Many people, having acquired a small capital, seek to invest it in purchasing an apartment for rent or subsequent resale. People who have accumulated more serious wealth prefer long-term investments in commercial real estate to diversify their assets and provide themselves with passive income.
However, this choice has not only obvious advantages but also hidden risks that can lead to financial losses.
Typically, commercial real estate is divided into several main types – retail space, warehouses, offices, and hotels – but in reality, there are many more areas, and each of them has its characteristics.
Such investments always require careful analysis and well-thought-out decisions – any mistake can cost millions of dollars.
Most often, investors choose to buy real estate for rent.
However, you need to understand whether it will be possible to attract long-term tenants – on average, commercial real estate pays for itself in five years, and without long-term tenants this period can stretch out indefinitely, causing losses to the owner of the space.
READ: Labor Rights of Workers in the UAE: Detailed Analysis
Properties that do not have a permanent tenant often bring quite a lot of operational difficulties instead to passive investments. This type of activity involves complete control of all processes and carries considerable risks in terms of long-term prospects. But if it is possible to attract a mono-tenant for the entire payback period or longer, these investments bring real passive income and do not require the owner to deal with the issues of operating the property and managing rental relations.
In any case, before investing in such a business, you need to carefully analyze its capabilities and trends several years in advance to minimize possible risks and have a specific business plan. You can also avoid problems if you diversify your assets by industry, location, and region – then a drop in the profitability of individual objects will not have serious consequences for the investor.
Another popular type of investment is commercial real estate. It differs from leasing in that it does not involve long terms, but requires additional investments in reconstruction, major repairs, or redevelopment of the building.
This is usually the case when undervalued commercial real estate is purchased to sell it in a few years at a better price. But to get the desired effect from this strategy, you need to have a comprehensive understanding of why the price should rise. For example, warehouse space will become more expensive, since a logistics center or new production facility is already being built nearby. Or we are talking about apartments in a rapidly developing area of the city, where in a few years multiple increases in demand for rental housing are expected and, accordingly, an increase in rental prices.
READ: The Rules for Apartment Redevelopment Are Not So Simple: Information for Dubai Studio Owners
Another option is to improve or reconstruct the property for subsequent resale.
This strategy is one of the highest-margin ones, but only large developers are capable of such construction.
Dubai has become one of the world’s business hubs, where there are no restrictions or sanctions, but a very competitive cost per square meter combined with high construction rates.
China is also interesting, which has the world’s leading economy and is growing steadily and rapidly. Shanghai, Beijing, and other huge cities are very promising for investment in commercial real estate.
Thailand and Vietnam, as popular tourist destinations and countries with active business development, are also excellent options for investing in commercial real estate, especially in the hospitality sector.
Commercial real estate is a business with many ways to invest, increase capital, and generate stable passive income.
READ: Pearl of the UAE: Emirate of Ras Al Khaimah
This is an industry with a high barrier to entry, but if an investor has the funds and knowledge to conduct a comprehensive market analysis and plan for the long term, then commercial real estate can be an excellent investment choice.
