Tag Archives: CRE investors

How to Invest in Commercial Real Estate

Posted on by

Commercial real estate investments are among the investments with a high ROI. People who invest in commercial real estate have financial and psychological rewards as many of them see their investments as a fulfillment of their dreams. 

Commercial real estate includes all properties constructed or used for business purposes. The properties may be owner-occupied, meaning the owners operate their businesses on the properties. Some owners opt to lease the property to tenants to run their businesses on the property. 

These properties range in size, from small neighborhood stores to city skylines. They include all the income-producing properties and those with the potential to generate income.

However, deciding to invest in commercial real estate comes with its fair share of challenges, especially for beginners. In this guide, we will take through how to invest in commercial real estate. Let us begin by discussing the types of real estate investments you could consider.

Types of Commercial Real Estate Investments

Multifamily

This investment is popular with investors transitioning from residential real estate investments. They range in size from small properties with two tenants to those with hundreds of units. They include:

  • Garden Apartments

These are usually a collection of apartments spread out within one property and sharing amenities and a yard. They are common in suburbs, with about three to four-story walk-ups housing about 50-200 units.

  • Mid-Rise Apartments

These have about 4-11 stories with 30-200 units. You are likely to find them closer to the urban centers and may have elevators and garage parking.

  • High-Rise Apartments

These investments are common around the Central Business District of large towns and market centers. They offer amenities such as garage parking and elevators and may house hundreds of units.

  • Senior/Assisted Living Properties

These are the properties built to provide housing for the aging and senior citizens. They offer more support to tenants than other multifamily properties. Tenants are likely to get in-house or on-call medical care, meal service, and housekeeping.

Office

Offices may be among the most capital-intensive commercial real estate investments, but they also have one of the highest ROIs. They include:

  • Central Business District (CBD)

You are likely to find them housing the largest organizations such as banks, supermarkets, and telecommunication companies. Most organizations prefer them due to their convenience in location. Clients can find and walk to them easily. They vary from mid to high-rise apartments with controlled parking and building naming rights.

  • Commercially Zoned Homes

These are usually stand-alone properties. They are popular with law firms, medical practitioners, and accounting firms. Commercially zoned homes allow them to escape from the frequent interruptions associated with apartment-like office spaces. 

  • Medical Offices

These are among the most stable and valuable office spaces designed to meet the needs of the medical field. The properties require special amenities like wider elevators, more plumbing, and standby generators. The leases are usually longer, taking between 7-10 years. They vary in size, housing any medical-related business. These range from a local dentist, optician, to a large hospital and surgery center. 

  • Suburban Offices

Suburban offices are usually mid-rise buildings scattered on a shared property with common amenities. They are not amenity-heavy. Some may offer serviced parking.

Industrial

An industrial warehouse with a large overhang awning over the door at sunset.
Commercial real estate includes all properties constructed or used for business purposes.
  • Warehouses

These are the largest industrial properties. They may house regional distributors. When designing them, you have to make room for trucks that require space for entering and exiting these properties.

  • Manufacturing 

Manufacturing zones are usually isolated. They use heavy, noisy machinery, chemicals, and are heavy on power consumption. You have to customize them to fit the needs of the tenants. They also have long leases that may run for 7-15 years.

  • Showroom

Some showrooms double up as distribution centers for manufacturers. They require more visibility and should therefore be located in visible spaces with high human traffic.

  • Storage Spaces

Some tenants may require temperature-controlled storage spaces. Business owners use them to store merchandise for a short time as they look for space to set up shop. They are also popular with families that use them to keep their mementos. The storage units could be indoors or outdoors, depending on the nature of materials the tenants want to keep there. 

Retail

Retail properties vary from neighborhood shopping centers that house several retail shops to pharmacies and restaurants that may occupy stand-alone properties. Regional malls and power centers also fall under this category.

Hospitality

Hospitality properties include full-service, limited service, budget, and extended stay hotels. Some, like VRBO and Airbnb, offer short-term rentals.

Now that you know the options from which you can choose when you invest in commercial real estate, let us explore the steps you need to take to undertake your investment.

Steps to Take in Order to Invest in Commercial Real Estate

Study the Industry

You will rely on professionals to guide you in most of your investments. However, you should also be knowledgeable in the commercial real estate industry. Take time to search the internet and talk to professionals in commercial real estate investment. Learn as much as you can so that you can think and act like an insider when you begin your investment.

Some commercial real estate terminologies that will guide you include Net Operating Income (NOI). This refers to the balance left when you deduct expenses from your gross income on a commercial property. Understand the cap rate of the property you intend to invest in. This is the net present value and future cash flow of income-producing properties.

Develop Your Investment Plan

Your plan will be guided by the amount of money you are willing to invest. Assess your financial strength and find out how much loan you can qualify for if that is the source of your funds.  

At this stage, determine if you are investing individually or collaborating with other people. 

This is also a perfect time to decide if you want to purchase a ready property or construct from the ground. 

Your plan should also include the professionals you will be working with, which will depend on the kind of property you want to invest in. 

