Investing for Beginners by Berkeley

Author:Berkeley
Language: eng
Format: epub
Publisher: Tycho Press
Published: 2014-09-25T16:00:00+00:00

Categories of Real Estate

The pros and cons previously listed apply to real estate as an asset class and to most individual pieces of commercial real estate. That said, different types of real estate have their own characteristics and may require you to modify your approach. Four categories of investment real estate account for more than 95 percent of the market value of the NCREIF Property Index: office, retail, industrial, and multifamily.

Office

Office buildings are the rock stars of commercial real estate. On average they cost more to buy than other properties, and the occasional nine-figure deal captures the investing public’s imagination. However, while the skyscrapers that fill America’s downtowns are out of most investors’ reach, you need not be rich to buy an office property.

The NCREIF says 85 percent of U.S. office buildings and 60 percent of their total market value can be found in the suburbs. Don’t write off this less expensive space. Most people who want to invest in office space should begin and end their search in the burbs and focus on class B or class C space, not the ultra expensive class A. With high rents can come high expenses, and your profits stem from how much cash you have left after covering all the costs. Do your homework, and you can do just fine with class B or class C space.

FIVE THINGS YOU SHOULD KNOW ABOUT OFFICE REAL ESTATE

1. Office space offers excellent growth potential for the 10 years that are coming up. As the U.S. economy continues its decades-long shift toward services and away from the production of goods, demand for offices should remain strong.

2. It is the region more than the neighborhood that is important when scouting locations for office buildings. Look for areas with growing populations, strong economies, and educated workforces. Such regions attract businesses that need office space, and workers will commute to those offices.

3. The average office building in the NCREIF Property Index was worth nearly $60 million in 2010, which may actually be a bit higher due to massive buildings. Nevertheless, if you look around, you can probably find something in your price range.

4. If you want to attract attention, impressive office buildings can do that for you. If you prefer to stay below the radar, consider other types of property first.

5. From year to year, returns on office properties vary more than most. Conservative investors may want to steer clear of them for this reason.

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