A Glance at the Past
In the beginning of 2021, the madness of the pandemic continued to ensue, leaving many investors unable to run the risk to finance any commercial real estate. This could also be contributed by the increase of work-from-home culture, as many companies still had their employees working from their home office. However, towards the end of 2021, the comfort of e-commerce purchases continued to increase among consumers.
Inflation: the Double-Edged Sword
The term “inflation” certainly holds a negative connotation. Luckily, in the world of commercial real estate, inflation may not be an entirely negative experience. For properties both new and old, investing in CRE can nearly negate the impacts of inflation.
First, it is important to identify the direct causes of inflation as it relates to commercial real estate. Materials for building consist of a decent sum of money.
Plus, you must take into consideration the actual cost of labor. An unknown variable is time; although there may be a preferred timeline, one must take into deliberation the possibility of extra time.
The benefits of inflation lie in the terms rate. Being able to gain above the inflation rate will result in a valuable income; though this may not be apparent immediately, the results certainly show over time. Creating short-term leases, if applicable, creates an opportunity to raise rent prices.
In places where new construction is not frequent, looking into current commercial real estate can still prove beneficial. Less options for property leave tenants with no choice than to work with what is at hand. This leaves yet another opportunity to take advantage of a rent increase in order to gain profit.
What Else to Consider
Being a borrower in a time of inflation raises questions. Is now a bad time to borrow? Can I risk it? Understanding the factors that go into borrowing from a lender may help you decide on investing in commercial real estate.
When looking into a lender, it may be advantageous to look into an alternative lender.
Taking part in this dynamic market requires awareness of the precautions to battle inflation. As a borrower, your lender may increase commercial property mortgage rates to balance loss from inflation. These concepts are crucial to understand as inflation continues.
Applying to construction mortgages may also be a more complex situation. As stated previously, time is not a constant variable. The lender may be more hesitant to grant this allowance due to a higher risk of extended time and labor, as well as materials. Not only this, new construction buildings are not yet tangible, therefore one may have a harder perception of estimating the amount of materials needed.
In a time of inflation, be prepared to work with lenders who are more cautious of risk due to the rising cost of goods. Understand that alternative lenders may be more lenient and appreciative when it comes to constructing your CRE ideas. Finally, keep in mind that lenders may also take extra caution due to higher risks.
The Future of CRE
The demand and popularity of commercial real estate has emerged and continues to grow in 2022. With more finances to expand and invest in new construction, investors have been finding more opportunity to take the leap.
The saying “better late than never” heavily correlates with the commercial real estate market. Despite the continuous inflation rate, now is the peak time to begin investing in CRE. Expenses continue to grow as the year moves along, and there is no determining when it will slow.
Reprop Financial is prepared to solidify investors goals in commercial real estate. Give us a call today!