Investing in Commercial Real Estate

November 9, 2023 by admin
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Unlike single-family homes, which are considered residential property, commercial

real estate (CRE) includes buildings and land that serve business purposes. Investing

in CRE can be lucrative and diversifies an investor’s portfolio. However, this asset

class can be complicated and requires knowledge of the industry and complex

financial analysis.


CRE consists of offices, retail spaces, hospitals and multifamily housing buildings, as

well as malls, warehouses and even agricultural land. Typically, commercial property

is designed to generate a profit through rent or capital gains. This may be a result of

the building’s physical attributes or location, or it could be related to the building’s

purpose and use. Investing in this sector can be challenging, but there are ways to

gain exposure and potentially earn lucrative returns.


For example, investors can purchase REITs or ETFs that invest in a variety of CRE

properties and sectors. The benefit of this strategy is that it allows investors to gain

access to the industry without taking on the risk and hassle of purchasing and

operating individual properties.


While the types of CRE are vast, they typically fall under six categories:

Offices: This category includes low-, mid- or high-rise buildings that host business

tenants, such as medical offices and law firms. It can also include suburban or

regional malls. Retail: Retail properties host the restaurants and stores we shop at,

and they can be multi-tenant or single-use. They can also be big-box centers with a

single anchor tenant like Target, Walmart or Dick’s Sporting Goods, or pad sites

(single-use buildings within a shopping center, such as a bank, restaurant or drug

store). For more


Hospitality: These spaces are designed to accommodate customers seeking

accommodations, such as hotels and resorts. They can also be occupied by

companies offering services to travelers, such as car rental and hospitality

management. Industrial: These properties range in size and host businesses that

manufacture or assemble products, including warehouses, distribution centers and

manufacturing plants. They can also include flex industrial buildings with power

capabilities tailored to specific needs, as well as self-storage and bowling alleys.


While gaining exposure to the commercial property industry is a great starting point,

it’s important for anyone looking to make investments to understand how this asset

class works and to work with a broker who understands their business goals. For

instance, a broker who is assisting an investor should know how to analyze

properties’ current and projected ROI using data and market research. They should

also be familiar with the leasing process and lease terms to help their clients avoid

hidden fees, shady clauses and other contract pitfalls. Lastly, brokers should have

connections in the industry and access to buyers who are seeking the properties

they’re selling. This will ensure they list their property at a competitive price that

still nets high returns. This way, they can give their client the best possible chance

of making a smart investment.