Thursday, December 22, 2022

Considerations Before Investing in Commercial Real Estate


 Investing in commercial real estate is a good way to earn regular income. However, there is much more to simply buying a piece of property. Before investing in commercial real estate, there are several important factors to consider.


Unlike most other investment options, commercial real estate doesn’t suffer from market volatility. However, market shifts can affect certain aspects, such as the vacancy rate and the stability of tenant occupancy. Therefore, a deep understanding of the property market is key, particularly of the area you are targeting. This includes the latest economic trends, including trending job sectors, unemployment rates, and current state and federal property taxes.


Keep an eye on what business activities are driving the local economy. That helps to understand which commercial real estate assets are hot. Remember, every state has a different level of demand and supply of commercial properties. You need to research and carry out your due diligence.



Property redevelopment is a common strategy among commercial real estate investors. However, such projects require due diligence in zoning ordinances and building codes. Before you initiate any redevelopment, consult the local building authorities.


Get a zoning report, which can give you valuable insights into the area's building and zoning compliance requirements. This will inform your investment decisions and also avoid potential zoning disputes later.


Know the long-term viability of your commercial real estate. The existing tenants, the current tenancy terms, and their financial condition are factors that say a lot about the long-term asset viability and whether the investment is likely to be profitable. Historical vacancy and lease terms data will give you an idea of how you need to prepare in the event of a tenancy gap during the period of your investment.


When investing in commercial real estate, always factor in property taxes. High property taxes could potentially eat into your rental income. As a general rule, in metropolitan areas, expect higher property taxes and lower rates in more rural places.


The year 2020 marked a major milestone for Environmental, Social, and Governance (ESG) investing. Due to the COVID19 pandemic and climate-related disruption, real estate investors were pushed to adopt more robust sustainability approaches. While the shift to net-zero emissions and energy savings may be easy to implement for office tenants, as a commercial property investor, you will need to find solutions for your retail occupiers (if it applies to your property). They typically use energy-intensive lighting for window and product displays.


As the trend toward tighter ESG compliance accelerates, you must stay on top of a rapidly changing environment as a commercial real estate investor. You have an opportunity to drive positive changes with new technology and green leases. Green lease refers to different clauses and documents that contain environmental obligations.


For example, in 2021, the U.S. Department of Energy (DOE), through the “Better Buildings Initiative,” awarded 43 organizations nationwide with the Green Lease Leader recognition. In Singapore, the City Square Mall had tenants agree to integrate green practices into the premises. In car parks and escalators, the mall has installed energy-saving auto-lighting.

Tuesday, October 25, 2022

What Novice Investors Need to Know About Capital Markets


 Capital markets are venues where investors offer their excess capital to those who seek it to finance projects or investments. Investors in capital markets include individuals, banks, and institutions. The money is sought by businesses, governments, and even individuals. There are two types of capital markets: equity securities traded on the stock market and debt securities traded on the bond market. While money invested in equity securities may not have returns, money invested in debt security is treated as IOUs and must be paid back with interest.


The capital markets also have other securities, including commodities, foreign exchange, and derivatives. Trading for capital markets occurs either in primary markets where a company issues securities directly or secondary markets where a security holder is responsible for the trading.

The markets mentioned above refer to publicly traded securities. However, there are also private capital markets where securities are held privately. Private securities have less liquidity, making it difficult for small investors to invest in them. Although private securities do not receive publicity or are not under public scrutiny, they offer greater returns.


With such varying capital market investment options, it becomes necessary for investors to carry out due diligence before deciding where to put their hard-earned money. Before making any investment, an investor should have a personal financial roadmap to help create goals and help identify their risk tolerance. People who may find it difficult to make financial plans should seek the help of professionals in this field. Considering that any investment comes with its share of risks, a professional is better placed to explain associated risks with different assets. For instance, investing in securities such as stocks means an investor may lose some or all of the principal invested.


Investors also need to understand the liquidity of an investment. Liquidity means how quickly an investment can convert to money. For an investor with a financial plan, it becomes easy to know where to invest as they can choose between long and short-term investments.


Understanding different investment options in the capital market also help in decision making. For instance, when buying a stock, an investor becomes a shareholder in a company and should find out crucial information regarding the company. Regardless of the timeline an investor wants to hold on to a share, they should analyze a stock performance compared to those of similar companies, size of the company, shareholder pattern, revenue growth, and dividend history, among other important information that helps make an informed decision.


The main aim of investing in capital markets is obviously to make returns. However, some risks affect an investment return, such as market risk, geographical risk, interest rate risk, and idiosyncratic risk. With all these potential risks, it is necessary for investors to have portfolios where they can have a variety of diversified investments. An investor should create an investment portfolio that includes stocks, bonds, mutual funds, and other investments that their financial plan allows. Properly allocating investments in a portfolio may require a professional's help to create a balanced mix of investments.


Additionally, investors should avoid situations that may lead to fraud. Many scammers are looking for unsuspecting people to deceive. Such con artists can use investment opportunities in the public domain to lure investors with seemingly legit opportunities. Investors should, therefore, not shy away from asking relevant questions that help establish a broker's experience and legitimacy.


Friday, September 2, 2022

Hands-Free Real Estate Investments


 Real estate investments offer many avenues for growing wealth. Investors can generate income from rents and see an increase in equity from the appreciation of their property over time. Moreover, unlike stocks and bonds, investors can utilize leverage, using debt (mortgages) to finance assets and pay off these debts gradually. A conventional mortgage requires a 20 to 25 percent down payment, while other loan arrangements may be obtained with as little as 5 percent down.


