If you’re considering adding commercial real estate (CRE) to your investment portfolio, it’s smart to look at private real estate investing. This type of investing allows you access to attractive CRE investment opportunities without the hassles and responsibilities of direct ownership and hands-on management. The risks are typically lower than investing on your own.

However, it’s still wise to consider the pros and cons of CRE investing to determine whether it’s right for you and your investment goals. Let’s first look at some of the advantages of CRE investing.

The Pros

Income Potential

Annual returns are generally higher on CRE properties than on stocks, bonds, equities or even residential properties. These investments typically have an annual return of 6% to 12%. CRE can provide a good source of fixed, passive income with additional lump sum payouts when properties are sold or a loan is paid off.

Commercial real estate has historically shown a higher, faster rate of appreciation than other types of investments. This is especially the case when there are opportunities to make improvements to the property down the road to increase its value and lease price.

Stability

The stock market can go up and down from one day to the next based on all types of things beyond investors’ control. However, even in uncertain economic times, there’s always demand for at least some kinds of commercial property.

If you have your investments spread over a mix of CRE asset classes, including multifamily, retail, office, hospitality, industrial and storage as well as mixed-use (which typically include retail and office space as well as apartments or condos), and it’s well managed, your overall investment can remain secure and growing.

A year ago, virtually no one was predicting a hit to the retail and hospitality markets caused by a pandemic. However, other types of CRE, like multifamily housing, are less likely to be impacted. Some, such as health care and scientific/lab facilities may see growth.

A Chance to Invest in the Future

Wise investment strategists look to the future. Investments in certain segments of the CRE market, like health care, senior care, solar and renewable energy projects, are expected to see growth in the coming years. The opportunity to invest in properties designed to meet the needs of our changing population and economy is one of the advantages of CRE investing for many people.

The Cons

There Are Some Risks

No investment is free of risk, and that’s true for CRE investing. Even an investment with a private real estate investment firm provides no guarantee. Past performance can never be a certain predictor of future success. You’re placing your money in the hands of professionals, and you trust them to make smart choices.

The Investment Is Typically Illiquid for Longer Than Some Other Investments

A successful, aggressive CRE investment strategy can double an investor’s money in three to five years and provide a 20% internal rate of return (IRR). However, you typically don’t have the freedom to pull that money out of the investment whenever you choose. Therefore, you shouldn’t invest money you may need to access. CRE investing, as we noted, is better done as a means of producing income.

Advantages of Investing with a Private Real Estate Investment Firm

Commercial real estate investing, when done wisely, can be a smart financial decision. You want to trust your investment to professionals who:

  • Study the real estate market as well as socioeconomic and demographic patterns
  • Look for promising opportunities in diverse asset classes
  • Keep a hand in the operation and management of the properties in which they invest to help ensure their success and growth

Find out more about the advantages of partnering with the investment professionals at Realty Capital Partners (RCP). Call us at (469) 533-4000 or email us at rcp@rcpinvestments.com. You can also use the convenient contact form on our website.

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