If you’ve been researching different types of real estate investments, you likely already know that commercial real estate tends to yield larger returns in less time than single-family residential real estate. Whether you’re interested in investing in multi-unit residences, medical real estate, or retail real estate, you should know a few things before you commit.
Today’s Hottest Location Could Be Tomorrow’s Dud
We’ve all seen it happen. A new development goes in, and suddenly all of the most popular retailers and other businesses flock to open locations in it or near it. That’s great for a year or two, but then another new development begins just a few miles away. Suddenly, consumers are all intrigued by the latest shopping and dining area, and businesses in the first development start closing their doors. Before you know it, that area is completely unpopular and its investors find themselves looking for the fastest way to sell.
How can you avoid falling into this kind of trap? Look for areas that have catalysts for sustainable growth. Look for new schools, parks, rec centers, and shopping districts with longer leases on their units. All of these signs are indicators that an area will continue to be a good location for years to come, and that it’ll bring you good cash flow for as long as you choose to own a property (or equity in a property) there.
Beware – Properties Don’t Always Sell Quickly
Likewise, it’s a good idea to keep in mind that real estate is an illiquid asset. If you need liquidity in your portfolio, you should ensure that you have it with other investments (like stocks, bonds, precious metals, etc.) before you invest in real estate. If you think that you’ll need access to your investment capital quickly within the next few months or years, commercial real estate may not be the right investment for you at this time.
Cash Flow Is Not Guaranteed
You may be thinking, “But what about cash flow from the property’s rental fees?” If you have tenants who pay their rent on time every month, then you will have consistent, regular cash flow from your rental property or properties. If your property remains vacant for any length of time, however, you will need the liquid funds to pay the mortgage, property taxes, and any other fees or fines associated with it.
For most investors, this is worth the risk, as purchasing a good property in the right location will almost guarantee that you’ll have tenants willing to sign long-term leases. However, you do need to be aware that there may be some expenses associated with the property that you’ll need to take care of before you acquire tenants or between tenants when you have turnover.
Never Underestimate the Value of Good Accountants and Attorneys
Next, you may be tempted to try to do your own accounting, and you may not think that you need an attorney to be a real estate investor. However, these experts can save you a lot of money and legal trouble in the long run. Never underestimate their worth.
Turnkey Properties Are Great Investments
Finally, don’t turn your nose up at the slight premiums you see on turnkey investment properties. These properties are ready to rent as soon as you buy them, and many of them come with paying tenants from the beginning, as well as property management. When you consider the convenience and the lowered risk level of this kind of property, the slight premium on its initial market price becomes negligible.
Keep these tips in mind as you start to explore the world of commercial real estate investing.