Commercial real estate (CRE) continues to grow in popularity as an investment thanks to consistent returns, growth potential, and passive income. But, as with any other type of investment, it’s important to know all the details of what you might invest in–because, while CRE can potentially be a lucrative investment, not all commercial investments are the same.
Do you need an MBA to invest in CRE? Of course not. However, you should know what you’re walking into, and learning when, what, and how to invest in commercial real estate is the key to success. At the same time, knowing what to avoid and which risks not to take are just as important. Let’s go through some of the CRE basics.
Two key market components to dive into when exploring commercial real estate are market cycles and supply and demand. Perhaps the most elementary principle of business is supply and demand, and it’s important to understand that each geographic area has its own supply and demand, because every market is different. A certain type of property may be popular in your area–so, is it wise to invest in that property type? That’s where market research comes in. What seems like an excellent investment on the surface may ultimately reveal the potential for market saturation upon further research. Knowing this before you invest can save you from making a huge mistake. Conversely, knowing which properties are undersupplied can lead to a rather intelligent investment; this can be done through feasibility studies that forecast potential success.
Additionally, market cycles are essential to know. CRE is directly influenced by a nation’s unemployment rate, GDP, and economic health, so do your research to avoid buying and selling at the wrong times.
Though there are only five CRE sectors–industrial, retail, office, special purpose, and multi-family–many more are probably deserving of their own sector, including hotel, land, medical, and self-storage, just to name a few. To invest in CRE, it is imperative to understand each property type, because they’re all going to vary by profitability and supply and demand. For example, in 2020 we saw retail and office properties decline significantly before making a recovery in Q3 2020, a trend which has continued into 2021.”Knowing the traits and trends of each type of CRE property will help you decide which makes the best investment at that particular time.
It may seem obvious, but it can’t be overstated–it is critical that you thoroughly research your options, especially when you think you’re ready to invest. Never rush into a deal without reviewing all documents, tax returns, profit/loss statements, financials, etc. You should also consider doing your own property inspections and surveys to ensure you’re not walking into a bad deal.
CRE can be a great investment if you follow the advice above and understand the basic principles of investing. With the proper research, you can make an educated investment in CRE and reap the rewards. Of course, there is no guarantee any investment will be a successful one…but knowing your markets and thoroughly exploring your opportunities will go a long way toward making a smart CRE investment.
If you’re looking for Texas commercial real estate for sale or lease, Preston Bend is your go-to source. As longtime experts in the Dallas-Fort Worth commercial real estate sector, we look forward to providing you with expertise and superior service, whether you are buying a property, signing a lease, or seeking a property management solution. Call Preston Bend today at 972-486-9922 in Plano or 903-200-9933 in Sherman.