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What are the best commercial properties? This question is often asked by investors. As a matter of fact, the best property for one investor may not be as good for another one, as each investor has different set of investment objectives. So, it is important for you to consider the following things.

Let’s start with investment returns. For example, when you deposit your money in CDs, you get 1.5% interest for 6- month CDs. What kind of return, i.e. cap rate is acceptable to you when you invest in commercial real estate? Well, the current cap rate in 2009 changes between 5% to 12%, this depends on the property type, property condition, location, and some other factors.

Potential for appreciation is one of the advantages in real estate investments. But it should be also mentioned that this potential also are different depending on property. You should know that there are several factors that influence appreciation. Some you have little control (demand and supply). However, you know the demand is weak and supplies are abundant in decreasing rust-belt areas and, as a result, the properties in these areas will not likely to appreciate. Some you have control (rents or net operating income of the property). In the case that appreciation is important to you then you should focus on properties with below market rents. When the leases expire, the rent will be adjusted to higher market rents and it will lead to that the value will likely go up.

Now let’s talk a bit about annual rent bump located in stable or growing areas with high barriers for entry. So, when the rent increases it means that the operating income increases too; and the property is likely to appreciate in value. You can review the rent roll to see if there are any rent increases.

As concerning investment risks it should be pointed out that there are risks associated with almost any investments. For commercial properties, one may have higher risks than another. Investment risks and returns tend to go in opposite directions. Generally speaking, the lower the risk the lower the returns but there are also moderately low-risk properties offering high returns that are called good buys. Sometimes you may need a professional to help identify them and many people use for this purpose a bullet-proof safe investment over moderate risk properties. Actually, it could not be said exactly whether it is right or wrong. Why? Imagine that you work for a company that during 30 years does not give you a raise, but it offers a lifetime employment and your payment is regular. The answer to the next question divides people into two groups: those who prefer bullet-proof safe investment and those who choose moderate risk properties. So, will you be a happy employee?

Those whose answer is yes as they don’t ever want to be unemployed in their life will consider investing in bullet-proof safe investment. Obviously, those whose answer is “no” belong to the other group.

Finally, in order to minimize or reduce the risks of your investment, you should choose a property at a great irreplaceable location. Obviously, tenants will come and go but location does not change. You should also keep in mind that, as an investor, you need to do your own research and determine the amount of risks that you feel comfortable with.