Decide Which Kind of Commercial Real Estate Investment You Want to Make

This is where you decide the type of investment you want, the size, and the location. At this stage, you also determine if you will make a one-off investment or spread it within a period, especially if you decide to construct from the ground.

Carry Out Neighborhood “Farming“

Neighborhood farming entails visiting the neighborhood to determine the market value of similar properties in the area. In this visit, you may identify the commercial property you want to invest in and negotiate a deal. Ensure you do due diligence on the property to ensure you are getting a clean deal.

Be open-minded when searching for a property. Use the internet and classified ads to help you find properties on sale. Or, hire bird dogs to identify valuable commercial properties for you.

Hire an Agent

Whether you hire professionals like Speed Commercial Real Estate when searching for a property or after you have identified it, ensure you are in charge of the purchasing or construction process. Do some background checks on the agent to know the type of clients they have dealt with before. Also, find out how long they have been in operation and the kind of deals they have handled. 

When interviewing the agent, be open about what you want when you invest in commercial real estate. Meet with a number of them and eliminate them to remain with the one who will be the best fit. Asking around also helps in identifying the commercial real estate investment agents.

Working with an agent may help you identify the right property faster. It’s perfect for those who want their buying process to remain confidential and private. An agent may negotiate a better deal for you, especially if you are new in the commercial real estate investment game.

Understand the Underlying Risks of Choosing to Invest in Commercial Real Estate

Your risk profile will determine the best strategy to use so that you can avert losses. However, you must know that every investment in commercial real estate comes with risks.

Remain Focused

You are likely to get advice from different players. You will also learn about the latest trends, and all these may confuse you if you are not focused on your plan. 

Additionally, you may consider making some adjustments if they add value to your investment. However, do not leave too much room for that. Discuss any adjustments with the professionals with whom you are working.

Avoid Making Emotional Decisions

Commercial real estate investment is a rational decision. Avoid letting your emotions interfere with the process. If you are not sure about something along the way, take time to think through it and discuss it with other stakeholders.

Invest in Commercial Real Estate with Excellent Support

Are you looking for a reliable and affordable commercial real estate agent? Get in touch with Speed Commercial Real Estate for CRE investment opportunities. 

At Speed Commercial Real Estate, we have firsthand knowledge of the level of care our clients need when they invest in commercial real estate. We work closely with several associates and advisers to give you the best commercial real estate investment advice.  With our experience, we guarantee you the best services and guidance to ensure your commercial real estate investment is a success. 

The Current State of the Commercial Real Estate Market: Everything CRE Investors Need To Know

Posted on by

We can all agree on one thing: 2020 was a wild year by any standards. 

The global pandemic brought the world order to its knees, and the US economy suffered its biggest recession since the Great Depression in 1929. Some would even say that without psychic powers, it would have been impossible to predict the events that unfolded in the past 12 months.

Yet, the commercial real estate market stood its ground. 

Who could’ve guessed that a killer pandemic, record unemployment rates, and statewide lockdowns would pave the way for a housing boom in mid-March 2021? And with over 37 million Americans fully vaccinated so far, there’s finally light at the end of the tunnel.

As a CRE investor, we know you’re asking: “Was my previous investment a mistake?” “Is now a good time to put my hard-earned money in real estate?” These are all valid questions, and we’ll try to answer them all below. 

This article will take a closer look at the current 2021 CRE market and how you can capitalize on it to drive ROI.

Numbers Don’t Lie

  • A total of 5.64 million homes were sold in 2020, up 5.6% in 2019 and the most since 1929. (Pr Newswire)
  • The typical US home was worth $266,104 in December 2020, up by $20 587 (or 8.4%) from a year ago. (Zillow)
  • Sales rose 22.2% over 12 months leading up to December 2020. (National Association of Realtors)

If anything, these statistics show that the CRE market is very much enjoying a purple patch. There’s a good reason for CRE investors to remain optimistic as the 2021 investment year continues to takes shape. 

Will Real Estate Prices Continue Rising?

Yes. Many experts predict another strong housing market in 2021, with home prices set to rise by a whopping 5.7%. 

Expect increased housing demand from three sets of people:

  • Existing homeowners who need more space to accommodate parents working from home
  • Buyers who delayed purchasing new homes because of the uncertainty brought about by COVID-19
  • The urban population who continue to choose to rent over homeownership

As prices keep hiking month-after-month, it goes to show the sheer resilience of the US housing market. 

Despite highly controversial elections, lingering economic uncertainty, and the aggravated spread of COVID-19, buyers are rushing to secure the few houses listed for sale. This, of course, is good news for a savvy CRE investor like you.

Is Now a Good Time to Invest in Real Estate?

In case you didn’t know, we’re right in the middle of a sellers’ market. This is essentially a market offering more demand than supply and where inventory is low. So, this means buyers will have no option but to accept high-priced homes as there aren’t many houses to choose from.

This sort of market often leads to multiple buyers bidding on a single home. So, that’s great for sellers, but not necessarily buyers since they’ll need to dig deeper into their pockets to get what they want.

Back to our question, “Is it a good time to invest in a sellers’ market?” Going by Realtor.com predictions, it will not be a buyers’ market anytime soon. But that doesn’t necessarily mean you cannot buy. It does, however, mean looking for that “juicy” deal won’t be a walk in the park. It’ll take more time and effort than ever before.

