No matter what is happening with the economy, maintaining diversification in your investments is a must. Spreading out your ventures in different areas can both maximize your potential for a greater return and insulate you against the fluctuations of whichever market in which you have invested. Real estate offers more opportunity for diversification than what most people think. Most people assume that commercial and housing real estate are the only two options. Those people haven’t recognized there are subcategories of commercial real estate that help to spread out your risk and increase your dividends.
Typically, commercial real estate (CRE) is any property that is leased out for retail and business reasons. Undeveloped land purchased for the purpose of building a commercial building also qualifies. As diversification goes, this is a good category to explore. The CEO of StarPoint Properties, Paul Daneshrad, points out that in the last seven recessions, the office, retail and hospitality sections of commercial real estate only took a hit in three of those downturns.
Most traditional commercial assets are utilized as offices. They are divided into three classes of properties. Class A are either brand new or extensively renovated buildings. They are located in desirable areas close to major amenities. Class B properties are older buildings that require some sort of investment to correct the minor problems and perform necessary upgrades. With Class C buildings, you will find them in poorer neighborhoods and they require extensive overhaul before they can be leased for any return on your investment.
Office building investments have taken a large hit after recent events resulting in more people working from home for 2 years, and many more permanently. The relatively recent return to office has helped recoup some of these investments, but offices and coworking spaces will never be the same again going forward.
Retail, industrial and special use buildings are also types of commercial real estate. Retail can encompass everything from a free-standing store through to a strip mall or retail center and either banks or restaurants, too. Industrial spaces are usually large enough to accommodate the needs of major manufacturing companies. Special use buildings and spaces are those which could not easily be re-purposed into something else. Think auto mechanic garages, indoor trampoline parks, amusement parks and hotels.
The last subcategory under the commercial real estate umbrella is all about families. Multiple families renting units of the same building, that is. There are many variations on this type of property, too. To dip your toe in this group, you may want to start with a duplex. Townhouses, row homes and condominiums all fit in this classification, as do apartment buildings. You can choose to invest on your own or with an investment partnership. It’s about weighing the pros and cons of risk vs reward on property investment.
Ramp Up Your Real Estate ROI
Commercial real estate is a good investment for a diversified portfolio. Learn more about proper and profitable property investing in the Real Estate section of the Everything Entrepreneur Blog.