Regarding commercial real estate investing, try not to believe everything you read.
Placing large sums of money into CRE is daunting enough without trying to separate fact from fiction. That’s why CRE investors should get all their news, market updates, and advice from trusted sources.
This article exposes and debunks five of the most common misconceptions about CRE amongst 2023’s second-quarter uncertain market conditions. But first, we need to answer a question asked by most new commercial real estate investors: What constitutes a reliable source of helpful information for commercial property investments?
Recognizing Trustworthy CRE Resources
There are several ways to recognize trustworthy CRE firms. Well-established companies have extensive portfolios, market expertise, and a reputation for closing deals. Reliable, ethical CRE firms are also well-connected and allied with reputable industry-related bodies.
LiNC Commercial Realty is proudly affiliated with the organizations below.
Many people want to know how to get into commercial real estate investing. However, the amount of misinformation online puts many would-be investors off. So let’s now debunk these myths and common misconceptions lingering around commercial property today.
Misconception #1: It’s impossible to invest in commercial real estate in the current economic environment.
Assumption: Financing CRE investments will become impossible. Banks and other lenders are requiring high down payments and more stringent credit and income requirements. Therefore, only the super-wealthy will get to invest in lucrative commercial properties.
Why? Historically, investing in commercial real estate has been an asset strategy for the country’s million- and billionaires. As a result, only those with deep pockets could meet the sizable CRE down payments and high-income requirements.
Truth: Alternative financing options, such as crowdfunding, private equity, and other creative strategies, like syndications, can be explored.
New tax incentives and other government policies could positively impact CRE financing in 2023, so investors should stay abreast of any changes. Another option for those starting in commercial real estate investment while limiting liability is fractional ownership, i.e., owning a share in a property.
Misconception #2: CRE investing is a high-risk business, especially in 2023.
Assumption: Problems with government regulations and economic uncertainty—along with real estate market volatility, high interest rates, tenant risk, and natural disasters—make CRE a high-risk investment.
Why? This misconception stems from ignorance and those who have made poor investments in real estate. Another reason is proponents of residential property investments vying for business.
Truth: Unlike residential properties, CRE value is more about actual numbers and less about perceived value, which makes it less risky. In other words, investors primarily look at the net income a property will generate, regardless of emotional reactions and market perceptions.
Moreover, triple net lease properties (for which the lessee agrees to cover the costs of all building maintenance, insurance, and property taxes in addition to rent and utilities) are always suitable investments featuring relatively low risk and lengthy, stable profit potential.
No investment is risk-free, though some assets are riskier than others. Volatile properties hold the highest uncertainty—but also more significant profit potential. Still, CRE investors can diminish risk with a viable investment plan, a varied portfolio, and trusted advice from market experts.
Here are a few industries poised for growth potential in Q2 of 2023 and beyond:
- The industrial sector is likely the biggest growth driver, with high-tech space proving especially attractive to investors.
- Retail real estate is also expected to remain strong, as brick-and-mortar stores are essential to the consumer experience.
- In 2023, the healthcare industry looks poised to take advantage of aging populations’ increasing demand for services. With the number of Americans over 65 projected to more than double by 2060, healthcare services, such as long-term care, assisted living, and other facilities, will become more necessary than ever. As a result, there is a solid opportunity to invest in medical and commercial real estate properties that can accommodate this growing demand.
The Commercial Real Estate Investment Council (CREIC) recently surveyed commercial real estate leaders. The results show that the outlook for 2023 is more optimistic than the outlook for US business leaders overall.
The survey found that CRE leaders are more bullish about their sector’s outlook, and more than 75% of respondents expect their investments to outperform the overall economy. Additionally, CRE leaders are more likely to engage in risk-mitigation strategies, such as diversifying their portfolios and focusing on core markets.
Misconception #3: Inflation rates are too high to invest in commercial real estate in 2023.
Assumption: The commercial real estate investment outlook in 2023 is uncertain due to increasing inflation, making it an inadvisable time to invest.
Why? The decrease in the dollar’s purchasing power due to inflation can lead to decreased demand for commercial real estate and a decline in property values. Rising inflation can also lead to increased tenant costs and vacancy rates. Decreased commercial real estate affordability makes it difficult for investors to find tenants and remain profitable.
Truth: It is important to recognize that, despite increasing inflation rates, population and job growth are on the rise, especially in North Texas. Commercial real estate lenders view the DFW area as one of the more preferred markets. Although real estate purchases and funding for new projects have decreased, commercial real estate investments have historically been seen as a way to protect against inflation.
Investors should pay close attention to diversifying their portfolios in 2023. Investing in commercial real estate, such as retail, healthcare, industrial, and multifamily properties, may be a better way to safeguard against unpredictable market conditions. It is important to stay up to date on emerging market trends, research properties and their prices, and build a relationship with a CRE broker in order to spot changes in the market and seize investment opportunities.
Taking proactive steps now can help you secure a successful future in commercial real estate. This includes evaluating your properties, tenants, and other investments.
LiNC Commercial Realty at Your Service
LiNC Commercial Realty is a full-service CRE firm with extensive working knowledge of the DFW property markets. We provide complete CRE investment services and guidance for new and experienced investors. That includes tenant and landlord representation expertise, acquisitions and dispositions, and more. Our pledge to you is a 100% commitment to quality services from start to finish.
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Misconception #4: CRE investment takes too much time.
Assumption: CRE investing is a time-intensive undertaking.
Why? CRE needs regular maintenance and general upkeep. If you own the property, there is rent to collect, and you must be available to address every little concern your tenants may bring up.
Truth: As a CRE investor, you find properties and exclusive deals. Savvy investors without the time or experience to manage properties use part of the profits to hire professional property management services. They must watch over your assets and address the tenants’ concerns. Outsourcing saves you money over time, despite the initial outlay.
Property management companies work closely and develop deep relationships with qualified vendors. So, they can often utilize these connections to secure lower rates and other discounts you couldn’t secure without their assistance.
Misconception #5: CRE brokers are an unnecessary expense.
Assumption: Commercial real estate brokers only care about their commission.
Why? Investors who have had bad experiences with CRE firms tend to talk—loudly—about brokers as a monolithic group. However, most successful investors have great relationships with their CRE brokers. Still, they say little in the wider discourse about a job well done or the attention paid to the relationship.
Truth: Working with a qualified CRE broker can save you time and money. Reputable CRE firms work to create long-term relationships with their investment clients, so it is beneficial for them to give sound advice about potential investments. Brokers can also introduce you to property deals you may not have encountered otherwise. Moreover, CRE professionals know what to search for, where to find it, and how to wade through the finer details.
Break Free from Myths and into Commercial Real Estate Investing
You now have better insight into the common misconceptions and myths about commercial real estate and how they’ve come to exist. In reality, incredible CRE deals are available for both new and experienced investors in DFW, where the commercial real estate market continues to exhibit explosive annual growth.
Finding and partnering with a reputable CRE firm ensures you get the best investment guidance wherever you are in your CRE journey because experienced brokers save CRE investors like you time, money, and negotiation headaches and allow you to put your energy towards growing your investment portfolio.