Types Of Commercial Real Estate Investments
Each target to increase his/her financial worth. To do so, investments are equally or sometimes even more important than the earnings themselves. While investing one’s money, one can explore various opportunities to grow. Various investment options are available in the market for an individual to choose from. The choices can be made based on various factors such as risk-taking appetite, short-term and long-term goals, etc. in types of Commercial real estate investments.
Commercial Real Estate investments are one of the many investment opportunities that can help one grow financially. This means investing in properties that are used exclusively for business purposes. Commercial buildings are those which are used as workspaces rather than living spaces.
It is important to know about the different types of investments, classifying them under the commercial investments that one can make.
Types of Commercial Real Estate Investments
Investment In Office Buildings
Workspaces are in demand in all cities and towns. Office space investments are usually for a mid-term to long-term period. Investments for such long periods help in estimating future profits, more precisely.
Over the past few years, demands for smaller workplaces have increased. So, one can invest in smaller units for a single potential tenant or high rise units that can accommodate more than one tenant. This decision can also be guided by the types of industries that are flourishing in a particular city. For example, information technology companies have a huge workforce, so they require huge workspaces as well.
Office buildings usually fetch a higher rate of rent compared to residential buildings. Also, such buildings have much fewer chances of flipping contracts than residential apartments. Therefore, these investments provide a higher security advantage.
Investment In Storage Spaces
All commercial units, be it trading or manufacturing, dealing intangible goods, require storage space for their goods. These units require warehouses for not only finished goods but for raw materials and work-in-progress also.
While such investments might not be appealing to investors, they are lucrative because warehouses serve the utility function for an organization. No business can look over the importance of warehouses for their continued operation.
While investing in storage units, the investor must do comprehensive research on the demand for storage units in a particular area and the supply of such units. In other words, the investor should understand the requirements of potential tenants of such spaces and the competitors in the vicinity.
Investment in Retail Spaces
Retail space is meant for selling goods to the consumer. Retail units are of keen importance for businesses because these are the point of end sales. Such spaces can make or break a deal for certain goods. It is of utmost importance to design convenient retail units for consumers.
Malls are examples of retail units. Malls require designing space for parking, entertainment, dining, and basic amenities such as washrooms.
Retail spaces have similar revenue models as office spaces. The rate of rent is higher in the case of retail spaces than in residential buildings, just like office spaces. These investments also range from mid-term to a long-term period, so it is easier to project future profits. Tenants of such spaces often do not vacate them for longer periods of time.
It is of keen importance to choose the location of retail spaces as they should be invited. The construction of large retail units in areas with low population density or low traffic might not generate the desired rate of profit.
Investment In Multifamily Housing
Multifamily housing properties aim to accommodate more than one family in separate housing units, usually under the same apartment. Duplexes, triplexes, and quadruplexes all come under multifamily housing. As the name suggests, duplexes comprise two residential units, triplexes three, and similarly, quadruplexes comprise four residential units.
While talking about types of apartments, there are high-rise apartments, mid-rise apartments, and low-rise apartments. Apartments exceeding 10-12 stories are usually considered high-risk, apartments with around 5-12 stories are considered mid-rise, and less than that, are low rise apartments.
Such investments are easier to finance as banks are more likely to approve investments in multifamily apartments than individual apartments.
Over time, certain not so popular spaces have started getting more attention. An investor should know about these spaces as well before making an investment decision. These include:
Co-working spaces provide an office-like work environment for individuals from diverse backgrounds to come under a roof and work on their respective projects. Usually, these spaces are used by entrepreneurs and other employees who work remotely, to escape the monotonous home environment.
These spaces provide various facilities such as private meeting rooms, hot desks, a kitchen, etc. These spaces are generally preferred for brainstorming and creative sessions.
Just like co-working space, Co-living space is an emerging trend. It aims at community building and providing affordable housing. In simple terms, co-living means sharing your residential space with a lot of other people. Usually, residents get their bedrooms and washrooms, the common areas like the kitchen, the dining area, the living space, etc. are shared.
All this helps in finding an economical living space. Such spaces empower community building among the residents.
Senior living spaces aim at providing accommodation to citizens aged above 55 years. These spaces are for senior citizens who can live their lives independently and actively. It provides a community for them. Such accommodations also hold social activities and medical facilities for them.
It is an emerging trend in India these days. Senior citizens can live with a community in such spaces, either independently or in assisted living.
Investment in commercial real estate ensures diversification of an investment portfolio and provides various investment opportunities. It is essential to understand the difference between various commercial properties as they have different risk factors associated with them. If you are looking for a low-risk investment, then a property with core value would be the way to proceed. On the other hand, if you can afford high-risk properties that provide good returns, then you can choose to invest in value add properties. Exercise due diligence before choosing a commercial property.
Types of CRE Investments FAQs:
The answer to this question depends on your investment objectives. Investing in land comes with a lot of flexibility. Land can be put to various uses depending on the location and the nature of the land. As discussed earlier, a fertile land, suitable for agricultural purposes can be given on rent for the same.
This is not the case with buildings. Office buildings, residential buildings require regular maintenance charges.
Change is inevitable especially in terms of trends. People’s preferences are changing over time. As entrepreneurship and other creative professions are gaining more and more attention, people are exploring new patterns of living and working. In future, demand for spaces such as co-working, co-living, senior-living, etc will increase. So, an investor must consider these recent trends in real estate before making a decision.
Location is definitely the first thing that comes to mind whenever we hear the word “property”. So, location of the property can make or break the deal. It is a game changer for your investment goals. A wisely chosen location ensures appreciation of the property. A property in a busy and attractive location makes it easier to find tenants.
Funding is the next thing you need to take care of. It is important to decide your budget so that you can shortlist some options depending on that. Funds’ sources should also be decided beforehand.
Some other important factors include demand and supply i.e. identifying which kind of property is more in demand by your potential tenants.
Investing in single-family housing is similar to putting all your eggs in one basket. Single family housing comes with inherent risk because the investor is dependent on a single tenant. In some scenarios, this might be a plus point because a single tenant who can commit to your property for a long term period is a lucrative option.
It is easier to find loans for multi-family properties. Banks are more likely to approve loans for multi-family apartments over single-family ones.
Just like residential real estate, commercial real estate doesn’t require any mandatory educational qualifications before investing. One needs to keep in mind the commercial real estate regulations of different states as they operate differently.
The key determiner of success in this investment opportunity is your understanding of the real estate market, your long-term and medium-term goals. One needs to devise proper strategies and undertake proper analysis of the market in order to become a successful real estate investor. It is of utmost importance to diversify your portfolio by investing in different properties across different cities to minimize your risk.