One of the Best Ways to Outperform Stocks and Bonds

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To grow wealth, generate respectable income and preserve capital, investors need to outperform stocks, bonds and other financial instruments… And one of the best, most consistent ways to do that is by investing in a little $804 billion industry known as commercial real estate. Quite easily, some of the greatest fortunes I’ve made is by owning Class-A properties, which have a history of producing predictable, lower risk income. While my portfolio consists of Class-A property, I also hold Class-B if it meets my investment criteria.

As I note in my book – Winning with Commercial Real Estate:

Generally speaking, unlike Class-A buildings, which are situated in the most desirable areas, Class-B buildings are found in nonprime locations. Many first-time commercial property investors start with a Class-B building. Class-B buildings are generally a little older but still have good-quality management and tenants.

Some Class-B properties, classified as such by their vintage and often smaller size, may be in Class-A locations, which are the ones I like to buy.

Class-B property is a step down from Class-A. These are generally older buildings with smaller tenants. Rental income is lower with some maintenance issues. Through proper upgrades, renovation, and other improvements, there exists an opportunity to upgrade to Class-A classification.

It all depends on the extra investment you’re willing to put in, though. Class-B buildings carry a bit more risk than a Class-A property. Compared to Class-B, Class-C properties are older still. Located in less desirable, lower-visibility locations, these are often in below-average condition and typically in need of major renovations and improvements.

Infrastructure may need to be brought up to date. Rents and cash flows are not attractive for investors. These often take the longest to lease too. It’s not a desired property.