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Things to consider before investing in commercial real estate

On Behalf of | Jun 5, 2015 | Uncategorized

Investors in Kansas often consider commercial real estate as an addition to their portfolio because it provides a relatively stable hedge against more volatile and speculative vehicles such as the stock market. While properties such as retail stores, offices and warehouses may offer the high probability of long-term appreciation, they also provide income opportunities in the form of rents that can be collected from the businesses that occupy the space. However, there are a number of factors that should be considered before making this kind of investment.

Commercial real estate lenders often require down payments of up to 30 percent, and buying a commercial property as either an investment or a place from which to run a business usually requires a significant amount of capital. However there are indirect ownership options that require less capital and provide many of the benefits of a traditional commercial property investment. Vehicles such as real estate investment trusts and commercial mortgage-backed securities can also reduce risks because money is invested in a diversified portfolio.

Another benefit of many of these passive investments is that they are liquid and can be sold quickly and easily on major exchanges. Investors who purchase a piece of commercial real estate must list the property on the open market if they want to pull their money out, and significant price reductions may be required when a quick sale is desired.

Commercial real estate transactions are often highly complex, and the potential long-term benefits can sometimes lead investors and business owners to act more quickly than may be prudent. An attorney with experience in this area could assess the merits of commercial property investments and scrutinize the documents associated with them. An attorney could also analyze alternative real estate investments such as REITs to determine how diversified their portfolio of properties is and the level of security they provide against market fluctuations.