Commercial real estate represents an exciting, often profitable, opportunity for both the veteran and beginning real estate investor. With its higher income potential — and stable vacancy rates when compared to residential properties— commercial real estate investing can be an extremely beneficial addition to an investor’s portfolio. While it’s important to note that there are no guarantees in investing, there are assumed difficulties and challenges with buying and maintaining a commercial property that are simply just not true.
In this blog post we will share five common myths about this often misunderstood form of investing.
5 Commercial Real Estate Investment Myths:
1. It’s Too Expensive
This is the myth that circulates most often. Many people think you need to be a full-time investor, a well-off entrepreneur, or inherently wealthy to afford commercial property in today’s market.
Although you will need significant investment capital, many lenders and banks are willing to finance commercial properties because of its potential for a high return on investment (ROI). If you aren’t in a place to purchase your own property, you can consider Real Estate Investment Trusts (REITs), which allow you to own a piece of real estate, managed by professionals, with a lower buy-in. Your financial risk is lower and you won’t need to deal with any management headaches.
2. It’s Too Risky
Like with any investment – no risk, no reward – it’s really that simple. Commercial real estate investments are no different, but they do not inherently carry a higher risk than other types of investments.
It’s also worth noting that commercial real estate investments historically outperform stock portfolios and bounce back quicker after an economic downturn.
3. It Takes Too Much Time
While there is no getting around the time it takes to properly manage a physical building as well as keep up relations with tenants, this can be alleviated by hiring a professional and experienced property management team. You’ll need to be a part of bigger discussions but hiring a professional property manager will alleviate the majority of day-to-day to-dos and distractions.
4. Good Deals are Hard to Find
First of all, the term “good” is subjective and individual-based. A deal that is good to you may be a waste of capital to another investor. However, there are always good investments in commercial real estate. It all depends on how you intend to proceed. Some prefer to buy properties when the market is down because in the long run the property should appreciate. While triple net lease properties are usually always available, no matter what the market, and provide a fairly-stable risk profile.
The key is to become a diligent student of investing and the commercial market in your area of focus. By doing your due diligence and knowing exactly what kind of commercial listing you’re aiming for, you’ll be ready when the time comes.
5. If the Property is For Sale, Something Must Be Wrong with It
Commercial properties are sold for varying reasons. Some commercial properties are sold because they have an exit strategy in mind. Sometimes they are sold because they want the cash flow to buy another bigger and more profitable property.
The key here is to surround yourself with a professional team who knows the commercial market, will do proper research on a property, and you’ll have the information you need to adequately asses a commercial property’s potential.
Final Thoughts
Here’s the thing: the challenges and risks that come with commercial real estate investments are similar to those you’ll face with any real estate investment. Although the financial risk is higher, your long-term earning potential is also far greater. If you’re considering investing in commercial real estate remember to not assume everything you’ve heard is true about this type of investing.