Investors can also use their property as collateral to acquire new assets. The availability of financing allows businesses and individuals to grow their real estate portfolios exponentially. Further, some real estate investments enable entrepreneurs to build their portfolios without worrying about hands-on management. Investors enjoy their passive income in the form of monthly cash flow.


The prices of US real estate properties are rising despite multiple challenges. The COVID-19 pandemic, inflation, and supply chain complications emanating from the war in Ukraine are affecting the sector’s consumer behavior. Mortgage interest rates in 2022 are approximately 75 percent higher than in 2019. Despite this, the value of homes has risen by 13.4 percent during this period, showcasing the resilience of real estate.


The Mortgage Bankers Association (MBA) predicts real estate prices will continue rising. With this situation, this sector will remain profitable, but the entry for new players may become challenging. However, industry knowledge can boost investors' chances for success. Two investment avenues can help them access this sector’s opportunities hands-free.


The first is investing in real estate investment trusts (REITs). These licensed public companies pool investors’ finances to purchase and operate the property. Entrepreneurs can build their portfolios without owning, operating, or financing assets. The companies collect rent, advertise vacancies, interview tenants, and trade mortgages on exchanges.


Investors’ returns are in the form of periodic dividends. By law, REITs must pay out at least 90 percent of their after-tax profits as dividends, making this option more valuable than many stock-based investments. Additionally, these assets can trade on major exchanges. This means that shareholders wishing to cash out of REITs can do so smoothly and cost-effectively, since they do not need agents.


Regulations govern REITs to ensure fair treatment of shareholders. Each company requires at least 100 investors and primarily focuses on commercial real estate, including office buildings, hotels, and apartment complexes. Investors can choose between equity and mortgage REITs, depending on their preferences.


Equity REITs are the most popular option, dealing with rental and lease properties to generate dividends. Equity REITs, however, are sensitive to economic shocks.


Mortgage REITs, on the other hand, generate income from mortgages or mortgage-backed securities. Interest from these loans service investors’ dividends and organizations still pay out most of their after-tax revenue. This option’s primary drawback is potential changes in interest rates, which may negatively affect earnings.


Second, prospective investors can invest in real estate investment groups (REIGs). Similar to REITs, these assets allow them to own property portfolios without managing or operating their assets. They also pool money from investors, but they operate differently from REITs.


In REIGs, organizations purchase land and develop properties using their own or borrowed funds. They then sell these assets to investors, making them group members. Investors can own multiple properties exclusively, but the company retains the management and operational obligations. The business deducts a percentage of the rental income to generate its returns.


Notably, investors receive risk immunity from this option. Organizations pool a small percentage of their returns to cover vacant units. The main challenge for entrepreneurs is their susceptibility to poor management and the obligation to pay annual fees.


Tuesday, March 1, 2022

Different Short-Term Investment Options


Investments are an excellent and realistic way to build wealth. They can be long-term or short-term, depending on what an individual is trying to achieve. While most people prefer to keep their money for the long-term to maximize returns, avoid market fluctuations, and spend less time, they also have an option to add short-term investments to their portfolios for liquidity purposes.

Money markets accounts are some of the most common short-term investments options. They are the type of savings account that allows investors to deposit and withdraw funds regularly. Money market accounts are similar to other types of savings accounts also, in that they limit withdrawals to typically six times per month. The core feature of this kind of account that attracts many people is the much higher interest involved, unlike the regular savings account. However, they usually require a higher minimum investment from customers. It is essential to look for accounts insured by the Federal Deposit Insurance Corporation (FDIC) to prevent loss.

Another ideal short-term investment option are high-yield savings accounts. This type of account is a way to store cash while receiving interest on deposits. Potential investors in this type of account must look for the banks or credit unions that offer the best interest rate since it’s all about making profits.

High-yield accounts are generally safe as they are insured by the FDIC for banks, while National Credit Union Administration (NCUA) insures accounts for credit unions. Similar to money market accounts, high-yield accounts also have a maximum of six withdrawals or transfers per cycle, although some financial institutions have different features.

Certificates of deposits can also serve as profitable short-term investments. Unlike most savings accounts, banks usually have strict restrictions on the number of early withdrawals customers can make. In a CDs account, an individual deposits money and agrees not to withdraw until it reaches its maturity period stipulated in the contract.

Upon maturity, the bank releases the money and interest agreed on available for withdrawal. Typically, CDs are non-withdraw-able until they mature. However, emergencies may come up for investors that would require them to withdraw before the due date. Many banks don’t make provisions for these emergencies, but some financial institutions do; however, it often comes with significant penalties. So, potential investors should ensure they have enough money to cater to emergencies after depositing into CDs. CD accounts are safe like money market accounts and high yield accounts as they are usually FDIC insured.

Treasuries are another kind of short-term investment. They are short-term financial instruments sold by the United States Department of the Treasury with maturity dates typically between a few days and one year. Treasuries come in three varieties, treasury bills (T-bills), treasury bonds (T-bonds), and treasury notes (T-notes). Interests are determined by how long it takes the bond to mature. Lengthy maturity periods attract higher interest than short periods.

The government sells treasuries at discounts from their original value. Individuals can buy treasuries directly from the Treasury Department or through brokers. Buying treasuries is safer than most investments since the government issues them.

Considerations Before Investing in Commercial Real Estate

 Investing in commercial real estate is a good way to earn regular income. However, there is much more to simply buying a piece of property....