Commercial real estate (CRE) investing is about thinking strategically, the right timing, pressures in the economy interest rates and saving for the long term.
Green buildings, properties that consume less energy and have a lower carbon footprint, have been seen to be the better way to go recently.
While sustainable real estate is not a new concept, it is rapidly growing; you should be taking notice, whether you’re experienced or just starting out. In fact, by 2030, the smart building market is projected to be worth a staggering $24.7 trillion across the globe with the market for green building products already exceeding $250 billion and growing.
What has changed in recent years is the perception of risk directly correlated to climate change, urging investors to steer money towards more environmentally-friendly, higher-performing green assets. With the emergence of making our planet green, also comes the fact that running older, non-sustainable buildings will cost you more in the long run. Older buildings that don’t lower their carbon footprint will likely depreciate in value in as little as five years, so it just makes sense to invest in properties that are green, given your own due diligence.
There are always right or wrong ways to invest in the CRE market, but if one can predict the marketplace and economy, there are ways that you can optimize your investment to ensure that you have the advantage.
Timing in the right CRE Market, location will offer you a return on investment that you may expect. However, you need to have patience in the event things turn south.
Long-term thinking is your best approach.
Whether you choose to take an active or a passive investment method, partnering with an experienced partner to manage your investment for you is a strong option.
Passive Investing: Less Effort, More Patience
You can follow two streams of passive investment: direct and indirect. Both have advantages and both may earn you, a return on your investment if you collaborate with a seasoned group.
Direct passive investing includes purchasing a portion or percentage of the deal and depending on how the structure is it could be that all aspects of a property and hiring a property management company will be taken care of by them. There should not have to be a worry about collecting monthly rent from tenants, making sure that there is regular professional maintenance on the property and all other physical aspects of running the property.
An indirect approach involves you putting capital in a real estate syndication, REIT or a joint venture option, ensuring that the right partnership matches your financial objectives.
This method involves you revamping a property in a good location and renting it out for a monthly cash flow. In addition to rental income, the property may also grow substantially over the years allowing you to perhaps sell the property for a higher price than when you bought it. That is the goal at least! One thing that people forget is when you do leverage and use a mortgage, the renters may be paying down the mortgage over time so even if there is no appreciation over time, the rent money that you are collecting goes towards the debt and principal reduction of the mortgage, therefore increasing your value in the property without you actually placing your own equity into the project.
A passive investment can give you fewer worries and fewer day-to-day headaches, than that of an active investment. You may like that better so you won’t have to worry about the mundane issues of complaints eg. toilets not flushing etc., paying bills and placing insurance on the property for example. Someone else is doing that for you. I like that.
To be successful in a tough market, as we are entering, concerns about a downturn in the markets and inflationary pressures, continue to study the markets, understand what the timing of the economy means, and how interest rates will affect you and your mortgage renewal in the long term. It is up to you to do your homework. Caveat Emptor as always.
Real estate should be about low-risk strategies enough to test your patience without you going broke. You need to time it right though, just like investing in the stock market, ensure that you are not buying at the peak!
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