Urban Land magazine has noted that an improving economy will probably result in an influx of capital into commercial real estate holdings. One of the reasons is that commercial realty offers some of today's "best risk/reward propositions around." Since commercial property supply is now at a historic low, there is a definite "upside potential" for occupancies and rents. Those who are interested in investing in commercial real estate can select from a variety of types of properties whose uses range from multi-family housing to industrial use. Many investors chose to invest in office buildings and complexes.
The Realty Today website observes that investing in office buildings can offer an excellent rate of return. When the economy is enjoying growth and vitality, as it currently is, there is increased demand for office space. This increased demand for office space results in lower vacancies and higher rents. Higher rents generate greater profits for office building owners. Historically, and over the long haul, returns from commercial realty tend to increase in value over time.
There are drawbacks to investing in office buildings. The Finweb.com website observes that during economic downturns, there are more tenant lease cancellations and non-renewals which lead to increased vacancies and lower income for building owners. In addition, office buildings have the drawback of needing a substantial cash outlay and often requiring too large of an investment for a novice individual investor.
The Bigger Pockets website notes that office properties are often designed and marketed to a particular type of tenant base. Some office buildings cater to a broad range of tenants while others focus on providing space to specialized tenants such as those involved in research and development projects. Sometimes, office buildings are specifically designed to accommodate so-called "niche renters." For example, a building complex located near a hospital might target medical practices and labs and therefore would need to have special features that typical office buildings would not.
Have a plan of action
Investopedia observes that you need to have a "plan of action" if you decide to invest in commercial realty. Those pursuing a commercial realty investment opportunity need to "set parameters" and ask themselves the following questions:
- How much can you really afford to pay?
- How many tenants are already on board and paying rent?
- How much rental space will need to be filled in order to make a profit?
Always be prepared to walk away from any transaction where the seller has assumed an intractable posture preventing you from negotiating a good deal. Keep in mind that, at a minimum, any investment in commercial property has to meet your financial goals. You need to be able to separate the "great deals from the duds."
Buying commercial real estate is often a complex process. The 42 Floors website advises that investors in commercial realty should never sign anything-such as a purchase agreement-without having it reviewed by an attorney. Since there are any number of problems that can arise with regard to purchasing commercial real estate, 42 Floors says that it pays to have an attorney explain to you the details of any written agreements with the seller "so you know exactly what your rights and obligations are."
Seek legal assistance
If you are interested in investing in commercial realty, you should contact a Massachusetts attorney experienced in handling real estate transactions. An attorney can review the purchase agreement and help you understand any applicable land use restrictions that could affect your plans.