Christopher H. Gutierrez, CCIM 254-662-9800
ADVICE FOR THE SMALL INVESTOR PLANNING
TO BUILD A COMMERCIAL REAL ESTATE PORTFOLIO
stocks and bonds. Mutual funds. Precious metals. Certificates of deposit
and interest-bearing checking accounts.
"average" investor where he or she directs investment money,
and more than likely the answer will include one or more of the vehicles
listed above. But what other options are available to the investor who
wants to truly diversify his or her portfolio?
investment real estate may be that option. For the individual willing
to take on a little work and research, commercial properties offers a
wide range of alternatives, from small multifamily apartment buildings
to strip shopping centers to self-storage warehouses. And, with the high
tech sector slowing down from
the high-flying 1990s, the long-term outlook for investment properties
a tremendous range of commercial properties available for the small investor
to consider. Each type of property presents its own potential for returns,
management responsibilities and, of course, levels of risk. However, a
property that is well managed and properly financed can yield significant
returns over the long term.
making a first-time foray into investment real estate should keep the
following in mind before closing on a commercial property.
a realistic objective – Just as one would with stocks and bonds,
an investor planning to purchase a commercial property should set objectives
that are defined and attainable. Since returns on leased commercial
properties aren’t subject to the short-term roller coaster ups and downs
of Bay or Wall Street, investors should not expect dramatic short-term
returns during the ownership. Smart investors however, determine an
exit strategy for disposition of the property at a prescribed time,
preferably when the property has appreciated in value and market demand
is strong. Identify what type of factors may trigger the sale (retirement,
the purchase of a new home, relocation, etc.), and keep in mind the
following: Real estategoverned in part by the economic principle
of supply and demandis not always a liquid asset.
sweat equity – Add to the bottom line by investing personal time
in the upkeep and management of the property. General remodeling tasks,
minor interior and exterior maintenance, general accounting and other
related chores often can be completed by the investor. This helps reduce
overhead costs while letting the investor retain more of a "hands-on"
highly leveraged deals – A highly leveraged financing package is
one in which a small amount of cash is used to purchase a large or expensive
property investment. These types of deals can prove extremely risky
because a market fluctuation can outpace income. Leave highly leveraged
deals to experienced investors, which of course, we all can become in
out small – Investing in real estate may require a great deal more
of a time involvement than investing in stocks. That’s why first-time
commercial investors are advised to purchase smaller properties, such
as duplex apartment buildings or single-tenant retail properties. These
properties require less initial capital and generally a reduced time
management commitment but still provide the experience of ownership
and prospect of financial rewards.
close to home – Markets across the nation vary as greatly as the
landscape of the country itself. Neophyte property investors are advised
to make that initial plunge into familiar waters. An investor certainly
will be more familiar with the ups and downs of his or her home market
rather than one across a few time zones.
professional advice – Commercial real estate, like any long-term
investment, presents great opportunity and inherent risks. A commercial
specialist experienced in appraisal, brokerage, management, financing
and other related areas can prove invaluable to first-time investors
in helping to select an appropriate property, minimize risks and chart
a long-term path to success. Select a real estate professional who has
been educated in dealing with these and other issues which may surface
during the anticipated length of time the property will be held. Also,
find an experienced tax advisor who can help explain liabilities and
strategies involving the Capital Cost Allowance.
plenty of capital available in the marketplace right now, and opportunities
are available in the
commercial sector for investors willing to take some risks. Like any speculative
venture, investment real estate may not always perform up to short-term
expectations. Over the long haul, however, a well-managed and properly
financed piece of commercial property unquestionably can prove to be a
Christopher H. Gutierrez, CCIM
Commercial & Industrial Real
Estate Services, Inc.