It is surprising how few people invest in real estate, given all the benefits commercial real estate investment can provide. Aside from a good portion of households that own a home, many people do not make direct real estate investments. Commercial real estate or income property investment is even more rare due to some common commercial real estate investment challenges. Following are several real estate investing challenges and how to overcome them.
Lack of Knowledge
Lack of knowledge around how to invest is one of the top reasons most people do not make real estate investments. The process of finding suitable properties and determining if the opportunity is a good investment does not come naturally. It takes time and effort to follow the investment process. Most people do not know where they can go for help in finding, analyzing, financing, and ultimately purchasing a property.
A potential real estate investor may feel overwhelmed when undertaking the process due to the many tasks required to successfully close a deal. However, there are many resources where people can turn to for help along the way.
Real estate investing requires the investor to become a director and coordinate a variety of experts who can all help in completing the process. Careful research can uncover the best people to work with to successfully complete a deal. Finding knowledgeable lenders, brokers, appraisers, construction companies, and consultants will help investors with much of the work. An investor does not have to be an expert in every area. But an investor does need the focus and desire to find the right answers from competent people.
Not Enough Money to Invest
The relatively high purchase price of real estate is an obstacle to many people. Even when financing properties initial investment amounts are often a minimum of tens of thousands of dollars. But there are ways to lean on relationships and pool together funds from other investors to purchase a property.
Many real estate investors do not contribute all the money required for a deal on their own. They seek out partners interested in for part of the profits. Investors can also see if people in their own network are also interested in investing in a deal.
There are also investment clubs where other investors discuss deals and the potential to pool their funds together. Once investors develop a track record of some successful deals, opportunities open for professional investment companies to provide equity for certain investments.
It’s very important to be resourceful when looking for different ways to raise money. There are many different avenues to explore before an investor may find the needed equity and debt financing for a project.
Fear of Investment Loss
A fear of loss or failure is something all investors must face. Real estate investing involves some amount of risk. Part of the reason why real estate can be so profitable is because of the inherent risk and uncertainty. But as is often said: nothing ventured, nothing gained.
Over the long term real estate is a very safe investment compared to most other alternatives. Individual companies can go bankrupt, leaving a stock investor with a total loss. Inflation can eat away at bond returns and the purchasing power of cash. Real estate is a solid long term investment that will not become obsolete.
Carefully limiting investment risks to include only acceptable risks can help overcome a fear of loss. Still, there are no sure things in investing. An investor needs to have confidence in their decision to move forward after performing a thorough analysis.
Can’t Find Good Deals
Many investors complain there are no good deals around. The statement may be true in certain times and for some investments, but it is not true of all real estate investments in the market. Through out all different market cycles profitable investments are made. Some markets present more challenges finding good investments than others.
An interesting investing adage is in the times of peak market pessimism, the best deals are usually found. The times of peak optimism are typically filled with more investment mistakes. However, there are both good and bad investments made in all markets.
Investors today have access to more ways than ever to find attractive real estate investments. There are commercial real estate search and listing websites where thousands of property listings are available. Brokers can also be a great source for finding specific property types. Crowdfunding websites showcase already vetted real estate investments where a $25,000 minimum investment will typically buy a portion of an overall deal.
Wherever real estate investments opportunities are found, they need to be analyzed logically and objectively to determine if the deal makes sense. Investors should not trust the current market consensus because it is often incorrect. An investor using their own convictions and assumptions can usually find attractive investment opportunities in all market cycles.
Overcoming Real Estate Investment Challenges
As previously stated, real estate is not as easy to purchase as other types of investments. It’s much easier to buy a stock, bond, or currency with a click of a button and without doing a lot of work. But any investor can also make real estate a part of their portfolio. Investors can carefully analyze different properties and utilize the expertise of real estate professionals to assist in the investment process. The strong return potential in commercial real estate investment certainly outweighs the risks of never investing.