There are many different kinds of real estate investors, and everyone has their own criteria for what they’re looking to invest in. Usually people have one specific type of property that they like to invest in, such as office, industrial, retail, or multi-family properties, and then within these specific niches the criteria can get even tighter.
For example, once someone has identified the specific type of properties they want to invest in, they oftentimes then prefer to invest only within specific locations, such as within particular cities, or even just within specific sections of these cities. In addition, investors will even have specific criteria as to the nature of the kinds of investment opportunities they’ll want to find within these specific areas, too.
Some people will only want to buy pristine “Class A” investment properties, the kind that look absolutely perfect on the outside, and are often fully-leased…or close to it, and they create a real pride of ownership feeling for their owners. These properties often tend to experience the highest demand from real estate investors, and as a result their cap rates are usually the lowest ones on the market, too.
But seasoned, more entrepreneurial investors, though, can often look for a different kind of investment. These are people who can recognize that there are opportunities to get higher rates of return on their investments whenever they buy properties that aren’t in great, pristine condition. These kinds of properties are still in great demand by tenants, but they often don’t look very awe-inspiring on the outside. In addition, the demand to purchase these properties oftentimes isn’t nearly as strong, making their rate of return to investors higher. So if an investor is primarily interested in maximizing their rate of return on their investment, these kinds of properties will oftentimes represent their best bet.
In addition, the seasoned investor will look for opportunities that will oftentimes scare away other investors. Seasoned investors will look for fixer-upper type of opportunities, properties with below-market rents, and properties with higher vacancy rates…all situations where the owners may sell at a substantial discount just to move on and be done with the property. In these situations, many normal investors will be afraid of taking the risk involved, which will narrow the list of potential buyers considerably.
As a result, once a seasoned investor knows how to correctly calculate the total cost of fixing-up a property, has the people to do it, and can confidently predict how long it will take them to fill up the vacancies in the building, this gives them a tremendous advantage. It gives them the ability to buy properties like these and get returns that will far exceed the total returns from pristine, fully-leased “Class A” properties. However, investors really need to know what to do in these kinds of situations in order to make their investment work.
Keeping this in mind, what kind of investment property will be the best one for you? Are you an investor who would like to buy the pristine, fully-leased kind of properties? Or are you someone who is more of a risk taker…someone who recognizes the real opportunity in fixer-upper properties and in properties with higher vacancy rates… and you’re now willing to step forward and buy them?
Either way, investing in commercial real estate represents a great opportunity to you, and one that will pay huge dividends to you whenever you purchase wisely.