One of the essential things to understand about commercial real estate investing is that there is truly no “one size fits all” approach to growth. Every property is unique, as is the area in which it is located. A strategy that works well for one investor may be inadequate for the next if you have different risk profiles. The list goes on and on.
There are different tips and strategies that real estate investors can use who are looking to expand their commercial real estate portfolios. Understanding more about what they are and why they work is the key to finding the best real estate investment approach for you.
Table of Contents
1. Diversifying Investments
An old saying reminds us that we should never “put all our eggs in one basket.” That, in essence, is the key to diversification as a commercial real estate investor.
Even if you’re naturally attracted to one particular property type, it’s essential not to go “all in” in that direction. By taking the time to invest in many different types of properties, you can significantly reduce risk as an investor. Even if one particular type of property is no longer desirable – as when office space saw a decline during the COVID-19 pandemic when many people found themselves suddenly working from home – your gains in other areas can potentially make up for your losses in another.
Note that this also helps to increase your potential returns as well. You’re less dependent on any one type of property, and small gains across the board add up to significant returns overall. This is similar to many people’s approach when investing in the stock market.
2. Utilizing Leverage
One way that many investors grow their CRE portfolios is by using leverage.
A mortgage would be one prime example of this. Using the money obtained from the mortgage, you can acquire more properties using the same working capital.
This assumes that your existing investments pay off the way they should and that your debt service coverage ratio (DSCR) doesn’t raise any cause for concern. By utilizing a loan like a DSCR mortgage, that leverage will allow you to grow without overextending yourself in the process.
Of course, there are elements of this process to consider as well. If you choose the mortgage route, the current interest rates will determine what you can do with that money. It would help if you considered the bigger picture when making a decision one way or the other.
Another one of the critical ways that real estate investors can grow their CRE portfolios involves networking – that is to say, going out of their way to build relationships with others in the industry.
This includes not only other investors but also agents and industry professionals. This can be a great way to pool your resources and identify new opportunities you may have overlooked. You can also share information, helping prop everyone up along the way.
4. Staying Informed
Any seasoned investment professional will tell you that staying informed is a big part of their success. That means not only keeping up with all the latest market trends (nationally and in a particular area), but also staying abreast of new laws.
All relevant information can ultimately help investors make the most intelligent choices possible, given the conditions they’re dealing with. This isn’t just how you build a portfolio, it’s how you make sure that it continues to grow.
However, this level of research is not a “one-and-done” scenario. Regularly, you need to pay attention to market trends and patterns. You need to be aware of anything that could potentially impact your existing investments to mitigate risk as much as possible. Likewise, suppose the market is trending slowly in a particular direction that it would be advantageous to capitalize on. In that case, you may be able to get to that point before anyone else can.
5. Utilizing Technology
Finally, one of the best ways real estate investors can grow their CRE portfolios involves leveraging the power of modern technology to their advantage.
Investors can help automate specific processes that would otherwise take a great deal of time, such as freeing up their attention to focus on more important matters. They can also use things like automation to help make data-driven decisions, removing a lot of the guesswork from the equation so that they can be confident that they’re making the most informed choices possible given the circumstances.
In the end, growing your commercial real estate portfolio will require a disciplined approach to the proceedings. You need to understand that you’re in it for the long haul, and not every decision you make today will immediately “pay off.” But collectively, over time, they add up to a healthy portfolio that continues to grow and generate more revenue – which in and of itself is the most crucial benefit of all.