Commercial Real Estate – What Asset Types Are Best To Invest In?
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What asset type are you?
When you get started investing in commercial properties, it can be overwhelming to consider all the types of properties out there. If you’ve only thought about investing in single family homes or apartment buildings in the past, you are just scratching the surface of the vast array of investment properties available for your consideration.
A brief review of the following list of commercial property types can be dizzying. Where to start?
Types of Commercial Properties
Emily Cressy Real Estate Investor and Coach
- Apartment Buildings
- Mini-Storage/Self-Storage
- Senior Housing
- Raw Land
- Entitled Land, Ready-To-Build
- Office Buildings
- Mobile Home Parks
- Campgrounds/RV Parks
- Car Washes
- Ground Leases (With a business on the land owning the building it occupies – a common model for fast food franchises)
- Hotels
- Golf Courses
- Entertainment Centers (mini golf, go carts, arcades, batting cages, etc)
- Retail Centers
- Strip Malls
- Shopping Malls
- Outlet Malls
As with most things, it’s best to start by looking at your OBJECTIVES and your AREAS OF EXPERTISE before picking a property type to work on. Just like it’s never wise to follow a hot stock tip, I wouldn’t jump in to a new area of commercial real estate investing without having some expertise on my team, even if I had reason to believe I was onto a hot opportunity.
Look at your Investment Objectives
Different types of real estate investments have different demands and different rewards.
Rewards of investing in real estate:
- Cashflow
- Tax Write-Offs
- Appreciation
- Pride of Ownership
- Activity/Hobby – something to keep your brain busy
- Place For Your Business/Place to Live
There are also these potential costs or trade-offs involved in owning commercial property:
- Legal exposure/liability
- Time to manage the property or the property manager
- Money needed for negative cashflow or capital events
- Risk of loss from fire, flood, etc.
- Risk of depreciation
- Worry/hassle factor
- Conflict in the family/amongst heirs
Real estate can be a great investment, or it can be horrible. A lot of that depends on whether you’re prepared to capitalize on the opportunities that are most relevant to you and you are prepared to deal with the costs, risks and possible consequences of your investment.
One good way to mitigate the risks of owning commercial real estate is to get MORE KNOWLEDGE. If you are putting together a commercial property investment, surround yourself with people who are familiar with the property type, the dynamics of the local marketplace, and the management issues that will be involved.
Some property types, say a 30-year lease to a national chain, are relatively low-risk, no-effort type deals. These are what’s known as “turn key” investments or “coupon clippers” because they’re easy to just sit back, relax and own. Once you’ve built up the cash to buy one of these properties, you can confidently own it and cash the check. My broker used to say buying this type of property was a lot like buying a bond.
Other types of commercial real estate property are really more like businesses than investments, RV parks and campgrounds, mini-storage, and hotels, for example can be highly profitable (and usually sell with great cap rates) but will take a lot of your time, or a full-time staff, to operate properly.
If you’re planning to get into commercial real estate, but aren’t sure where to get started, please contact us for a complimentary evaluation of your position. We’d be happy to connect you with the resources most appropriate for your current goals and expertise.
News regarding commercial real estate asset types in the blog-o-sphere:
Investing Symposium Alternative Investing» Articles on Investing … – Even with all of this said, investing in something like commercial real estate where you can get your mind and your hands around an actual asset, looks pretty good compared to the alternatives like equity based hedge funds. …
Rethinking Stocks: Put Land in a Real-Estate IRA for Retirement – Other types of income are free of it, including dividends, interest, royalties, annuities, most real-estate rents and gains from sales other than trade-or-business property. The real-estate IRA can also be used to originate mortgage …
Commercial real estate – the next shoe to drop – “Most commercial mortgages that were written over the last 10 years for most product types, except apartments, were done by conduits, and they were done by asset-backed finance securitizations, CDOs, etc. The overwhelming number of …
Watch List (Dec. 7-13): Hotels Experiencing Rapid Weakening … – The Watch List is a powerful one-two-combination of both top-down macro analysis and bottom up micro real estate news, as well as valuable leads about companies expanding and contracting and property and loan investment opportunities. …
Worst Unemployment Rate Since 1974 is Not Creating High Returns … – I remain very focused on unemployment as it is the single most important economic metric affecting the fundamentals of our real estate market. The U.S. lost 533000 jobs in November, the largest one month drop since 1974. …