​If you are a new investor, you may wonder why real estate should be part of your portfolio and how it compares to other investment options. Real estate offers a clear structure for generating income and building equity. One common reason people invest in real estate is the potential for monthly income. Buying property to rent out has become a popular strategy because it allows investors to receive steady payments and build a portfolio of tangible assets. Over time, these properties can gain value, which may increase the return on investment.

Real estate also offers an opportunity to earn profit through buying, renovating, and reselling properties. Investors who choose this path usually target distressed properties in areas with strong demand. While this approach requires more upfront capital than renting, it can produce returns in a shorter time frame. Renovating to meet market expectations takes effort and funding, but the sale can often result in a favorable return on investment.

Property investment generally assumes that real estate values will rise over time. If you purchase and hold the right property, its value should increase and outpace your initial investment. Long-term investors often benefit from this appreciation, provided they maintain the property and monitor market trends. Real estate can offer steady growth, but it requires patience and a practical strategy to deliver results.

​Real estate transactions require upfront capital investments, including those from equity investment partners. Investors can secure financing in several ways, starting with conventional banking loans.

While traditional financial institutions often offer the lowest interest rates and best terms, they also have strict lending standards focused on existing assets, collateral, and debt-to-income ratios. The standards may preclude more speculative ventures from receiving financing. Therefore, some turn to alternative options, such as private hard money lenders.

Private hard money lenders have a faster and more flexible loan evaluation and disbursement process. It allows investors to take advantage of market-dependent opportunities within short timeframes. They are ideal for short-term scenarios, such as property flips and purchasing distressed holdings only on offer for a limited period. However, the funding has more substantial interest rates and fees with short maturity timeframes. 

Nonetheless, many investors prefer to turn to private lending, which eases institutional and regulatory hurdles to accessing capital. Sometimes, investment partners include friends, family members, and other business professionals, forming real estate syndicates. They pool resources from various investors into a unified, project—or segment-specific entity.

Alternately, the investor base may include those with self-directed IRAs and other investment-focused savings vehicles with dormant funds that do not require immediate disbursement.

​In the Southern California commercial real estate marketplace, industrial properties represent one of the most transacted asset types. Given increases in regional land prices, acquiring, retrofitting, or repositioning existing industrial properties increasingly makes sense to many investors.

Because demand is still below pre-pandemic levels, the landscape requires in-depth knowledge of economic trends, labor, and market potentialities.

Purchases often involve a price discovery phase to avoid negative leverage situations. These involve the costs of debt exceeding the current cash flow generated by the property. Buyers want certainty that such a situation is unlikely to impact them moving forward. They seek to acquire properties at a discount and look to address below-market legacy rents through rent increases as tenants move in.

Another trend is toward smaller deals, driven by all-cash purchasers who can obtain the best prices by paying full upfront without interest-charging banks and other lenders. With more considerable industrial assets in the $100 million range, such arrangements are often not feasible. This has slowed the pace of more significant transactions.

Regional banks and debt funds have stepped in to a certain extent and taken on the role of primary lenders, preventing too steep of a drop-off. While greater transactional volume would be optimal, discounted prices provide future-focused investors with opportunity.

​Within competitive real estate markets, distressed properties present one type of ownership with significant potential upside. Such holdings occur when the property owner fails to keep up with property taxes or mortgage payments, or as part of a liquidation process associated with divorce or bankruptcy.

Situations of pre-foreclosure or foreclosure center on delinquent mortgage payments, with the lender taking repossession of the property, which is often sold at auction in an “as-is” state. In cases where the property does not sell at auction, it becomes real estate-owned (REO) property. The bank takes over ownership and sells it at whatever reduced rate the market will bear.

Another route is a short sale, which involves an “underwater” homeowner owing a greater amount on the property than the actual value of the house. In such cases, the lender oversees a short sale at a reduced price, allowing the bank to quickly make up some of the deficit.

For investors, distressed properties often provide a substantial discount on the potential market price achievable, after renovation or refurbishment, and a repositioning of the home. Some lenders will also lower mortgage and interest payments on such holdings, simply to have them off their books. There are downsides to purchasing distressed properties, however, including the potential of assessed tax liens and the need to evict tenants. Going the bank listing and real estate-owned property route typically removes such considerations. However, the properties may be those that auction bidders felt didn’t have the best potential.