5 Ways to Invest in Commercial Real Estate

In the past two years the market for high quality commercial properties has begun to heat up. According to Ernst & Young LLP real estate consensus forecast, commercial real estate transaction volume is expected to rise to $310 billion, up from $290 billion in 2012.

With prices rebounding from post recession lows, there are many new investors looking to enter the commercial real estate market. The commercial real estate sector is not in fact a single type of investment but is in fact composed of quite distinct kinds of properties. Each of the types of properties has their own advantages and disadvantages that you need to understand before investing in them. Read on and learn five of the most popular ways to invest in commercial real estate.

Offices and Warehouses

Offices and warehouses have one stand out feature which makes them very good investment propositions. They are a tripe net leases, which means the tenants is required to pay not just the rent but also the real estate taxes, insurance and maintenance and repairs. In addition leases on offices and warehouses can last up to 20 years. While this can be an advantage in terms of providing predictable cash flow, it can also be a disadvantage if the area your office and warehouse unexpectedly booms.

Land Development

Land development is one of the most speculative forms of real estate investment because it produces little or no income until it is developed. The profitability of land development is primarily determined by the ability of the investor to take raw land and develop into something of greater value. One of the best ways to make big money in land development is to take land which isn’t yet available for development and then take it through the approval process. This can be a difficult and costly process but the rewards can be significant.

Hotels and Resorts

Hotels and resorts require a large amount of capital to invest, which means that aren’t usually an option for beginner investors. Hotels and resorts are further complicated by the business side of the operation. Usually the hotel operation will be run by a hotel management company which will lease the building. Even experienced investors have lost a lot of money with hotels and resorts. Careful analysis is crucial before choosing to invest in this form of commercial real estate.

Retail

Retail is one of the most visible forms of commercial real estate and the one normal people most frequently interact with. When looking for retail property to invest in location is everything. Quality retail properties are highly visible, accessible and receive good foot traffic. Like offices, retail property is also done on a triple net lease, which means that you will not have to cover the taxes and maintenance costs.

Apartments

Apartment are most investors first experience with commercial property investment. They are usually reasonably safe form of investment because of the constant demand for apartments. However they can also require a significant amount of management and maintenance. Another disadvantage to apartments is that tenants will typically only commit to one year leases at most. It is important to account for tenant turnover and the time your apartment is likely to remain unleased when determining its investment potential.