Commercial Real Estate: How to Get Started
01 24 2017
When you're just starting out with financial planning, it's common to hyper-focus on the bottom line. But it's really all about surrounding yourself with options that give you choice and control.
A Diversified Financial Plan is a Strong OneAt the end of the day, you need to be able to answer the question: why am I putting my money here? A good starter financial plan delivers more than just a "one-size-fits-all" answer to that question. Rather, it establishes expectations based on your unique situation, provides personalized options that meet your needs, and maps out a diverse portfolio of assets.
One of the most popular ways for individuals to diversify is commercial real estate. Real estate is a pillar of any financial portfolio, because many individuals are involved at the most personal level: home ownership or rental property management. But individuals who draw the line at residential assets fail to consider the sizable opportunities in commercial real estate
3 Quick Tips to Consider Related to Commercial Real Estate
1. Unlike buying residential properties, commercial real estate keeps emotions out of the decision-making process.Most of our property-buying experiences are acutely personal. Your first home. Office space for your small business. Property that you inherited or bought at a bargain and expect to appreciate.
But many individuals rely too heavily on residential real estate - especially the properties they physically inhabit or oversee. They run the risk of getting too attached to their assets, and letting emotions impact their decisions. They see the property or the tenants every week; they want it to be a success; they believe in its potential as both a place to live and a source of rental income.
Commercial real estate generates the same rental income, just from a different set of consumers, governed by a different set of rules. Returns are more consistent than in the residential market, which explains why investment groups and large companies are so active in the commercial space.
2. Commercial real estate can help you diversify.The commercial property market is largely distinct from other real estate markets. That means its tenants often operate on a different wavelength than residential tenants.
To be sure, any commercial property is subject to fluctuations in its own market. That impact can come from policy changes or market shifts at the local, state, and even federal level. But therein lies the value of diversification - trends in one sector may impact some of your real estate holdings, but they'll seldom touch every property value.
There is also ample room to diversify within the commercial sector. Look around at your local business community and you'll see a wide variety of commercial real estate opportunities ranging from businesses large to small, from modern, steel-and-glass offices to repurposed, mixed-use historic buildings. Tastes can be specific - and even eclectic - but that also means there is room for more diversity and more options.
This allows individuals to decide what he or she wants to be involved in - what type of project, what scale, what part of town. Beyond that, most of the customization falls to the tenants, who bring their own preferences to a blank-canvas space and project their vision on the property.
3. Commercial real estate makes a different kind of impact - it builds business relationships.A good landlord takes pride in the opportunity to provide good people with a good place to live - to call home. And a good commercial real estate owner takes the same pride in providing local leaders with a place to grow their business.
Healthy owner-tenant relationships make a meaningful difference not just for the two parties involved, but for the community at large. In the commercial real estate space, you not only have to know what prospective consumers expect, but also anticipate what they might need down the line. You'll have to do your homework on everything from regional trends to project specs, but that's the kind of experience individuals need in order to get more involved.
Remember, new business owners might not have gone through this before. Keep them happy and help their operation thrive, and when they grow out of their current space they'll loyally turn to your other offerings before shopping elsewhere.
Know that There is No Such Thing as 'Risk Free'Real estate is a historically reliable part of financial planning. Talk with your financial advisor to see if opportunities in commercial real estate make sense in your portfolio.
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