5 Tips for Commercial Real Estate Investing

Historically, real estate investments – both commercial and residential - have provided one of the best investment opportunities for building wealth. According to Allied Market Research, the global real estate investment market was valued at $11444.7 billion in 2021 and is projected to reach $30575.5 billion by 2031.

What is Commercial Real Estate Investing?

Whereas residential real estate includes properties where individuals live, commercial real estate involves properties where individuals, businesses, or corporations do business.

There are basically five types of commercial real estate:

• Office – The most common type of commercial real estate, office buildings can range from a single office to a skyscraper with hundreds of offices.
• Retail – Retail properties can include stores, banks, restaurants, etc., ranging from a small structure to an entire strip mall.
• Industrial – Industrial properties include warehouses and manufacturing facilities.
• Multi-family – Although people live in multi-family properties, large apartment complexes are considered commercial properties.
• Special purpose – Special purpose commercial real estate includes schools, student housing, hospitality, sports stadiums, government, self-storage facilities, and religious properties.

Mixed-use properties include both commercial and residential. For example, a building with a restaurant on the first floor and one or more apartments on the second floor is considered a mixed-use property.

Pros and Cons of Commercial Real Estate Investing

Investing in any real estate offers both pros and cons. On the plus side, real estate investments – both commercial and residential - can provide a steady cash flow, tax benefits, and a hedge against inflation. On the minus side, real estate investments are long-term, non-liquid investments that require ongoing management.

Whether you are new to real estate investing and trying to decide whether to invest in commercial or residential or have been investing in residential real estate and are thinking about jumping into commercial real estate investing, it’s essential to understand the different legal, financial, and practical characteristics of each.

For example, commercial real estate typically requires more money upfront and has fewer financing options than residential real estate. On the other hand, commercial real estate often attracts more reliable tenants and provides a higher cash flow and return on investment.

5 Helpful Tips for Commercial Real Estate Investing

1. Understand what you are getting into.
   Do your research. Understand the difference between commercial and residential – both the pros and cons.
   
   
2. Recognize different types of commercial real estate loans.
   As we mentioned earlier, commercial real estate tends to require more money upfront and has fewer financing options than residential real estate. Therefore, understanding the types of commercial real estate loans available – conventional, Small Business Administration, Certified Development Company, etc.- is key to purchasing your commercial investment.
   
   
3. Consider real estate success metrics.
   Renting out a property is a business, and you need to consider how you will measure success. Some real estate metrics include net operating income (how much you’ll make from an investment after operating costs), cap rate (estimate of future profits), and Cash on Cash (the return on out-of-pocket money invested relative to the amount financed).
   
   
4. Ensure you have a cash reserve.
   Things happen - the building needs a new roof, a tenant doesn’t pay, etc. Setting aside a reserve of money to help cover these unexpected expenses can mean the difference between success and failure.
   
   
5. Work with an experienced realtor.
   A professional agent will provide superior negotiation skills and local real estate market expertise. Plus, they have access to all commercial listings, assist with the real estate buying process, and more, which can save you time and money and help you avoid making costly mistakes.

Ready to Invest in Commercial Real Estate?

Go with the best; go with Pete Heim, who is consistently ranked among the best real estate agents in Berks County. Contact him today at 610-745-3378 or 610-898-1441 or connect with him online.