Real estate investments can generate profit in a number of different ways. Sometimes, investors repair or improve properties and resell them for more than they purchased them for. Other times, they turn their investment strategy into a source of ongoing income by renting one or more properties out to others.
Commercial real estate generally tends to cost more than residential real estate whether purchased or rented. It can, therefore, be a very attractive investment for those with the capital to make a purchase. An aspiring real estate professional should start by considering the following when wading into the commercial real estate market.
The current demand for properties
Whether aspiring to rent or resell commercial properties, investors need to understand how the specific type of property they purchase has recently performed on the open market. There are different profit margins and costs involved in acquiring high-demand properties, like multi-family housing units, as opposed to types of properties currently seeing a low level of demand from renters and buyers. Looking at the projections for different types of real estate and how they have recently performed can lead to better investments.
Location
Location is everything in real estate. Buying a property zoned a specific way in a neighborhood transitioning from one general purpose to another, like an industrial area currently seeing an uptick in residential and commercial use, might mean needing to wait quite some time before using the property as intended or that those changes might later lead to them needing to move their business elsewhere. Location will also influence who will work at the company and who will visit its facilities. Finally, location typically has a profound impact on the sale price of real property.
Turn-around expectations
An investor looking to generate profit from a purchase within the next 24 months may have a very different approach to commercial real estate than an investor intending to hold the property for many years or decades. Those seeking long-term profits, for example, may find it less risky to invest in lower-demand types of real estate because of the greater future profit potential and lower need for immediate profit generation. Those seeking an immediate source of revenue sectors and choose property locations very carefully.
The more thoroughly an investor reviews the factors that tend to determine the potential success of a commercial real estate investment, the easier it may be for them to make a good choice regarding use of their resources.