What are the best types of commercial real estate for investment?

By
Services for Real Estate Pros with Representative

Any type of property, whether commercial or residential, can turn out to be a good investment. Nonetheless, commercial properties tend to offer more financial gains. The investment is similar to the purchase of a business opportunity. Financing may be a little bit more complicated, but the yields are significant. The venture is safe owing to its cash flow potential. Breaking into the world of commercial real estate investing isn’t a decision you should make lightly. It demands plenty of patience and commitment. Think things over. If done right, it can turn out to be a profitable journey. 

The commercial real estate sector can offer substantial returns, passive income, not to mention growth potential. Basically, you can dig deep into a pool of clients and your aspirations. Properties used for income-generating purposes demand stringent considerations. It’s important to evaluate the location, look at the existing financial conditions of the tenants, and study the market dynamics. Different types of asset classes and subclasses make up the world of commercial real estate. It goes without saying that each one has its own unique characteristics. 

How are you supposed to decide what type of commercial property to invest in? Well, not all forms of commercial real estate are created equal. At present, the highest-yielding commercial real estate property types are: 

Retail 

Consumer spending dominates and our daily lives are filled with advertisements that promote notions about lifestyle, self-improvement, and glamour. Retail is catching up once again, which means that another growth cycle is coming up. It ensures diversity within a single investment with several sources of income. Retail properties are the easiest to identify. Just think about shopping centers that comprise areas that are generally enclosed, with most of the stores under a roof. Properties can be multi-tenanted or standalone buildings. 

Strip centers are the smallest shopping centers and they feature a combination of stores such as restaurants, dry cleaners, nail salons, etc. Malls, on the other hand, are bigger and appeal to stores that seek more visibility. Recently, malls, which have a handful of anchor tenants, have transformed into a destination for casino gambling. Even people who aren’t high rollers enjoy playing the slots, even if it’s preferable to play popular slots online. While some people spend their time checking the top list of the best online slot machines, others would rather take their chances at traditional slot machines. Regardless, every slot brings in profit from the turnover. 

Big-box retailers take over a considerable amount of physical space so as to provide a variety of products to customers. Needless to say, they have a solid advantage over the competition. Stores like Walmart or Ikea achieve an economy of scale by concentrating on large sales volumes. Simply put, they move large amounts of products in and out, so they can sell their inventory at a discount and pass on the savings onto the customers. Not surprisingly, more of people’s shopping dollars are moving towards big-box retailers. 

Multifamily 

Apartment buildings, commonly referred to as multifamily properties, carry some of the lowest investment risks. They’re in high demand, which means that you can expect a high occupancy rate on your property, especially if the location is desirable. Home prices have increased and renting is the only option for many people. There are fewer barriers as far as breaking into the real estate market is concerned. You buy the housing unit yourself or with a partner. What is more, the likelihood of closure on an apartment building is highly unlikely. If you don’t take pleasure in the actual management of the properties, you can hire a property management company to oversee daily operations.  

Hotel/Hospitality  

The hospitality sector covers establishments that make available accommodation, meals, and other services for travelers and tourists. A hotel is practically an operating business with a real estate component. The value of the investment is given by the ability to generate income and even increase it. The hotel sells its rooms by night, so each night represents an opportunity to make money. It’s possible to negotiate with suppliers to lower prices or at least maintain the expenses at the same level. Let’s not forget about the tax benefits. Direct real estate ownership is one of the most tax-efficient investments. 

The types of hotels can differ from one location to the other. If you’re looking forward to investing in the hospitality sector, you should become familiar with the following categories: 

  • Inns and B&Bs - These small independent hotels are more affordable. They don’t provide amenities such as room service or convention venues. To be successful, you’re going to have to give some thought to the design and demographics. 
  • Business hotels – They are generally located in central business districts. Travelers appreciate the cost, convenience, and location (the hotel is located near their interests). Major chains such as Marriott and Holiday Inn offer accommodation.  
  • Casinos – The establishment features a casino – in other words, a gaming component with poker or slot machines - with temporary lodging. Rather than playing popular slots online, people book a stay in a casino hotel. Casinos have popped up all over the world and, with gambling tourisms continuing to trend, investing in a casino hotel is a sure bet, so as to say.    
  • Resorts – These full-service hotels have a large amount of land and typically feature a golf course, water park, and so on. Resorts welcome guests of all ages, but they have bigger rooms, extra beds, and swimming pools for families.  

Special-purpose 

Special-purpose designates a type of property that is appropriate for a type of use or limited use. Examples of special-purpose property include bowling alleys, amusement parks, stadiums, theaters, and self-storage. An amusement park is a particular type of commercial real estate property. People expect memorable features, thrilling rides, and endless fun. In this sense, entertainment is of the essence. Just like in the case of casinos, which have to provide a variety of slot games, amusement parks must offer a lot more than thrills. 

Getting back on topic, the aforementioned venues have been closed for months so as to stop the spread of the coronavirus, so it has been virtually impossible to pay a visit. Now, it’s a completely different story. Investing in special-purpose properties requires more sophistication and larger amounts of capital. Perhaps, but the high yields and regular cash flow are worth considering. 

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