Commercial real estate investments are one of the oldest asset classes and remain one of the most popular. If you are thinking about adding commercial real estate investments to your portfolio, there are a few things to know before you get started.
Before You Jump Into Real Estate Investing
It’s important to remember all investments contain risks. If you are planning to add real estate investments to your portfolio, be sure to talk to your financial advisor as well as others who have made similar investments. Different types of investments and properties bring varying responsibilities and returns.
It’s also important to note that you most likely will not want to purchase an investment property in your name. Instead, set up a Limited Liability Company (LLC) or Limited Partnership (LP) in order to separate your personal assets from your investment properties. You can work with an attorney set up one of these entities to ensure your personal assets are protected in the event a legal issue arises.
Once you are ready to move forward with purchasing an investment property, it’s important to know the different commercial property types.
Commercial Real Estate Property Types
Office space is one of the most common types of commercial real estate. From simple office buildings to large skyscrapers, office spaces can be leased to companies and small business owners. Oftentimes, lease agreements will be multi-year giving you, as the investor, long-term income and stability. One downside, however, is if the area experiences major growth you will likely not be able to increase the rent or changes the terms until the lease it up.
Industrial properties include everything from manufacturing facilities to distribution centers. Often times industrial properties are easier to operate and maintain. The leases are often long-term which creates a stable source of cash flow. Due in part to the increase in e-commerce, industrial investment properties are growing in popularity.
Retail properties consist of malls, shopping centers, strip malls, and other retail storefronts. Leases for retail space can also be multi-year creating stability. For properties like shopping centers, you will have multiple tenants so if one leaves you still have income for the others. However, this does mean you will be managing multiple units and tenants.
Investing in apartment buildings can be a major profit generator if you’re willing to pay to maintain the properties. Many investors choose to hire a commercial property management company. While this is an additional cost to you, it allows you to be hands-off in the day-to-day tasks. With the population growth in southeastern North Carolina, apartment and multi-family complexes are of interest to many investors in our area.
Mixed-use properties are those that combine any of the above property types into one property. For example, you may have retail and office space on the ground level with apartments on the second and third floor. Mixed-use properties are growing in popularity with millennials because they often prefer amenities within walking distance to home. The businesses often benefit from mixed-use properties because their customers can dine, eat, and find entertain all in one location creating a great synergy. Because of the diverse tenant base, investors often hire property managers for mixed-use properties.
With a basic understanding of the different property types, you can now start your property search.
If you have questions or need guidance in determining what kind of property is best for you, feel free to contact us.