A Quick Guide to Commercial Real Estate Investment Strategy
When it comes to Commercial Real Estate investments there is not a one size fits all strategy. Some investors are looking for a location for their business, others for a project, and some just want the comfort of passive income. There are countless ways to approach commercial real estate investing, choosing the right approach is paramount. Let’s take a look at a few different options.
When looking for a value add investment, your goal is to purchase a property with a lower price point because of vacancies, differed maintenance, or ill-configured layouts. By replacing the vacancies with tenants under multiple term leases and / or updating the property, the return to an investor can be significant. Even simple aesthetic changes such as fresh paint, new carpets, and well-maintained common areas, will increase the perceived value of the space to tenants which will allow for higher rent rates. Higher rent rates will increase the buildings overall value.
This strategy is ideal for investors that also own a business. The idea here is to find a property you can move your business into, then the business helps you paydown the mortgage. Depending on the building, you may also be able to lease extra space to other tenants, providing some additional revenue stream.
When using this method, it’s important to really consider how your business can fit into the building, making sure that your business has some room to grow and work successfully in the location for as long as possible.
This strategy also offers a unique financing option. Owner Occupied Financing provides better terms than your average loan because its seen as less risky to the lenders since you’ve got a guaranteed tenant, your own business.
Buy and Hold
As the name implies, this method is simply buying a property and hold onto it for the long term. This strategy works universally for any asset types. So, whether you like the high involvement of a multifamily property, or the low involvement of a rural warehouse, the buy and hold strategy can work for you and your overall goals. Geographic location and product type should be careful considered under this approach.
This one is for the patient, hands off investor. The goal here is to buy land as a saving account alternative. The strategy here is to look at development patterns and purchase a piece that sits in the path of development. Overtime, as development grows in your direction, your asset’s value will increase.
When choosing a piece of land to put your money into you’ll want to consider zoning and planning in the municipality. Understanding the town’s view of the future can help you make the best choice when selecting the location.
While this investment strategy doesn’t include the high maintenance requirements of other asset types, most municipalities will require the property be kept in a maintained and clean status.