Commercial Division

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Commercial Investing

Is an investment in commercial real estate right for you?

For low risk investing, the smart choice is a property leased to a single tenant with strong credit. Typically, the tenant pays all expenses needed to operate and maintain the property. These leases usually provide a long-term income stream, continuing for 20 years, or more. Initial annual investment returns range between 5% to 8%. With a potential for upside appreciation, many investors like this no-hassle type of investment.

Tenant in Common (TIC) ownership is another popular avenue for low risk investing. For as little as $100,000 investors can become part owners of larger high-quality properties. And, by investing in a TIC, an investor can defer taxes on other real estate profits through a like-kind 1031 exchange. Initial annual investment returns are normally in the neighborhood of 6% to 7.5%

For moderate risk investing an investor considers everything from industrial to office, to multi-family and retail expecting initial annual investment returns between 6% and 9%. Usually involving multiple tenants, success with these properties requires expert analysis, including an understanding of the following:

  • Lease structures
  • Current vacancy rates and rents and a forecast of future trends
  • A 10-year cash flow analysis, including the projected internal rate of return considering a property sale
  • A valuation of the property comparing and contrasting: the cost of replacing the property; the current market value of the property; and value based on the property income.

For the investor seeking above average investment returns, a higher risk approach may be in order: for example, a limited partnership interest in development projects. Because of the risks involved, annual investment returns often exceed 20%.

Your Long & Foster Commercial agent can help you to decide which choice will best suit you.
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