What You May Not Know About Investing in Commercial Real Estate

There are a myriad of benefits to investing in commercial Downtown Nashville real estate, including the potential to make a great financial return. However, it’s not the right fit for everyone. If you don’t fully understand what will be expected of you when you make this decision, you may have concerns about getting started. This article will introduce you to some of the key aspects of a commercial real estate investment by answering some of the most commonly asked questions about the process.

Obviously, 2020 and 2021 were very unique years for the commercial real estate world in light of the COVID-19 pandemic. That said, the industry is expected to see continued recovery in the coming years. Current investors are optimistic, and in light of the potential for greater profits and unique tax benefits, many new investors are expected to enter the market this year.

Common commercial real estate investments include retail stores, offices, hotels, warehouses, and apartments. Each property has its own range of benefits and drawbacks. Many retail stores have filed for bankruptcy over the past several years, and some experts believe that retail stores will continue to drop off. As for offices, many companies continue to shift towards hybrid or remote roles, which curbs the demand for office space. That said, many businesses hope to maintain some amount of in-person collaboration, so it’s unlikely that the need for office properties will ever completely dry up. The demand for hotel properties was also impacted by the COVID-19 pandemic, but is expected to recover.

Two investment properties with a more positive outlook (at least in the short-term) are warehouses and apartments. Many companies are scrambling as they try to keep up with the demand for e-commerce orders, and this could lead to an increased demand for warehouse space. Apartment complexes are thriving as Downtown Nashville real estate prices continue to rise and many people look for living spaces at a more affordable rate.

Office properties usually fall into one of three categories. Class A properties usually reside in great areas with close proximity to major amenities. They are often newer builds or recently remodeled spaces managed by professional management companies. Class B properties are often older, and they may require minor improvements or repairs. However, they are generally well-maintained, and are a prime target for many potential investors. Class C properties are in less desirable locations, and they typically require a more significant financial investment. They come with high vacancy rates, and they are often outdated or poorly laid out.

Oftentimes, investing in commercial real estate will offer a return of somewhere between six percent and twelve percent. This is significantly higher than the average return on single-family rental properties, which could fall anywhere between one and four percent.

Typically, you’ll enjoy longer relationships with your tenants. Retail and office spaces usually require longer leases than residential properties. These types of investments could be a better choice if you want to achieve greater security.

Another benefit is that you don’t often handle calls after hours, because for the most part, your tenants will share working hours with you. It’s unlikely that you get a call in the middle of the night, because there probably isn’t anyone in the space during that time.

Finally, renting commercial space provides you with additional networking opportunities, since you’ll have frequent professional interactions with clients who are in different lines of work. This is all in addition to the tax benefits you’ll enjoy as an owner of commercial real estate, such as the benefit you’ll be able to claim for the property’s depreciation in addition to any repairs or upkeep that needs to be performed on the property.

As the industry continues to recover from the pandemic, there are certainly short-term risks involved with any investment that you make. Vacancy levels have been climbing in many spaces, and certain properties are performing far better than others.

However, commercial real estate investments are a long-term game, and not designed for anyone who wants to flip a quick profit. Since leases are longer-term, you don’t have to worry as much about short-term volatility.

Commercial real estate can be a great investment, as long as you feel confident that it’s the right fit for you. Investing in commercial real estate requires a greater financial contribution than investing in residential property, so it’s important for you to take full stock of your current financial situation to ensure that you have the proper amount of cash on hand. You should also consider how long you want to hold your investment. You probably won’t see the greatest returns until you’ve owned the property for several years. The wait can be worth it, but you need to feel confident that you can remain patient as you wait for your investment to materialize.

If you have more questions about investing in commercial real estate, or if you’re ready to start looking at properties, give Janelle Waggener a call. Janelle is a Downtown Nashville real estate expert who has helped countless individuals find their ideal commercial real estate property. She is known for her world-class service and her expert negotiation strategies. She is looking forward to partnering with you and walking you through the entire process.