We’ve been fortunate because, in so many different areas within our nation, the economy has improved substantially from where it was during the Great
Recession. But for those of us who have been through both up and down cycles within the economy, we know that a transition will be coming at some time in the future.
There’s been talk about how the bond market will collapse, and talk about how the stock market is long overdue for a major correction, but what can we expect within the commercial real estate market? This all depends on the property you are holding, the quality of your tenants, and how you are positioned to withstand any changes within the economy.
For example, if you own property that is leased for the next ten years to a quality tenant, a tenant who met their financial obligations during the Great Recession, the chances are very good that you’ll do just fine with this property over the next ten years, no matter what happens within the economy. But if, however, you have a tenant in place who you’re concerned about making it through any future economic downturn, that’s another story.
With your quality ten-year tenant, the value of your building may go down during any future economic downturn, but as long as you don’t need to sell during that time, how important is this really? Sure, you may lament the fact that it may not be worth what it was several years earlier, but you’re still getting solid rent from a good tenant, and you know that when the good economy returns once again, the value of your building will return. In addition, there’s a great chance that it will become worth even more than it ever has been in the past, too. So two major keys with commercial real estate are buying at the right time when values are depressed, and renting your properties to quality tenants. In addition, you’ll want the location and the design of your buildings to be such that whenever you do lose a tenant, there will be many other tenants who will line up to move into your building.
In short, by following these principles, you can control more with commercial real estate than you can with many other types of investments. Do you know precisely when the stock and bond markets are going to fall? Do you know if a company you’re holding stock in right now has something going on internally that will cause the stock to plummet within the coming weeks?
Commercial real estate, when purchased and managed correctly, will help you avoid the potential pitfalls that will exist within many other types of investments.
