How do you make money in commercial real estate? Buy low, lease high? I assure you there is so much more to this recipe. This is what I have learned in the many decades I have been actively investing and working in the commercial real estate industry. Let’s talk about making commercial and industrial real estate - successful!
Investing in commercial real estate can be a highly successful endeavour, and yes it’s all about collaborating with the right people with the right experience. Joint ventures and knowing the market are just some of the ways that you can make a sustainable profit. As with any expenditure, it is imperative that you stay up to date with the CRE trends that are forming; investors who fall behind may risk their momentum, so it is best to pair up with an experienced partner to optimize your future capital. You want investors that are sophisticated and well-versed in the market.
In the last 2 years of the pandemic, commercial and residential real estate have proven to be safer than many other investments, including the entire stock market. Most CRE contracts are 3-5 years and are secured by government funds in situations like a pandemic. Show me another sector so well protected!
The future looks bright, and it can even be more fruitful by adapting to 3 easy trends. So what are the best CRE trends to look out for to ensure your assets are maximized? Follow my 3-steps to making money in the market and set a long-term plan for your financial success in CRE.
1 The hybrid workforce is here to stay long-term: Across most industries, management teams and personnel are embracing the hybrid model with relatively positive results. Even tech giants, like Apple and Microsoft, have switched from fully remote work to quickly leasing offices across North America once again. Most companies are currently and will continue to implement hybrid work as a recruitment and retention strategy while converting their office spaces to accommodate increasing distribution, like adding a warehouse that is attached to the office.
2 Let the tenants pay for your mortgage: Thinking long-term with a CRE investment will happen effectively if you go into an investment with every intention of making it better. Ensure that your investment is making you money while you sleep by letting the tenants pay for the mortgage. If you have the occupants paying for your mortgage, you'll have your investment paid off, and in 20 years you'll own something that's free.
3 Looking to crowdfunding as a means to join a bigger commercial acquisition: Online e-commerce platforms have allowed shareholders to fund single projects and larger portfolios while expanding their geographic footprint. Real estate investing platforms are a great way to finance a larger commercial deal, also known as real estate crowdfunding. Though it will require an upfront investment, it will be less than what is required to purchase a whole property. Crowdfunding is an advantageous way to join in a CRE project if you are just starting out, or do not have a large capital to start out with.
Want to maximize your investment? If you buy a small building, ten thousand square feet, and the rent you're getting at eight dollars a foot right now, and you think you can increase it to ten dollars, you've basically increased the value of the building by 20 percent.
What you can also do is hope for a cap rate compression due to the real estate market rising. This means a higher than usual demand and low inventory both resulting in higher prices. Another factor can be lower borrowing costs. In short, cap rate compression is often the secret sauce for making CRE transactions - sweet!
So what is the bottom line?
There is a lot of money in commercial real estate, and the market is on an upward trajectory for years to come. Co-investing with an experienced partner can make a big difference in helping you acquire that commercial property you had your eyes on. It is highly probable that the CRE market will continue to grow as 2022 unfolds. Whether you are looking to invest in properties to generate a second income or to expand your current portfolio, make sure to trust your decision and do your research.
At ReDev, we believe in the power of collective intelligence, bringing multiple perspectives and depth of expertise to the sector.