, and the tax advantages of ownership. Ensure that the property will be an asset and not a burden.
Legal Inquiries
A real estate attorney or respected title business should undertake legal investigations. During this procedure, a representative will verify the accuracy of the title. In addition, the agent will confirm that there are no legal claims against the property and that no particular use restrictions might influence the sale.
SecondRE’s marketplace enables your investors to buy and sell fractions of cash-generating residential and commercial real estate properties, at an agreed price, and with your blessing as a sponsor. Signup today to meet new investors.
Understand the Liabilities and Risks
When it comes to commercial real estate investing, it’s crucial to understand what may go wrong and have a backup plan (or exit strategy) in place.
Understanding the risk tolerance will aid investors in formulating a comprehensive commercial real estate investment strategy. They will have a more realistic image of their risk-adjusted returns and be able to make smarter choices, as opposed to having an exaggerated view of their earnings.
For instance, if an investor acquired an old hotel in the mountains with the goal of transforming it into a resort casino, what would occur if fifty percent of the rooms remain unsold during the inaugural season? What if in the 10 miles distant, another developer makes the same move? The investor may need to lower their ambitions if they cannot afford to incur significant losses. Perhaps it would be best to acquire a 10-room hotel, renovate it and the pool, and then proceed.
Successful commercial real estate investors recognize that business failure and setbacks are inevitable and are prepared to cope.
Related: Commercial Real Estate Loan to Value Ratio
Plan for Cycles in the Market
Investors who can identify the four stages of the real estate cycle have the greatest profit potential. The following describes the phases:
Recovery
During this period, prices are low but may fall further. Even though it may be an excellent time to purchase, vacancy rates are greater during this era, resulting in lower rental revenue.
Expansion
This is often the period during which savvy investors earn the greatest profit. The fence-sitters will not leap, leaving the market wide open for bargain hunters.
Hyper Supply
Undecided consumers ultimately decide to purchase. They do not want to be left out. Intelligent investors are beginning to raise capital.
Recession
This occurs when supply exceeds demand and prices fall. The smart money got sold, and many fence-sitters suffered losses. The vacancy rate is unusually high owing to an abundance of available commercial buildings.
Related: Learn the Basics of Cap Rates
Where to Get Top Advices from Experienced Investors?
As anyone can see, there are many things to consider regarding commercial real estate investing. Our goal is to educate by providing these top tips and advice.
We have various properties and opportunities for investors at all levels of experience. From buying and selling fractional real estate to providing liquidity to attract new investors, we got everybody covered. Sign up today to check out all our real estate investment opportunities to help diversify the portfolio and reap an excellent ROI.
