How To Start Commercial Real Estate Investing – Learn how to build wealth and earn passive income in real estate while someone else does all the work.
According to the research site Statista, the development of commercial property in the USA has grown steadily since 2010. At the same time, the vacancy rate for these properties has decreased. This tells us that there is a constant demand for commercial properties and new spaces are being absorbed as they are built.
How To Start Commercial Real Estate Investing
There was a time when the only way to invest in any type of property was to buy it directly or through a private equity group. Today, the Internet allows anyone to invest in real estate online. When it comes to real estate investing, online passive investing has many advantages over traditional methods, perhaps the biggest being that you don’t have to deal with tenants or the landlord has to multitask to do it. TO DO
Ways You Can Invest In Commercial Real Estate Online
When most people think of buying commercial property, they naturally think of multi-family houses or offices. While these are two of the most popular types of commercial real estate to invest in, they are not the only assets to consider. In fact, the commercial real estate industry is much broader than that. Commercial properties include shopping centers, warehouses, industrial properties, “mixed-use” buildings, hotels, land deals, etc.
The versatile nature of commercial real estate is one of the reasons why it appeals to so many investors.
So if you want to invest money in commercial real estate, how can you do it without buying a physical property? Take a look at the ideas below for inspiration:
An ETF is short for Exchange Traded Fund. In short, this is where different stocks or bonds (or a mix of both) are combined into one fund. ETFs are similar to index funds and mutual funds in two ways. Firstly, they have a wide selection of stocks and bonds, and secondly, they are relatively affordable investment vehicles.
Managing Risk In Commercial Real Estate Investments
An investment vehicle is any mechanism by which a person can invest in a product that generates a positive return. The most common types of investment are shares, bonds, options and futures. However, there are other types of investments, including commercial real estate, ETFs (exchange-traded funds) and REITs (real estate investment trusts), which we describe in detail below.
Investing in a commercial real estate ETF can be a smart way to put your money. This is a very liquid way of investing in, for example, new commercial buildings. When investing your money, it is worth noting that you are not investing in specific projects. Instead, you invest in real estate companies and real estate investment trusts (REITs).
Another great way to invest is to put your money in commercial real estate mutual funds. Again, they are very liquid and often come with low administration costs. Some mutual funds, such as the DFA Real Estate Securities Portfolio (DFREX), claim to provide consistent returns by following strategies backed by decades of scientific research.
It should be noted that some real estate funds offer diversification of residential and commercial interests. But the good news is that some specialize only in commercial real estate investing. It’s worth researching which properties focus on commercial real estate and then look for high-performing funds whose portfolios consist of similar properties.
Forecasting The Commercial Real Estate Investing Landscape In 2024
There are some significant differences between residential investing and commercial real estate investing. Residential properties, which can range from two-family rental properties to apartment buildings with more than 200 units, require more management than commercial properties. Leases are usually entered into on an annual basis which converts from month to month, normalizing the exchange. In a 200-unit property, this can mean a landlord has to field calls from over 200 different people each week. That said, most investors understand the basics of rental property and are therefore attracted to the simplicity of home investing.
Commercial real estate is a bit more complicated. Lease agreements are very important, often adapted to the tenant’s characteristics and their circumstances. Nevertheless, leases tend to be long (5 to 10+ years) and are often structured as a “triple trap” – meaning the tenant is responsible for their pro rata share of taxes, insurance and common area (CAM) construction costs. This reduces the financial burden on the owner. Those who are able to understand the nuances of commercial real estate often find this segment of the market very profitable and are therefore often steered towards commercial real estate mutual funds.
Access our free weekly newsletter exclusively covering the latest updates from the world of real estate crowdfunding.
REITs (real estate investment trusts) act like mutual funds. The only significant difference here is that you can diversify your holdings based on the type of property category the REIT invests in. In other words, you have more flexibility in where your money goes when you invest in a REIT.
Investing In Commercial Real Estate: Risks And Rewards
REITs are another very popular way to invest in commercial real estate without the need for ownership. As you research the market, you will come across a variety of commercial real estate REITs that best suit your needs. Be sure to avoid non-listed REITs, as they often lack liquidity, have high costs and low transparency.
REITs often specialize in a particular product type (eg, multifamily, office, retail or hospitality) and/or geography (eg, Northeast, Southwest). Some are long-term investors, while others have a short-term investment horizon. Regardless, it’s important for investors to evaluate the REIT’s business strategy to ensure it aligns with their own goals and priorities.
You may not know this, but some companies specialize in the purchase and management of commercial real estate and accept individual investors in their projects. Depending on your needs, it may make sense to invest in one or more companies individually, rather than in mutual funds or REIT structures.
The companies in question often focus on assets such as apartments, office buildings, high-rise projects, student housing etc. As you can see, this type of investment has some disadvantages. Perhaps most importantly, while the return on investment is among the highest in the industry, the risk is just as high.
Why Real Estate Investors Should Consider Commercial Properties
And since there are very few official reviews on this type of investment, you should check the company’s offer yourself before buying shares. That said, you have even more flexibility to diversify your investments than with ETFs, mutual funds and REITs.
Do you prefer to invest your money only in new construction projects? If so, buying shares in commercial construction companies may be the solution for you. As previously mentioned, commercial construction has been in steady growth since 2010. As a result, there are opportunities to invest in large commercial construction projects.
You can of course do this by buying shares in the companies that develop these projects. There will always be a need for new commercial properties, whether retail units or office buildings in the growing central business districts of major cities.
Sometimes you can come across small-scale opportunities that can provide a relatively high return on investment. Such investment opportunities can be found on websites such as EarthPatch and Zeus Crowdfunding.
Is Commercial Real Estate A Good Investment
The advantages of using such sites are that they make it easier for real estate investors to get loans, and because of the low fees, they cost less. But the downside is that peer-to-peer lending like this is inherently risky. In addition, some lenders only allow low LTV (loan-to-value), such as 65%. That said, Zeus Crowdfunding offers the only guarantee (that I know of) in the real estate industry, and you can listen to my podcast with Zeus founder Steven Kaufman where he explains how he does it.
As mentioned above, investing through mutual funds has both advantages and disadvantages. Let’s start with the pros.
Do you personally know a real estate investor with the ability to find the next big thing in commercial real estate? If so, you can lend them money. This is a mutually beneficial arrangement and you are directly involved in the investment.
Finally, you can also consider investing your money in commercial real estate fundraising projects. This is a relatively new way for real estate investors to raise the capital they need to complete commercial real estate projects. Examples of mainstream platforms include CrowdStreet, RealCrowd and Fundrise, to name a few.
Commercial Real Estate Investment
You also have the opportunity to discover which commercial real estate investment sector suits you. For example, CrowdStreet specializes in commercial real estate in major US cities, RealCrowd provides access to industrial and multi-sector offerings, and Foundries also accepts investments from non-accredited investors.
This type of crowdfunding site allows
Start real estate investing, commercial real estate investing course, how to start investing in commercial real estate, commercial real estate investing training, how much money to start real estate investing, how to get into commercial real estate investing, how to start investing in real estate with little money, how to start real estate investing with little money, commercial real estate investing, how to start investing in multifamily real estate, commercial real estate investing 101, how to start investing in real estate