Are you a seasoned property investor looking to diversify your portfolio? Or perhaps you’re a newbie in the investment world, looking for a new way to grow your wealth? Regardless of your prior investment experience, you may want to consider getting into commercial real estate.
With commission-free investing and crowdsourcing platforms on the rise, there has never been a better time to invest in commercial real estate, regardless of your income or experience level. Let’s discuss the basics of investing in commercial real estate and explore how a beginner can get involved in this lucrative industry.
What Is Commercial Real Estate Investment?
When you choose commercial real estate, you are investing in a commercial building (offices, retail buildings, medical centers, malls, hotels) as opposed to residential real estate (house or condo). Essentially, anything under the umbrella of business or retail counts as commercial property.
Let’s discuss the 6 main categories of commercial property and what steps you need to take to get involved.
What Are The Types Of Commercial Real Estate Properties?
There are many types of commercial real estate, and there are pros and cons associated with each. Let’s talk about the 6 categories so you can decide which is right for you.
Office buildings are divided into 3 class types, class A, B, or C.
Class A refers to the newest office buildings, usually in a desirable location and managed mostly by professional companies. Class B buildings are usually older structures that require a small amount of TLC before they can be leased, while Class C buildings refer to a “fixer-upper” that needs a great deal of renovation.
If a building has 4 units or more, such as an apartment complex or condo, it’s a commercial property. If there is only one unit, it’s considered a “multifamily” property.
A hotel provides lodging, dining, and other concierge services for visitors and tourists. You can invest in a boutique hotel structure, a building that is a part of a chain (i.e. Marriot), or in several other subcategories like casinos or resorts.
This category includes any structure that houses industrial operations, such as manufacturing or assembly of goods and services.
The stores you shop at and the restaurants you frequent are all under the retail umbrella. Malls and community centers also fall under this category.
6. Special Purpose
Special purpose real estate is any structure that doesn’t fit into the categories previously mentioned, such as churches, amusement parks, bowling alleys, or self-storage structures.
How Do I Get Involved?
There are several ways that you can get involved in commercial real estate and begin to see financial growth! Let’s discuss a few common ways to get started.
1. Direct Investing
With direct investing, you are purchasing an equity stake in the building rather than buying it outright. You can combine your funds with up to ten others in an LLC (Limited Liability Company) and collect a percentage of the cash flow. This is a high-risk, high-reward option for someone who has the cash to spare.
2. Purchasing Outright
Purchasing the property outright is your most lucrative option, providing you can afford it. This option will generate regular income and your property will appreciate handsomely. Consider looking into obtaining a commercial property loan to get started.
3. REITs + Crowdfunding
A REIT (Real Estate Investment Trust) is another great way to get your feet wet in the world of commercial real estate. Investing in a REIT poses a lower risk than buying outright.
There are also multiple crowdfunding apps you can explore that will provide you a taste of what it’s like to invest in real estate with lower risk. For as little as $500, you can buy a stake in a real investment property through crowdfunding.
Regardless of where you stand in your investment journey, investing in commercial real estate is a smart way to diversify your assets and grow your wealth. Whether you have $500 or $50,000 to spare, there are many paths to finding an investment strategy that is right for you.
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