Are you considering commercial real estate investments? Investing in commercial real estate can be a game-changer for your financial portfolio, offering significant returns and long-term stability. In 2024, the opportunities are vast, but selecting the right investments is more challenging than ever. That’s because the commercial real estate market is always changing, with new trends and developments emerging every day.
If you struggle to identify commercial real estate investments yielding the highest rewards in 2024, you’re in the right place. This article explores promising commercial real estate sectors in 2024 and provides insights to guide you towards making an informed decision.
7 Savvy Commercial Real Estate Investments in 2024
Choosing the right real estate investment is crucial to expanding your portfolio and making a profit in 2024. Below are some of the best investment choices to consider for a high return on investment:
Industrial Real Estate
Industrial real estate consists of buildings and properties that serve as manufacturing, logistics, or shipping facilities. So, buildings like warehouses and factories are mostly considered industrial real estate. One of the perks of this type of commercial real estate investments is that leases are often long-term and consistent. Therefore, you can predict and enjoy a steady return on investment.
The downside, however, is that industrial real estate is often designed for specific purposes. For example, if a company using a warehouse ends its lease, it may be challenging to find another firm with the same real estate need. Consequently, you may need to make huge renovations and restructuring to attract new clients.
Regardless, industrial real estate is suitable if you’re looking for steady, long-term commercial real estate investments returns. To prevent constant renovations, work with companies who have plans to occupy the facility for an extended period.
Multi-family Rental
Multi-family rental homes are typically apartment buildings, multi-unit properties, and townhouses in highly developed locations. They contain two or more units in the same building and can accommodate multiple occupants, including families and individuals. Duplexes, triplexes, and quadplexes are examples of multi-family rental properties.
Multi-family rentals are considered smart commercial real estate investments because of their cash flow perks. First, they’re in high demand, so you can expect a high occupancy rate, particularly if the property is in a strategic location. This means consistent revenue that increases your monthly or annual cash flow.
Second, multi-family homes are relatively easier to manage. For instance, it’s more convenient to oversee 15 units under one roof than to manage 15 different homes in various locations. Multi-family rental often translates to hiring one property manager instead of multiple managers across locations. Therefore, you’ll save a lot on management and track developments efficiently.
Retail
Retail real estate generally consists of buildings, housing businesses, selling products and services to consumers (B2C). Examples include strip malls, supermarket shopping centers, restaurants, regional malls, etc. Retail properties have the potential to generate huge capital gains.
Additionally, compared to short-term residential properties, leases often span between three to five years, providing a consistent income stream. You can also transfer property management costs like water and electricity to tenants, reducing maintenance burden.
The demand for retail spaces is increasing with the growing population of new residential neighborhoods. This means retail properties will continue to be in demand, and you’ll consistently receive a steady cash flow as a retail property owner. Thus, making them one of the most sensible commercial real estate investments.
Hospitality
This type of commercial real estate investments includes hotels, motels, resorts, and extended-stay hospitality. It focuses on short-term stays and includes various amenities to create memorable experiences for consumers. Hospitality real estate provides revenue through room rates, food, and beverages and often comes with high returns, depending on seasons, economic booms, etc.
The hospitality sector is currently booming, so investing in it can potentially yield consistent cash flow. However, keep in mind that the value of hospitality real estate depends on its location, services, tourism trends, affiliation, etc.
Senior-living Housing
Senior living real estate consists of various forms of housing, including multi-unit residential complexes for older adults, independent living communities, and assisted living. These complexes are designed with unique amenities that cater to older adults’ needs, including nursing facilities. They’re operated more like hospitals than residential apartments.
There’s potential for senior housing demands as life expectancy increases. As a result, more people want to invest smarter by adding senior housing to their portfolios to enjoy the perks of high cash flow. One of the apparent reasons to consider senior living housing in your commercial real estate investments portfolio is its growing opportunity. For instance, the number of Americans 65 and older is expected to double in the near future, which means senior housing demands will rise.
It’s also a needs-based market, indicating that it will continue to stay relevant because older adults will continually rely on senior housing. More so, senior living comes with unique amenities that other types of real estate don’t provide. This means it will be sought specifically because of its unique offerings.
So, if you’re interested in commercial real estate investments and want to meet a growing need while enjoying consistent cash flow, senior-housing commercial real estate should be at the top of your list.
Office Buildings
Office buildings are houses built to provide workspace for businesses and organizations. They’re broadly divided into high-rise, low-rise, and suburban office buildings. High-rises include skyscrapers, while low-rises are usually a few stories high. Lastly, sub-urban offices are popularly part of a larger office park.
Commercial office buildings can potentially offer steady income flow and yield high returns on investment. Average lease terms are often between three and five years, and you could draw up a longer lease depending on the market condition. They also appreciate faster than residential homes and attract more investors due to longer, steady leases.
Mixed-use Properties
Mixed-use properties combine residential and commercial spaces in one building. These commercial real estate investments provide you with diverse revenue because you receive rent from residential and commercial tenants. In addition, they pose less investment risks as you aren’t relying on a single source of income.
Finally, if your mixed-use property is located in a heavily populated area, you’ll enjoy a low vacancy rate. Mixed-use properties are currently in high demand, so there’s a potential for constant use and continuous income generation.
Leveraging Capital Stack for Commercial Real Estate Investment
Commercial real estate investments often require more than one capital source to pull it off. While you might invest your own money, you may need to obtain commercial real estate loans from other parties.
The financing structure of multiple commercial real estate lending is known as capital stack. It’s typically the legal organization of all the categories of debt you used to purchase, build, or renovate a piece of real estate. Common equity, preferred equity, mezzanine debt, and senior debt are the four elements of a capital stack:
Common Equity
Common equity takes the first position on the capital stack. While it offers the highest potential reward, it’s also considered the riskiest. It represents ownership of the property. Your returns come from the property’s profits, distributed after all debts and other obligations are paid.
Preferred Equity
Preferred property is a step above common equity in terms of payment priority. Those investing in preferred equity are entitled to fixed dividends before any profits are distributed to common equity holders. This layer of capital stack is less risky to common equity because it provides more predictable returns.
Mezzanine Debt
Mezzanine debt sits between equity and senior debt in the capital structure. Investors in this category provide commercial loans to the property owner and receive interest payments in return. It’s riskier than senior debt but less risky than preferred equity. Additionally, mezzanine leaders have a higher claim on property assets than equity holders if something goes wrong.
Senior Debt
Senior debt is the safest and highest-priority type of financing. Just like mezzanine debt, these investors lend money to the property owner and receive interest payments in exchange. If there’s ever financial trouble, the senior debt is paid back first before mezzanine debt holders and equity investors. Lastly, the senior lender can take possession of the property or sell it if the borrower defaults.
Invest in Commercial Real Estate with Capital Max
Staying updated on commercial real estate investments and trends is critical to expanding and growing your investment portfolio. However, staying in the loop is overwhelming because of the constantly changing market dynamics. Thankfully, that’s where we come in at Capital Max. We’re financial experts ready to guide you toward making informed financial decisions, including commercial real estate investments. We offer timely industry updates to keep you updated on trends and knowledgeable financial advice on building your portfolio. Reach out to us today to explore our financial solutions.