Achieving ROI on a commercial property comes down to identifying opportunities, doing your due diligence and being comfortable with a degree of risk. In today’s market, buyers are more concerned about security and capital preservation.
Return on investment (ROI) is the main driver of commercial real estate (CRE) investor’s decisions. So how do you identify and achieve a strong ROI on a commercial property? Below are some tips to increase ROI on CRE:
Many commercial property investors look for the ultimate combination of a high-profile tenant on a long lease with favorable terms – including the tenant paying outgoings – and fixed yearly rental increases. Perhaps the lease on the property is due to expire, which might deter a large percentage of investors. When the tenant takes up its new lease, you are much more assured of strong competition and a firmer yield, at which point you should be well placed to realize a capital gain.
Commercial properties in metropolitan areas tend to come with a higher price tag, yet strong returns can also be achieved on properties located in regional areas. Some commercial investors are currently steering away from regional bank branches, for example, with concerns around closures. Yet there are bank branches in regional areas that may make prime investments, principally because if the catchment population is big enough and isolated from competition, their location means the likelihood of closure is highly unlikely.
Commercial properties in regional areas – such as well-located medical or retail premises – can perform just as strongly as similar properties in metropolitan areas, yet the purchase price can be considerably less and the yields higher.
Different types of commercial properties fall in and out of favor with the market. Having the courage to go against the grain can generate significant returns for the cool-headed commercial investor. For example, A few years ago, investors were very concerned about childcare center properties, but today childcare centers are in high demand, the lease terms are investor-friendly and they can offer some very strong lease covenants.
If you can spot an asset class that others are not so keen on, but which has the potential to perform strongly, you can achieve above-average returns. Obviously, there is a degree of risk in this type of approach, but if it pays off, the rewards are there.
You have a better chance of avoiding vacancy if you choose a more versatile commercial property that can be easily re-leased. A well-located supermarket, for instance, can be a great investment in terms of minimal risk of vacancy, and these properties, depending on their location, can be in high demand.
Commercial real estate investing can be a highly profitable investment opportunity for those who wish to diversify their portfolio. And if you’re ready to start investing and learn some tips to increase ROI on CRE, CPD Homes, LLC is here to assist you. We are a part of a national network of real estate investors and see no situation as unsolvable. It’s our mission at CPD Homes to connect investors to these alternatives: passive real estate investing in multi-family properties and apartments. We have been consistently earning strong secured yields for our clients since 2012. Our investors earn these returns with virtually no effort. Since we own/operate the buildings and properties, there’s nothing to do as a passive investor—just cut the check and invest!
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