If you have never invested in commercial real estate, it stands to reason that you may be wondering just how profitable it really is. That isn’t always an easy question to answer because there are as many ways to invest in commercial real estate as there are buyers and sellers. However, what you may really be wondering about is the type of investment you are considering. There are outright purchase agreements and then there are investment packages in which several investors throw in their resources and then own a share of the total package. How well it does is based on market conditions which do fluctuate over time. However, with new technology being developed all the time, some types of data driven investments simply do better than others.
A Revolutionary Approach
One new platform, Extrance aims to revolutionize the commercial real estate investment market, in that it brings together Limited Partners with total transparency. It is said that Limited Partners, LPs, do yield higher profits than Real Estate Investment Trusts. Part of this is probably the size of the investment trust. REITs can grow very large and investors can invest a little, or a lot, depending on the market conditions at the time.
Contracts for Purchase
If you are looking at buying a piece of commercial property, this would be a whole other ball game. Purchasing a piece of commercial real estate would mean that any revenue/profit would be realized over time. Generally, in buying a property outright, it would take time to calculate the return on investment, or ROI. Often, this kind of venture follows rents, for example, with expenses on upkeep, taxes and so forth. It isn’t a straightforward path such as in an LP venture, and calculations are much more involved.
The Waiting Game
No matter what type of investment property you are considering, the one thing that is common among all types is that they are all usually slow growing. Normally, you won’t get any kind of idea as to how your property is doing until months down the road. It is always necessary to average profits out but the one thing you can always be sure of is that real estate prices are market driven. At the moment, it appears to be a seller’s market but, by this time next week, the tables could have turned, and it may be a buyer’s market.
As a closing thought, you might want to also look at the amount of time and effort you will need to invest. Each of these avenues above are market driven. The main difference is that in an REIT you will have a trust manager that decides what and when to buy/sell. The LP limited investment technology offers better information in real time and also a bit more transparency than you’d get with a Real Estate Investment Trust. With profit being anywhere from 6% to 12% on an investment of this type, you will see a profit. It’s just a new approach to an older investment strategy and that’s what you need to know.