Buying investment real estate?


One of the basic tenets
of a progressive democratic society is property rights. Compared to the feudal systems of hundreds of years ago, access to wealth through real estate has fewer limitations than at any period in history.

That said, the real estate asset class is fraught with similar perils as other asset classes. Economic cycles and competitive forces can materially impact returns on investments. The below tips might help with the risk/reward equation.

Investment real estate comes in more flavours than Baskin-Robbins ice cream, so the following concepts will need to be modified based on whether the building is owner occupied or not, single tenant or multi-tenant, industrial, retail, or multi-residential.
 

  1. Draft a plan. One of the greatest epiphanies of this generation has been that real estate, residential or commercial, isn’t a liquid asset. There’s no guarantee that you can sell it at the price you want, when you want. As such, consideration of long-term outcomes and the ability to carry the property through downtimes matter. This becomes even more interesting when investing with partners.
     
  2. Do your research. No matter what you plan to do with the property, real estate is about three key criteria: Location, location, and location. How does the site gain its access now and in the future, as roads change? Will the site become superior or inferior to competitors? Who owns adjacent lands, and could they constrain your plans with something they can do? What’s the current zoning for what you’re planning? Can you advance the changes you might need?
     
  3. Get by with a little help from your friends. Construction methods and building science have evolved exponentially over the past 40 years, as has the related regulatory legislation. Hire experts, whether they’re engineers, lawyers, commercial real estate advisors, planning experts, or those in the architecture-and-design field. You need to know without a shadow of a doubt what you’re buying and what you could be faced with down the road.
     
  4. Management is a must. After the analysis, due diligence, and closing, the next wave of decision-making starts. Who will manage the building for you? From contract management and property-tax reviews to tenant relations and capital planning, ongoing advice, decisions, and cash are required.

Real estate ownership can be a rewarding experience. What other large assets can be driven by, pointed at, and walked into? Try that with a mutual fund. However, there’s no such thing as a free lunch. For every successful developer there’s a failed project, so take the time to develop a strategy that adheres to the above concepts.
 


Bill MacAvoy is the managing director and owner of Cushman & Wakefield Atlantic, the region’s largest commercial-only firm. He can be reached by visiting www.cwatlantic.com.

 

 

 

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