What to Consider When Investing in Real Estate
Investing in real estate is a great option when it comes to earning money on the side, but like any avenue of income, it has its own set of pros and cons. On the one hand, it’s difficult for a new investor to jump into the complex world of real estate and on the other, real estate is considered a more stable type of investment. Of course, this stability is dependent on a variety of factors, including the geography or city, its employment rate, tenant demands. For those looking to invest in Washington DC, dental office space is a popular option. Read on to know the basic facts of real estate investment before making any decisions.
When choosing between properties, it might be tempting to pick any property that comes for a low price, but this a beginner’s mistake as not even property will turn out the same type of profits. Experts instead suggest that it is best to go for commercial properties. In fact, the four best categories for beginners include office space, retail space, industrial and lastly multifamily complexes. The latter two categories tend to come cheaper on the market than office space and retail space. However, office space has the distinction of having a stable demand in the second quarter.
After the economic recession, investors have shied away from real estate, still fearing the repercussions. However, the market has changed considerably since with unemployment less than 5% this year. How does the decreasing unemployment affect the decision to invest in real estate? Firstly, the larger sign is that the economy as a whole is doing well. Secondly and more importantly, it signifies a growth in jobs. This, in turn, signifies a swelling demand in office space. Hence, office space will be the best type of property to invest in. The payroll for the remaining part of 2017 is expected to increase and could average to an encouraging 16%. This means that the unemployment rate will go down to 4.3%, pushing for a higher demand in Office Spaces.
Another factor that will impact the market in the years to come is the Brexit vote. The implications of the UK’s vote to step away from the European Union are still to be fully appreciated. One repercussion is that since January, the IMF has downgraded global growth twice. This may not be good news for Europe as its real estate markets will be considered unstable territory, which will not be safe for investors, in the time to come. However, in the long the run, the Brexit vote will have a rather positive effect on the markets in the US. In the aftermath of Brexit, the properties in the US will now become the front-runner in terms of stable real estate market and have no noticeable competition from the now unstable European real estate markets. The US properties’ value to global investors will increase, leading to an increase in the foreign investment in the country.
The prices of real estate in 2017 have managed to increase at a slow but steady pace, according to a study put out by the National Association of Realtors. According to Moody’s/RCA Commercial Property Price Index Date, the prices has increased by 7.1% in 2017’s second quarter as compared to 2016’s. Particularly, office spaces increased by a 9.4%. The international sales have grown as well. In the fourth quarter, the average sale in the international market went for a staggering $1.4 million, while most average cap rate for deals made internationally was 6.6%.
Once the type of commercial property has been decided, the next thing to focus on is finding a prime property location. This ties in with the above-mentioned point that the city where the property is located must have a low unemployment rate. Identifying a city which is home to new up-and-coming markets – like the e-commerce markets – will help as well. This is called the tenant demand and such emerging markets will lead to jobs, which will again lead to a demand in office space. The tenant demand has reportedly been highest in the properties of 5000 square feet and below in small cap commercial real estate markets.
In some cases, it might be better not to delve into matters alone. A few factors that good real estate agents or brokers can help with are figuring out the general rent and the vacancies in the city. Ideally the rent should be high, while the vacancy rate should be low. In general, the market has had a good run this year and vacancy rates have been low. In large cap commercial real estate markets, the vacancy rate has been roughly 4.6% in the second quarter. In small cap commercial real estate markets, the vacancy rate has reportedly declined as well. An obvious but crucial factor is the selling prices of the properties is low as well to ensure making a profit off the investment.
So given the current economic climate, where should someone looking to start out in real estate begin? Based on the performance of the market, experts predict a slowing of real estate properties in large cap commercial real restate markets. It is advised rather to invest in the small cap markets, which has shown a steady rate of growth and has consistently turned out higher returns for its investors. And as mentioned before, the safest, though slightly more costly, type of property to invest in is Medical Space for Rent in DC.
In conclusion, when it comes to looking at a real estate investment portfolio, there is no one size that fits all. For an interested buyer on a budget in California, retail space might be the best option. However, for an investor in the capital, Washington DC dental office space might be a better bet. Once all the factors listed above are taken into account and help is taken from a good real estate agent or broker, making an investment will be a smooth process and getting high returns on a real estate property will be as good as guaranteed.