Commercial real estate is one of the most appealing investments anyone can make, thanks to their consistent rental returns not to mention their potential capital growth. Indeed, they make for an excellent passive income source for many.
With that said, while you might be interested in jumping into commercial real estate, it is good to note that not all commercial real estate investment will be a success. Here are four tips to help ensure that you know when, where, and how you should invest in commercial real estate:
1. Look at the Range of Commercial Real Estate Available
When you consider all the different types of commercial real estate that are available, you’ll soon realise that not all are the same. Within commercial real estate, some of the most common types you are likely to find include: Retail; Office, Industrial, and Land and Development. However, you might run into even more such as hotels and leisure, storage and parking.
Each sector will have its varying levels of supply and demand, yield, and profitability. Some properties will outperform others based on location, but some might do even better based on macro-economic factors. That said, you will need to look at what’s available for you within your budget and do plenty of research to assess which ones could yield the most profit.
2. Understand the Market Cycles
GDP, inflation, and the economy, among many other factors, contribute to the profitability of commercial real estate and also the cyclical nature of commercial real estate investment.
When you understand the market cycle of commercial real estate, you’ll benefit by avoiding buying high and selling low. Such knowledge will also enable you to figure out which opportunities are the most suitable options to invest in at any given time.
3. Understand Market Supply and Demand
As previously mentioned, each commercial real estate sector has varying levels of supply and demand and ultimately, the value of commercial real estate is often contingent on the profitability of a certain business in a certain location. For example, the site for a service station strategically located on one side of the highway may be worth significantly more than the site for a similar service station located on the other side of the highway. When you’re investing in a particular property type, you should be scrutinising exactly where these properties are located.
Therefore, conduct plenty of market research, especially on the industry type, the specific business and market saturation.
4. Be Ready to Face Setbacks
Many people make the mistake of creating unrealistic expectations where property ownership always runs smoothly. Remember that no matter how much you plan for anything, there will always be something that can set back your property investment plans. There are uncertainties, and you need to take them into account.
Construction, renovations, changing management, and so on, all take time. Challenges come and go. Therefore, you should create a contingency plan that’ll address as many of these potential scenarios as possible so that any setback that occurs will be kept to a minimum. By better preparing yourself, you’ll be able to make the most informed choices, grabbing hold of the different opportunities that come your way, and selecting ones that hold the most amount of potential profits.
If you’re looking to invest in commercial real estate in Sydney, get in touch our buyer’s agent today to see how we can help.