Have you successfully flipped properties or purchased and rented residential or vacation homes? If so, you may be in a good spot to get into commercial real estate investment opportunities. Doing so can help you diversify your portfolio and increase your bottom line. So what are your options? Here are five popular commercial investments to consider.
When you say commercial real estate, most people automatically think of strip malls or business offices, but commercial real estate encompasses a whole lot more.
Apartment Buildings and Multi-Family Homes:
This is probably the most common property type for first time commercial real estate investors because apartment buildings and multi-family homes offer a wide array of options. You can start by purchasing a small building with only a few units available for rent. Then, once you’ve established yourself, you can invest in larger multi-unit buildings or complexes to increase the amount of rental income you bring in each month. Before you consider larger building purchases, make sure you calculate all the overhead and operating costs involved, including maintenance and upkeep fees, property taxes and repair costs.
Office buildings can serve as a great commercial investment because corporate renters often stay in their location for a long time and are likely to pay on time. These buildings are classified by their location and construction. A “Class A” building would be considered highly desirable in terms of both construction and location, whereas a “Class C” building would be considered less desirable because of its age and location.
Some buildings have an obvious layout that can support multiple businesses and others are a little less flexible when it comes to floor plan. Prices vary tremendously based on the building’s location, class rating, square footage, access to nearby amenities and so on. All of these factors will ultimately impact how easy or difficult it will be to rent space out in a commercial office building, so be sure to carefully evaluate all aspects of your purchase before you buy.
Retail buildings can be anything from one stand alone building that can house an independent business to a large strip or shopping mall. There’s no limit to who can rent out a retail space. These buildings can house stores, restaurants, bars, insurance offices, dance or fitness studios and so on. In addition to standalone retail properties, some cities also have retail shops on the street level with apartment spaces available above. These buildings can be a great investment opportunity because you get to diversify your portfolio and collect more rent per square foot by owning a multi-purpose space.
Industrial buildings can include anything from large manufacturing plants to small warehouses. These types of commercial properties often include a large amount of storage or work space in addition to one or several small offices. One of the big benefits of owning a large industrial building is it’s multi-functional and you can typically charge pretty high rent. A pitfall is the building can be challenging to rent if it’s not in a location that has a high demand for that kind of space.
Hotels are often funded by a large investor group, where every shareholder has a stake in the success of the business. If you decide to invest in this capacity, you’re likely not going to be to be hands on with the day-to-day operations, you’re really just a source of funding who gets paid dividends when the hotel is doing well. If you prefer to be more hands-on, consider looking into boutique, specialty or extended-stay hotels that have an independent owner rather than a global brand attached to it. This can be especially lucrative if you can get your hands on some multi-unit vacation rental properties.
Though this isn’t an exaustive list of commercial investing opportunities, it does give you a good idea of what some of the more popular options are.
Are commercial properties right for you?
The answer to that question really depends on your interests. Some commercial real estate investments can yield high profits, but they also may take a great deal more work than smaller residential investments.