One thing to remember is that real estate varies from city to city, state to state, and even county to county. So, take your time to weigh up your options before pulling the trigger. Below are hacks you can use to thrive in the ongoing sellers-friendly market:

Don’t be tied down by boundaries

To find the best investment deals, you might need to get out of your comfort zone and explore markets outside your locality. 

While Mississippi is ideally a sellers’ market, that doesn’t mean every city shows the same numbers. Now is the time to be bold and chart new markets that might prove profitable down the road. If, for instance, you ply your trade in Saltillo, you can try your luck in Jackson (where the Zillo Home Value Index is actually $52,434 and the highest in the entire state).

With that in mind, investing in new markets means that you’ll need to be extra-vigilant in researching projected rental income and local competition to ensure viability and longevity.

Dive deeper into the numbers

Savvy CRE investors know it all comes down to the hard figures. In the current investment climate, where margins are super tight, ROI is extremely vital. 

Thoroughly assess the average home prices in your locality, current rental market conditions, and job growth potential. Once you’ve got all these figured out, enter into a deal, knowing what margins you need to meet to hit your ROI ceiling. 

Preparedness is the name of the game.

It’s common knowledge that in the real estate realm, hard numbers almost always trump emotions. In the existing CRE climate, you have to react swiftly. Else, you’ll be left chasing shadows and counting losses. 

Know your budget and do your research, so when an investment presents itself, you’re ready to pounce. Even the slightest hesitation could see you losing out on highly-profitable deals. 

Now is not the time for unrealistic offers and low-ball tactics. Make sensible offers that fit within your ROI and budget requirements. If the deal is sedentary or if the figures don’t add up, be quick to move on. Better opportunities await.

Seek out the help of real estate professionals

Even for long-serving CRE investors, navigating the waters of the ongoing sellers’ market can be tricky. And at a time when the market is experiencing cut-throat competition, it can be all the more daunting to remain profitable.

With deals flying off the market quicker than ever, you need a competitive advantage. What better way to get the upper hand than with a real estate expert? Enlist the assistance of an experienced commercial real estate professional to help you locate, negotiate, and close any deal on your radar!

Where Should You Focus? CRE Sectors to Keep an Eye on Right Now

Sharp-witted investors like you are constantly looking to reassess the sectors in which they channel their money.

After all, if grass is greener in a different sector, wouldn’t you want to know?

So far this year, we’ve already seen some positive shift towards three sectors in particular. These include:

Retail

Subsections of retail are performing pretty well, not just in Jackson but in the larger Mississippi area. 

Neighborhood retail continues to stand strong, despite the advent of online shopping and prolonged shutdowns. This is because it provides the day-to-day conveniences of nearby residents.

While it’s true that neighborhood retail properties will continue to experience a drop in prices in the coming months, you can use this drop to your advantage by strategizing on one key thing: how safe it is. 

Given that most retail centers were shut down at the height of the pandemic, you can expect that potential tenants today will look for neighborhood retail areas that are large enough to provide social distancing markers, physical barriers, HVAC systems, outdoor spaces, and air filtration. 

If your neighborhood retail can provide such, rest assured that your investment will return in the next year or so.

Class B & Class C Office Space

While Class A office space tries to pick itself up from the repercussions of COVID 19, Class B and Class C are performing extremely well.

Micro-office units and coworking space (although controversial) continue to grow in popularity as more and more entrepreneurs launch online businesses and seek a physical location where they can work without distraction.

Modern office interior with daylight and city view. 3D Rendering

For starters, you can purchase a Class C office space and spruce it up, transforming it into a Class B office space. By updating its aesthetics and providing better management and security, the value of your space can instantly soar.

Again, office space continues to be an important show of status, pandemic or not. We as the Mississippi society simply don’t take businesses without physical locations as seriously as those that do. That might change in the long run, but for now, it remains an undisputed fact.

Industrial Property

Let’s face it, someone has got to fulfill all of the logistics, warehousing, and distribution for all the online shopping going on at the moment. Industrial real estate continues to fill that void superbly well.

Now more than ever, customers are craving same-day and next-day shipping. This means online retailers have no option but to rent warehouses or distribution centers within close proximity to their customers. They also need to have more stock on-hand, which potentially increases their renting needs.

This presents you with the perfect investment opportunity.

An important thing to remember with industrial real estate investing is that you should never put your eggs in one basket. 

Buying or leasing industrial property means that you’ll have your hands full with plenty of different options, so use this to your advantage. 

Final Thoughts

As CRE investors, sellers, and buyers continue to wade the murky waters of a pandemic-ridden world, one thing is clear—we’re right in the middle of a sellers’ market, where inventory remains low, and demand is at an all-time high. Only those CRE investors who are bold, proactive, and meticulous enough in their ventures will succeed in the current conditions.

Here at Speed Commercial Real Estate, we would like to encourage you to take advantage of eager contractors and cheap commercial property prices to take the next leap in your CRE journey. If you’d like to learn more about Mississippi’s commercial real estate opportunities, feel free to contact us today!