Real estate professionals, accountants and financial planners are often asked about holding real estate as a portion of investor assets.
As an asset class, real estate has performed well over the past 90 years. But stocks and bonds have retained the edge in retirement holdings primarily because a ready market exists for the quick disposition of those types of assets. If the market turns, it’s easier to exit the position.
What are some the considerations in holding real estate as an investment?
There are some why questions to answer first. Why are you considering investing in residential, commercial, industrial or retail real estate? Are you concerned too much of your retirement savings is invested in other assets and you require diversification? Do you have more experience owning and managing real estate than owning stocks and bonds? Are you trained in real estate investment? Have you heard Western Colorado will grow in the next 20 years, and you don’t want to miss the boat? Are your answers backed by a thorough investigation of the facts?
Next consider what type of real estate investment makes the most sense. Are you considering buying into a real estate investment trust with a good track record so day-to-day management isn’t a concern? REIT shares are sold on stock exchanges. Do you lease space for your retail sales business and want to own the building in which you operate? Are you interested in investing in single family homes as rentals or multifamily apartment buildings? Is your company experiencing growth, prompting you to consider buying an office building to house operations? The reasons for making a real estate investment are limitless.
Timing constitutes another important variable to consider. Does the real estate market inventory provide a good assortment of available properties in your desired sector, or would it be better to wait for more competing properties to be constructed? Has the local economy slowed, allowing for better-priced deals? Is the current market so hot new construction makes sense? If so, how soon will you need the new acquisition? If you’re building, it could take one to two years to complete a structure.
If you’re a real estate investor and not a user, it could make sense to follow the current market and look at various properties that provide a steady income to create some practice buying scenarios. Consider how much of a down payment will be required, where the best financing might be found and underlying financial strength of the tenant or tenants. In addition, thoroughly investigate the current shape of the property, including a list of deferred maintenance items.
It usually pays to attempt to discover the motivation of the property owner to sell. Is the owner testing the market or so motivated a lower offer could be accepted? Nothing happens without motivation. Once you discover that motivation, it’s easier to structure a winning deal.
Are you ready for that next real estate investment? Call a knowledgeable commercial real estate broker and begin the process.