Diversify Your Real Estate Portfolio

Diversify Your Real Estate Portfolio

Operating as the CEO and president of NorthDevelopment, a Chicago real estate development firm I founded, I have over 35 years of expertise in residential and commercial real estate. I am always looking for commercial opportunities, and in 2004, I acquired over 31 FannieMay candy stores, leasing half of the stores to other merchants and half back to their proprietors.

As with investors active in other fields of investment, real estate professionals can diversify their portfolios by investing in both residential and commercial properties. However, investors considering doing so would do well to know the particulars that distinguish commercial real estate beforehand. As an illustration, residential apartments diversify risk in a useful way. If an owner of a residential apartment complex leases 10 apartments and one tenant leaves, he or she only loses one-tenth of the income. Multi-unit commercial properties, such as units in a strip mall,follow this same logic, but as they also generate income for their tenants,they offer further opportunities.

Lenders and owners value commercial properties differently. A bank will ask for a bigger down payment on commercial spaces,often as much as 30 percent more. That may not matter as much, however, when one factors in how commercial properties draw income. The income a commercial property generates is often proportional to its usable square footage. In other words, buying a larger commercial space costs more up front, but owners can make up those upfront costs by working with tenants who make efficient use of the space and draw a steady stream of customers.


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