Everyone defines “risk” differently. One person’s risk is another’s opportunity. In both business and life, it is important to be comfortable with the risk of the unknown – after all, rewards are oftentimes correlated with taking the risks others are not willing to take. Although a commercial real estate investment may require considerable capital and time in order reap its rewards, it is typically considered a stable asset type that offers additional benefits along with its gains in capital.
Every market experiences different commercial real estate trends based on its economy and demographics. For example, the San Diego market is currently experiencing a demand for multi-family/apartments. San Diego is geographically restrained by three factors: Camp Pendleton to the north, Mexico to the south and the Pacific Ocean to the west. Due to the limited land in centralized locations, developers have found vertical construction of multifamily to be an efficient way of meeting demands for supply.
As San Diego sees a shift in its economy towards becoming a startup hub, its population will continue to become younger. The renters base is strong and growing, especially since millennials tend to rent their homes longer than the previous generations, irrespective of income level. As a millennial myself, I find myself looking to try new things all the time. The responsibility of owning a home does not allow the flexibility we millennials are looking for in the way we want to live our lives. We thrive on our ability to travel the world, eat out for every meal and spontaneously experience anything new that may cross our path.
What is the difference between a mortgage payment and a lease payment? In short, while they are both monthly payments which grant you the right to use a piece of real estate, a mortgage payment is secured by an asset and personal credit, while a lease is not. In addition to budgeting the mortgage every month, owners of real estate must keep reserves for real estate taxes, maintenance, and repairs, which consumes the disposable income that has become so precious to millennials.
For more risk-averse investors, multifamily properties are a stable asset in the market. In a time of recession, fewer people will want to take the risk of purchasing a home and have the property value drop, resulting in higher renter volume in the market. While multifamily properties tend to have shorter contracts and greater turnover than other asset classes, people will always have a need for a roof over their heads. Multifamily investments opens the opportunity for steady cash flow.
Every investor has unique needs. Is a multifamily investment right for you?
Joseph Mizrachi is a Corporate Real Estate Advisor at McKinney Advisory Group, specializing in tenant representation for office and industrial requirements of all sizes. Having worked in Panama for two years, Joseph has vast knowledge of the inner workings of global businesses. Contact Joseph firstname.lastname@example.org or 858.519.3514