As a successful real estate developer, William Collins knows the benefits of investing in both residential and commercial real estate. From single and multi-family apartment complexes to mixed-use retail/residential, warehousing, public storage, and fulfillment centers, real estate is still a passive investment that can bring an annual return off the financial investment of between 6% and 12%.
Real estate investments should represent a significant portion of an investor’s wealth. Even a homeowner’s investment in their home will likely have a greater value than their savings account, says William Collins. Consider the following 3 factors that can drive the success of your commercial real estate investments.
Factors to Consider for CRE Investing
Demographics
The location has always played a significant role in the value of the real estate, both residential and commercial. The composition of a population, which includes age, race, gender, income, migration patterns, and especially population growth will determine the area’s demographic.
Use demographic information to guide your real estate choices. William Collins suggests you avoid investing in neighborhoods that are seeing an exodus of residents and businesses. But, factors like income, age, race, and gender can always be used to guide you on the type of commercial real estate to invest in. It may be low-income housing construction, senior residential units, or a new strip mall with high-end retailers.
Interest rates
A major impact of investment opportunities is how much interest your financial agents are charging you for the construction project or major renovations to current structures. When interest rates rise, the cost of obtaining a mortgage loan or personal loan increases, lowering both the demand and the price of real estate.
William Collins suggests sticking with a real estate investment trust (REIT) that can bring a return similar to bonds and stock market returns when it comes to interest rates. When interest rates decline, the value of bonds and REITs will typically increase.
“REITs’ reliable income is derived from rents paid to the owners of commercial properties whose tenants often sign leases for long periods of time, or from interest payments from the financing of those properties.”
The Economy
The overall health of the economy will always be a good way to choose your CRE investing paths. Some important economic indicators include the GDP, employment data, manufacturing activity, the prices of goods, etc. But, keep in mind that when it comes to the US economy, it is very cyclical, which makes timing more critical than ever.
William Collins suggests that any real estate investor be cognizant of current and trending economic conditions, both locally and globally.
Even when the previous 3 factors are affecting the US commercial and residential real estate markets, you can still count on a bolster from federal and/or state policies, subsidies, tax credits, and your own tax deductions.