Commercial Real Estate Investing – Choosing Your Sector

Commercial Real Estate Investing – Choosing Your Sector

The existing state of the economy has made commercial property a challenging endeavor in some sectors. Getting involved with commercial real estate can bring possible high financial risks. This post will include some good advice to ensure your commercial real estate ventures will not bankrupt you, damage your organization, or stain your credibility.

Houses are not the only form of commercial property investment available to the would-be investor. Of course, purchasing homes and then renting them out is a viable investment course. However, new investors typically ignore the other commercial real estate options, such as land, office buildings, industrial complexes and mobile home parks. Investigate all your options before deciding what type of business property you feel most comfortable buying.

First Things First

Commercial Real Estate | Brion CostaTo begin with, you need to locate and employ a real estate agent that has experience with commercial property. There are many agents out there, and good ones too, who have focused their entire careers on residential home sales alone. There are, also, many agents who might be attempting to enter into the commercial property game, but truly have no experience at selling or buying commercial realty.

You could “luck out” with either of these agents, but it’s probably a better route to find and select a Realtor with lots of experience in the commercial real estate world from the beginning. That person can provide more help… and education… than the inexperienced agents could provide.

Choose Your Sector

Once you’ve chosen your Realtor, you’ll want to have a detailed discussion with them that covers your financial situation, your commercial real estate investment goals, and finally… which sector of the commercial real estate market suits you best as a place to begin your investment strategy.

Most probably, your Realtor will talk to you about 6 different Commercial Real Estate sectors that you might consider. They are:

  • 1) Office – Ranging from skyscrapers in major cities to small strip malls in suburban communities.
  • 2) Retail – These are the stores and restaurants we frequent. They can be multi-tenanted or stand alone facilities. This sector has many variations, from the “pad” sites with multiple buildings to single structures in commercial zones within or outside of a “shopping center”
  • 3) Industrial – These properties are usually located along major transportation routes or near airports of train yards, and house everything from heavy manufacturing facilities to warehouses.
  • 4) Multi- Family – This type of investment is a residential facility designed for multiple families to use. This can include everything from the standard court-style apartment building, to garden apartments, to “special purpose housing”, like senior or student facilities.
  • 5) Hotel – These are properties designed for occupation by tenants who provide accomodations, food service, and other services for travellers and visitors. They range from resort properties, to hotel chains, to casinos.
  • 6) Special Purpose – This sector includes anything that could be owned by a commercial real estate investor that doesn’t fall within the other sectors. A few that come to mind are churches, amusement parks, storage facilities, and even agricultural land.

Flow With Current Market Conditions

Commercial Real Estate | Brion CostaMany influences will play into this choice of sectors and where to start. Some will be personal, such as your financial resources, and some will be external, such as current market conditions.

For instance, right now investing in retail space with the intention of leasing it out to retail tenants is probably not a good idea. With the advent of the Covid-19 pandemic at the beginning of this year, people started staying home. They began to shift their shopping habits from the local Sears and K-Mart to Amazon and shopping online. That has had a tremendous impact on the large retail space tenants and they’re not looking for more space… they’re actually vacating what they have to downsize. In actuality, a lot of retail spaces right now are being turned into warehouse space and leased by online retailers for storage and shipping centers.

The bottom line here is that right now, commercial retail space might not be the sector for a novice, smaller investor. An experienced commercial broker can tell you this… and other market data… and possibly save you headaches in the future. In fact, if you’re considering retail space as an investment right now, a smart Realtor might advise you to do a quick remodel into warehouse space and look for a warehousing or shipping tenant.

A Reliable Realtor/Partner Is The Key

The current state of the retail space market is just one example of how current market conditions might influence your choice as far as which sector is best for your investments. Working with a Realtor who is experienced and can keep you on top of influences like this is vitally important. In the future we’ll discuss many of these market conditions, but right now, as you begin, just know that if you choose the right Realtor/Partner, you can move forward with your investment plans with confidence and the secure knowledge that your investment plan is reasonable, reliable, and informed.

Summary
Commercial Real Estate Investing - Choosing Your Sector
Article Name
Commercial Real Estate Investing - Choosing Your Sector
Description
Choosing your sector in commercial real estate investing can be a daunting task for the novice investor. Here are some tips to help you with that process.
Author
Brion Costa - CCIM

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