Whether an investor is interested in investments such as retail, warehouse, office, storage, assisted-living, medical buildings, Triple-net, Double-net or value-add properties, each has its own set of positive and negative aspects.
The investor should start off with realistic goals for his investment (not pie in the sky) using common sense and consider:
- timing factors
- equity required
- work involved
- risk involved
- long and short-term strategies
- financing issues
What Must Be Considered Before Deciding Which Investment To Get In?
Many of the small investment community go after properties to fix up and rent out. But many investors don’t take in the amount of time it takes to get all the workmen, all the objectives in order to get a positive outcome.
Not counting your valuable time in the equation is a big mistake. You think you’re making more money than you really are by not counting any hourly fees.
Spending countless hours finding the right property, doing the research to see if the property has any major issues, hiring the workmen, getting a loan to fix up the house and hoping that a buyer will pay more than you anticipated is a lot of work.
Purchasing apartments can be very lucrative but very overwhelming for the same issues as buying a house.
Remember, the more people you deal with the more problems can happen. Tenants can become very annoying, create an argumentative situation costing both time and money to the landlord. A tenant not paying rent, or causing noise for others are just some examples of problematic issues owning apartments.
Types Of Real Estate Investments
- Other investments such as storage or assisted-living are a combination of business and real estate so be prepared to either has partnered with experience or run a facility yourself. The storage business has become much more automated in recent years but still require management to oversee the daily operation.
- Medical offices are also lucrative if chosen near a hospital with the right group of doctors all participating in making that facility a total success. Rents are very high in the medical business but care and sophistication are a high priority running such a building. Physicians are very picky and the landlord better is prepared for daily complaints.
- Warehouse facility investments are the easiest commercial real estate venture requiring less care and maintenance, less office space to fix and a stable environment for years to come.
More and more businesses will need warehousing such as Internet sales that need distribution centers around the country to service their customers.
Triple and Double Net Lease investments in the retail sector require less effort. Although the profit is slightly lower, they also create a steady income without spending endless hours catering to tenants. The conservative investor leans more to Double and Triple Net Leases, especially investors over the age of 55.
- Value-add property investment is more difficult to find but once located and purchased can be the most lucrative of all investments. The basic principle of buying low and selling high but creating the value is the secret of the value-add property game.
Are you able to raise rents through the fix-up process while maintaining a specific vacancy factor that will allow some cash flow while achieving your goals? Can you simply raise the value by taking the same present tenant giving them a longer-term lease but providing them some capital improvements for lowering their rent to achieve the longer lease?
Getting the longer lease usually creates a lower rate CAP rate when selling to a prospective buyer. Investors may have a harder time getting a better loan due to the risk factor on a value add property. That’s why more equity will most likely be needed for this type of investment.