How To Start Investing In Commercial Real Estate


How To Start Investing In Commercial Real Estate – Learn how to build wealth and earn passive income through real estate while someone else does all the work.

According to research site Statista, commercial real estate development in the United States has grown steadily since 2010. At the same time, the vacancy rates for these properties have fallen. This shows us that there is ongoing demand for commercial real estate and that new space is being absorbed as construction progresses.

How To Start Investing In Commercial Real Estate

How To Start Investing In Commercial Real Estate

There was once a time when the only way to invest in real estate of any kind was to purchase it directly or through closed private groups. Today, the Internet has made it possible for anyone to invest in commercial real estate online. When it comes to real estate investments like this, passive online investing gives you several advantages over traditional methods – perhaps the most important of which is that you don’t have to deal with tenants and carry out many of the responsibilities of a landlord.

How To Start Investing In Commercial Real Estate

When most people think of buying commercial property, they naturally think of apartment buildings or office space. Although these are two of the most popular forms of commercial real estate for investment, they are not the only assets that should be considered. In fact, the commercial real estate sector is much broader. Commercial real estate also includes retail centers, warehouses, industrial properties, “mixed-use” buildings, hotels, real estate deals, and more.

The versatility of commercial real estate is one of the reasons it is attractive to so many investors.

So if you have some money that you want to invest in commercial real estate, how can you do so without purchasing a physical property? Check out the following ideas for inspiration:

An ETF is short for an exchange-traded fund. In short: This involves combining various stocks or bonds (or a mix of both) into a single fund. ETFs are very similar to index and mutual funds in two ways. Firstly, they have a wide diversification of stocks and bonds and secondly, they are relatively low-cost investment vehicles.

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An investment vehicle is any mechanism by which a person can invest in a product that generates a positive return. The most common forms of investment are stocks, bonds, options and futures. However, there are also other forms of investment vehicles, including commercial real estate, ETFs (Exchange Traded Funds) and REITs (Real Estate Investment Trusts), each of which we describe in more detail below.

Investing in a commercial real estate ETF can be a smart way to put your money to work for you. It is an extremely liquid option for investing in new commercial construction projects, for example. When investing your money, you should keep in mind that you are not investing in specific projects. Rather, they invest in the equity of real estate companies and real estate investment trusts (REITs).

Another interesting way to invest is to invest your money in commercial real estate mutual funds. Here too, they are very liquid and often involve low administration costs. Some mutual funds like DFA Real Estate Securities Portfolio (DFREX) claim to provide consistent returns by following a strategy based on decades of academic research.

How To Start Investing In Commercial Real Estate

You should keep in mind that some real estate investment trusts diversify both residential and commercial interests. But the good news is that there are some that specialize only in commercial real estate investing. It’s worth researching which holdings focus on commercial real estate and then looking for best-performing mutual funds whose portfolios consist of such holdings.

Of Nris Consider Investing In Commercial Real Estate (cre) To Diversify Their Portfolio In

There are some notable differences between residential and commercial real estate investing. Residential properties, which can range from duplexes to apartment buildings with more than 200 units, tend to be more management-intensive than commercial properties. Rental agreements are usually signed on an annual basis, which are converted to a month, which keeps the turnover the same. For a 200-unit property, that could mean an owner dealing with calls from more than 200 different people each week. However, most investors understand the basics of residential rental property and are therefore attracted to the simplicity of residential property investing.

With commercial real estate, things are a little more complicated. Rental agreements are more nuanced and often tailored to the specifics of the tenant and their circumstances. However, leases tend to be longer (5-10+ years) and are often structured as “triple net” – meaning the tenant is responsible for their pro rata share of taxes, insurance and common area maintenance (CAM) costs. This reduces the financial burden on the owner. Those who understand the intricacies of commercial real estate often find this market segment to be extremely lucrative and are therefore often attracted to commercial real estate investment funds.

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REITs (Real Estate Investment Trusts) work similarly to mutual funds. The only key difference is that you can diversify your holdings based on the type of property class the REIT invests in. In other words, you have much more flexibility in how you use your money when you invest in a REIT.

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REITs are another extremely popular way to invest in commercial real estate without having to be a landlord. 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 REITs that are not listed as they often lack liquidity, high costs, and low transparency.

REITs often specialize in a particular product type (e.g., multifamily, office, retail, or hospitality) and/or in a particular region (e.g., Northeast, Southwest). Some are long-term buy-and-hold investors, while others have a shorter investment horizon. In any case, it is important for investors to evaluate the REIT’s business strategy to ensure that it aligns with their own goals and priorities

You may not be aware of this, but there are some companies that specialize in purchasing and managing commercial real estate and accept individual investors in their projects. Depending on your needs, it may make sense to invest in one or more such companies individually, rather than in the pooled money structures of a mutual fund or REIT.

How To Start Investing In Commercial Real Estate

The companies in question often focus on assets such as apartments, office buildings, senior housing projects, student housing, etc. As you can understand, such investments can have some disadvantages. The biggest thing is probably that while the return on investment is among the highest in the industry, the risk is also correspondingly high.

How To Analyze A Commercial Real Estate Deal

And since there are very few formalized ratings for this type of investment, you need to check the company’s offer yourself before buying shares. However, you still have more flexibility when diversifying your investments than with ETFs, mutual funds and REITs.

Would you rather invest your money exclusively in brand new construction projects? Then buying shares in commercial construction companies could be the right path for you. As already mentioned, commercial construction has seen steady growth since 2010. For this reason, there are opportunities to invest in large commercial construction projects.

Of course, you can do this by buying shares in the companies that realize these projects. There will always be a need for brand new commercial real estate, whether it’s retail space or office buildings in expanding major city central business districts.

Sometimes you’ll come across smaller-scale opportunities that are likely to provide a relatively high ROI. Opportunities for this type of investment can be found on sites like Patch of Land and Zeus Crowdfunding.

An Investor’s Guide To Commercial Real Estate Syndication

The advantages of such websites are that they make it easier for real estate investors to borrow money and also cost them less due to lower fees. However, the disadvantages are that such peer-to-peer lending is inherently risky. Additionally, some lenders only allow a low LTV (loan-to-value) ratio, such as 65%. However, Zeus crowdfunding offers the only guarantee (that I know of) in the real estate industry and you can listen to my podcast conversation with Steven Kaufman, founder of Zeus, where he talks about how he does it.

As mentioned above, there are both advantages and disadvantages to investing through peer-to-peer lending. Let’s start with the pros.

Do you personally know a real estate investor who has a knack for spotting the next big thing in commercial real estate? If so, you might also think about lending them some money. It’s a mutually beneficial arrangement and you have a more direct stake in the investment.

How To Start Investing In Commercial Real Estate

Last but not least, you could also think about investing your money in commercial real estate crowdfunding projects. It is a relatively new way for real estate investors to raise the capital needed for commercial real estate projects. Examples of the main platforms include CrowdStreet, RealCrowd and Fundrise, to name a few.

A Beginner’s Guide To Investing In Commercial Real Estate

You also have the opportunity to determine which commercial real estate investment sectors you like. For example, CrowdStreet specializes in commercial real estate in major US cities, RealCrowd offers access to industrial and multi-focus offerings, and Fundrise also accepts investments from non-accredited investors.

These types of crowdfunding investment websites enable

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