Is Investing in Commercial Real Estate a Good Idea?

We are surrounded by and immersed in commercial real estate every single day of our lives. Just think of a routine visit to a grocery store. Everything you find on the shelves is processed in a manufacturing facility. It’s then stored in a temperature-controlled environment, which is also an industrial facility. Before that point, every product gets delivered by a transportation company – from a commercial building that keeps all the trucks coming and going.

Now, let’s travel back even further. That food was first grown on a field, which is somebody’s land (which is also a commercial transaction). Those products are then sold to wholesalers who redistribute to smaller stores in commercial plazas.

And let’s not forget about the space in office buildings for all those companies’ headquarters. When we go on vacation, we stay in a hotel resort – another commercial building – that, in turn, buys and procures services from other businesses.

Our entire economy is built on commercial real estate. By investing, you’re not just setting yourself up for financial prosperity, but you are contributing to our modern way of life. In this post, we’ll talk about how and where to focus your resources for maximum impact.

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Commonly Held Myths in Commercial Real Estate

Many of my clients have unnecessarily avoided investing in commercial real estate due to some myths associated with the venture. Before we go any further, let’s address a few of the misconceptions that may be stopping you from earning the highest possible return.

Myth: Commercial investing is only for private equity funds. The high price of industrial properties lends itself to this belief. However, anyone can invest as an individual as long as you have access to capital. You can buy a commercial property outright by combining a mortgage or private loan with your own funds.

Myth: Only large corporations should invest in commercial real estate. Commercial transactions aren’t just more expensive; they are also more complex. However, a real estate agent with a high degree of knowledge can help you identify lucrative opportunities even if your own experience is limited.

Looking for more step-by-step advice to taking your commercial real estate investing to the next level? The resources below will provide you with some valuable insights:

Hidden Opportunities in Commercial Real Estate

Contrary to what you may believe, you don’t necessarily need $10 to $20 million to own commercial real estate. Many of my clients have bought and sold multiple properties before and have reached this level, but they all had to start from somewhere.

They may have worked their way slowly up the ranks, while others have inherited money from family members. In addition, you may have inherited an existing waterside property or a commercial retail unit but need help finding a new tenant or renewing the lease.

If you want to get your capital working for you, the right real estate agent can walk you through all of the steps no matter where you’re starting from. Every new stage becomes an exciting journey and an incredible learning experience, which is why I am committed to providing each client with white glove service at every level.

Another benefit of teaming up with my team is that I can often get you access to off-market opportunities. Many commercial properties are considered “hush-hush” because they never even hit the MLS®. After years of working in this industry, I have working relationships with some of the top developers, builders, and real estate brokerages in the province.

Important Risks to Understand

The possibilities in commercial and industrial real estate can be unlimited, but always remember that it is a process. You’ll need to be aware of your risk tolerance and have a financial cushion to shield you from the unexpected.

For example, it can take 4-6 months to fill the tenancy after buying a commercial building. Since the market is unpredictable, you might buy in a seller’s market and overpay in the moment. Though the market will balance itself eventually, you have to avoid over leveraging yourself with a high mortgage and low down payment.

Curious about financing? Learn more in How to Finance Buying a Commercial Property in Ontario.

How to Mitigate These Risks

Setting aside emergency funding to cover the mortgage payment, property tax, and maintenance will allow you to hold on to the property over the long term so you see the maximum equity gains.

In addition, always do extensive background research so you know what market you are buying in. You won’t necessarily avoid purchasing when it’s a seller’s market. However, you’ll need an excellent agent to negotiate the deal for you so you don’t lose an opportunity to someone who outbids you by a small amount.

At this point, my financial background is kicking in – so let’s talk about interest rates.

Seller’s markets often come with lower rates, which can be an ideal time to choose a longer mortgage term.

During buyer’s markets, interest rates are typically higher. A shorter term mortgage or open variable rate may be better at first. Your payments will be higher in the short term. But when rates start to dip, lock them in! Of course, all of this is nuanced, and every situation calls for in-depth research and analysis, which an experienced commercial real estate agent can provide.

Are you leaning toward the industrial side of investing? Explore the incredible opportunities in How to Invest in Toronto Industrial Real Estate.

Managing Your Commercial Investments

Depending on your level of experience, there are several ways you can partake in commercial real estate. If you have less experience or limited time, you can invest in a private equity fund that manages your money and makes investment decisions on your behalf. You can choose to receive payments quarterly, semi-annually, or annually. Alternatively, you can leave the entire amount in the fund and cash out in three to five years.

You can also invest in a commercial property on your own. This requires that you have enough capital and the ability to manage the investment yourself. Another possibility is to acquire a property and then hire a management company to deal with your tenants, collect rent, share budgets and forecasts, and handle repairs and maintenance. With enough capital and a profitable strategy, you can choose whether to be hands-off or hands-on. As always, I am here to guide you regardless of where you are in your investment journey.

Do you want to talk more about potential opportunities for your next real estate investment? Reach out to OMarjanovic@kw.com or call 647.620.2882 to begin building your strategy.