We believe that the commercial real estate market is set for a near-full recovery in 2013 and 2014, though we would urge investors to be a little cautious for now. Nonetheless, for those looking to get their foot in the door of commercial real estate, there are certain types that are more profitable than others. Below, we look at the top 3 investments in our opinion which are, in no particular order, multi-family, retail, and office buildings/complexes.
These are properties such as duplexes, apartments, condos and any other form of real estate designed to be lived in by more than a single family. While multi-family is technically a form of residential real estate, it is often labeled as commercial by real estate agents. This form of real estate is a great investment, because banks are more likely to lend you money for this kind of property, they are relatively easy to find, and they can generate huge profits.
As you will have several tenants at any one time, the level of risk is much lower. Even if one tenant moves out, you have many more paying residents and this cash will cover your overhead and other expenses. At this moment in time, most investors are still concentrating on single-family properties, so multi-family real estate is not difficult to find. You will be able to hire a property management company to look after your affairs, so you get all the profit and none of the stress.
This commercial real estate category includes buildings used to sell products to the public, which could include clothing outlets, electronics stores, and grocers. You could also include restaurants as a specialty subset. Investors like retail space because they are leased out on a long-term triple net lease, which means your rate of return will not go down as your expenses and tax obligations rise. Your returns will continue to rise during the lease as in most cases; built-in rent increases are included in the contract. As the economy improves over the next few years, investors with retail space should have little difficulty finding tenants.
This is a building designed for company offices and is one of the fastest growing forms of real estate in the country. All you need to do is look at the success of The Woodlands to see just how good an investment an office building can be. Global corporations are looking to set up in The Woodlands, the city of Houston, and all over the great state of Texas. Once again, offices have a triple net lease, which means the tenants pay you rent, insurance, real estate taxes, and repair costs. Office building leases tend to be long in duration, so expect your tenants to stay for 10 years or more in many cases.
The truth is, if you invest wisely in commercial real estate, there are no ‘bad’ choices, because making a profit is very plausible. This is especially the case now that the market is showing signs of improvement. We’ve had our dreaded recession so now is the time for the commercial property market to bounce back in style.
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