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How to Get Started in Commercial Real Estate: THe Basics to Investing

Looking to get started in commercial real estate investing?

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This blog is here to provide you with the basics you need to make an informed decision. From understanding why investing in commercial real estate is a great idea, to learning about the different types of commercial real estate investment opportunities, this blog will help you get started in the market. With predictions for 2022 that show a continued growth in the commercial real estate market, now is the perfect time to get involved!

Why Should You Invest in Commercial Real Estate?

CRE is an investment that’s always in demand. Not only does the market grow rapidly, but the return on investment is high, making it an attractive option for investors. Commercial properties don’t just provide aC steady income, but they grow in appreciation too. CRE also behaves different than other investments like stocks and bonds. This means that if there is a drop in the market, CRE doesn’t necessarily affect your investment goals. Financial Samurai explains, “For example, a diversified portfolio can potentially mitigate risk with investments in various CRE projects. For instance, job growth usually correlates to a need for office space; meanwhile, an increase in household formations may lead to a need for more apartment complexes. With a strong labor market, you might see the Fed raise rates. This can put a damper on the stock market, but not so much on the CRE market.” As well, unlike stocks that can change in a day, CRE is a hard asset with both the value in the building and the land. Hard assets can be used to produce good/services, which account to the increased price of the property, can be remodeled to increase value, or the landlord can maximize occupancy to increase value. Plus, CRE is a great way to hedge inflation, as the economy increases, CRE often benefits. This is because when wages and profits increase, the landlord can also increase the rent that is being paid by a tenant, ultimately navigating the inflation rates


What are the Different Types of Commercial Real Estate You Can Invest In?

Types of CRE Investment

CRE is a highly lucrative investment, and there are a variety of types you can invest in if you have the right goals in mind. Here are the five types of CRE:

  • Office: Office space is the most common type of CRE. These properties range from single-tenant offices to large skyscrapers in major cities.
  • Retail: Another popular CRE property is retail space. This ranges from single-tenant businesses to large multi-tenant shopping malls.
  • Industrial: Industrial CRE involves warehouses, flex space (office/warehouse), and large manufacturing sites. They offer a wide range of spaces with different height specifications and docking availability.
  • Multifamily: Multifamily complexes are comprised of apartments, condos, townhomes, and smaller units. Residential tenants tend to have shorter lease terms than other types of CRE, so tenant turnover is a major factor to consider when investing in multifamily.
  • Land: Land is invested in to be used as a ground lease to other major tenants who want to operate at that location, or for developers who look to build. Land is a great investment since it never loses its value and can be leased out.

 

Another side to CRE is Owner Occupied Commercial Real Estate. This is when an investor buys a property with the intent of using it for their own purpose. This strategy can be used for all the above types of CRE. The option to use a CRE property for the owner’s own service is another great benefit to CRE investing.


Predicted Commercial Real Estate Trends in 2022

CRE is a hot investment market right now, and there are plenty of opportunities out there for those who know how to capitalize on the trends. In order to make the most of these opportunities, it’s important to be knowledgeable about the industry and have a strategy for investing. Here are some predicted trends for CRE in 2022 according to multiple expert sources:

  • Several retail and department stores went bankrupt in 2020 and 2021 as a result of the COVID-19 pandemic as the economy adapted to quarantine implications. With that, many consumers continue to shop online. Experts predict up to 25 percent fewer retail store by 2025. Retail stores in urban areas are expected to be replaced with healthcare and grocery stores instead.
  • Office space demand is expected to permanently be cut by 15 percent as more companies shift into work from home procedures post COVID-19 pandemic. As a result, office properties supply will continue to rise; however, there has been an emergence of “hybrid” office policies overtime where employees work both from home and from the office.
  • Warehouses are expected to be the leading performer among CRE investments this year. This is due to businesses trying to grow their e-commerce orders and the demand for light manufacturing/distribution. Warehouse spaces are also flexible in what they can become. A warehouse could easily be transformed into a church, office, retail, etc. with their simple build out, if zoning is allowed. It is predicted that there will be an additional demand of 250 million square-feet for warehouse space in 2022.
  • Apartments are also becoming a leading contender to CRE investors. With home prices rising in the United States, many people are looking to rent vs. buy. This gives the investor a high demand and the option to raise rental rates if necessary. Apartments are expected to remain stable for the year ahead.
  • Also, new development projects are expected to rise with the rapidly rising housing market. Commercial investors skilled in development projects may find ample opportunities for new builds in the year ahead.

How to Get Started in Commercial Real Estate Investing

To get started, first understand what type of buyer you are. There are many different commercial investor buyer personas including: business owners, general investors, a tenant looking to buy rather than lease, or a developer looking to expand. Once you understand your CRE purpose, then you can decide which CRE property is the right type for you. Are you a business owner looking to expand your business? Then you may want to look for office spaces. Are you a developer looking to build in high growing areas? Then you will want to look for land with excellent demographic statistics. After understanding how you want to invest, then you can begin looking for properties. The basics when choosing a property include looking at zoning laws, traffic counts, demographics, labor market, surveys, etc. The biggest factor in CRE investing is location, location, location! Is your property within the correct zoning laws for your proposed use? Is your property easily accessible to consumers? Is your property in a high traffic area where many people will see it? Is your property within a flood plain? There are many important factors when investing, but location is truly one of the greatest assets to any property. Next, analyze comparable properties. Otherwise known as “comps,” these assets refer to prices paid for recently sold properties that are similar in location, size, and property type. This assures that you are getting a fair price for the property in interest. This is just the beginning to getting started in CRE, but we suggest reaching out to us at M&D Real Estate Commercial Group for more information.

Common Mistakes You Should Avoid

Mistakes to Avoid When Investing in Commercial Real Estate

CRE is a booming industry and there is plenty of opportunity for growth. However, before investing in a property, be sure to do your research and make smart decisions. CRE can be risky, but it’s also one of the biggest opportunities for growth in this economy. Always have realistic expectations when investing, and don’t overspend on properties early on in your career. Always have a real estate agent on your side to help manage your properties and grow your business!

Conclusion

Commercial real estate investing is an exciting way to make money. By investing in CRE, you can gain access to a wide range of properties that can either be used for commercial purposes or investment purposes. We have covered the basics of commercial real estate investing and provided tips on how to get started. 

If you have any questions or comments, please feel free to leave them below and we’ll get back to you as soon as possible.

With that, finding a Commercial Real Estate Agent can help you to navigate the commercial industry and market. An agent’s job is to find the perfect investment property that is right for you, stay up to date on the market trends, run comps, negotiate fair pricing, and to overall leave their client happy that their goals have been met and stress-free. M&D Real Estate has all 5-star agents that are ready to assist and educate you more about the CRE industry today. 

If you are interested in getting started in commercial real estate investing, contact 972.772.6025 now! With a little effort and a great team behind you, commercial real estate investing can be a very rewarding experience and generate a great return for you.