Are you looking to bolster the overall returns you generate from your investment portfolio?
Institutions, pension funds, ultra-high net worth individuals, and family offices have long understood the merits of holding Commercial Real Estate in their portfolios to boost returns. Investors now have lots of options to access this investment class as technology has created platforms that allow individuals with much less capital to access Commercial Real Estate. What was once the domain of these well capitalized investors is now accessible to individuals, and small investment groups who are looking to bolster returns.
Do you want to diversify your holdings and reduce your exposure to stock market volatility?
Commercial Real Estate is considered a stable investment option where values and returns are generally uncorrelated to the volatility we see in the stock market daily pricing. Both vehicles tend to stand the test of time, but for many investors it is the stability of Commercial Real Estate in the short and middle term that appeals to them. This makes it great not only as a hedge against stock market instability, but as an investment in its own right.
Do you have time and expertise to actively invest in Commercial Real Estate or is making a passive investment in real estate a better option for you?
Here’s where the rubber meets the road: If you love the idea of being a landlord and controlling every aspect of your investment, from selecting the tenant to taking the 2am plumbing emergency call, consider active investing. If you don’t have the time, expertise and appetite, you are probably going to want to remain passive and invest through someone else who is in the Commercial Real Estate space full time.
How do I decide what category of Commercial Real Estate to invest in?
Commercial Real Estate includes a broad range of asset types including office, retail, mixed use, malls, industrial, self-storage, apartments, hotels and more. Inside of each of these are sub-strategies to consider, including investing in the development of these assets or when they are stabilized. Even deeper down are localities and geographic market issues that impact supply and demand that have to be considered. Choosing Commercial Real Estate is only step one. Knowing your risk appetite and comfort zone with asset types and investment strategies around those is the next step.
Are you properly capitalized to buy your own assets?
If you have the capital to go it alone, getting active is easy and often that starts with your first acquisition. If you are like most investors and want to allocate a portion of your investment capital to Commercial Real Estate only, passive investing is often the best route. Identifying the right vehicle or group through which to invest to access what you’re interested in is much easier today than it was only ten years ago thanks to platforms readily accessible on the internet that traditionally might have been found by word-of-mouth in the past.
What is your investment timeline? And how important will liquidity be in your future?
This is maybe the most difficult part of your Commercial Real Estate investment considerations. If you’re an active investor, selling assets to raise cash quickly is time consuming. Commercial Real Estate just doesn’t trade like a publicly traded stock, after all. Passive Commercial Real Estate investments, in particular, are not very liquid as there is usually no secondary market where you can sell your Commercial Real Estate fractional shares like you can with your stock or mutual fund holdings. For many Commercial Real Estate investors, allocating to this category is a 7 to 10 year commitment.
How do I know if I’m ready to invest in Commercial Real Estate?
Today, with group funding models or private direct investments, waiting to assemble a large amount of cash is no longer a necessity and that is a huge change. Investors of nearly all shapes and sizes can get started anytime.
Be sure to have all of your finances organized and mind your due diligence before entering into an investment. If you have done your due diligence on a specific investment, you should not have to worry about trying to time the market. In other words, if you find a good opportunity, then don’t wait for a buyer’s market or the winter to roll around!