Investing can be as easy as putting money in a bank account or as hard as trading investments on the stock market. Depending on how complicated the way of investment is, time and work are put in. If you want to make an investment that will last for a long time, you might want to think about real estate.
Commercial property investment is one of the five main types of real estate investments. Here is how commercial real estate works and how you can add it to your investment portfolio.
Why Should You Invest in Commercial Real Estate?
Most of the time, a single retail investor won’t be able to put up the money needed to invest in commercial real estate. Real estate investment trusts (REITs) and fractional ownership are the most common ways to invest in commercial real estate (CRE).
This way of investment makes it easier for regular people to get into real estate by reducing ticket size. But a smaller ticket size does not always mean an investment choice is good.
Investing in real estate has some advantages over investing in other things:
- Since it is real estate, it is not affected by changes in the market. As a long-term investment, it is stable and has a steady rate of return.
- It has a lock-in period that protects your investment and makes sure you get your money back.
- Any special-use commercial real estate in a key location can be a gold mine because it will be in high demand by a niche group of tenants. If the investment is renewed, it will continue to bring in money as a passive income.
How to Start Investing in Commercial Real Estate?
People can invest in commercial real estate, but it’s hard for a single investor to put in the amount needed in a commercial real estate entity because of how much it costs.
REITs and fractional ownership are the most popular ways to invest in commercial real estate.
- REITs:These are like mutual funds in some ways. Fund managers run a REIT, and your investment is part of a pool of investments spread out among many different assets. The fund managers choose these assets based on how well they have done in the past and how the market is moving. The profits from all the assets are added and given to investors based on how much they put into the REIT fund.
- Fractional Ownership: This helps investors with similar goals pool their investment to buy an asset. The size of the smallest ticket is usually a multiple of lakhs. Individual retail investors can own a fraction of an asset-based on how much risk they are willing to take and how much money they have. Returns from rent and capital growth are divided among investors in ratio to how much they own.
The main difference between the two is simple: in a REIT, a part of your investment could be sitting idle in an asset that doesn’t attract tenants for some reason, whether you like it or not. The only way to keep your investment from becoming a pricey paperweight is to take all your money out of the fund.
While with fractional ownership, you have full control over the asset you choose. In fractional ownership, you can keep investing in other assets that make money and stop, sell or trade your share of a non-performing asset for something else.
How to Invest in Commercial Real Estate Based on Your Goals?
Investing with a goal in mind works almost the same way as investing in any other way. Real investment is a great way to invest for the long term. So, if you want to invest for less than three years at a time, you might want to look somewhere else.
Long-term investments have bigger, more well-thought-out goals spread over five years or more. Office space is the easiest and most accessible way to invest in commercial real estate anytime. Warehouses are a close second. The rarer kind is usually found in labs, factories or assembly floors.
Look for a reliable and trustworthy commercial real estate investment platform to invest your hard-earned money.