The commercial real estate industry made nearly $1 trillion in 2020 and is expected to surpass that number in 2022. Keep reading if you’re looking to get in on the action.
The Benefits of Investing in Commercial Real Estate
Commercial real estate is considered an “alternative” investment; as in, it’s an alternative to the stock and bond markets. Commercial real estate investments are generally uncorrelated to movements in the stock market, making CRE a great way to hedge against inflation.
Instead of limiting your portfolio to stocks and bonds, you can invest in a commercial building or even become a co-owner with other investors. This can set up lasting, positive cash flow when you rent your property to one or more commercial tenants.
In addition, here are some other reasons to consider CRE:
- Most commercial properties will earn you a higher rent per square foot than non-commercial properties.
- If you purchase a property with multiple leasing options, you’ll enjoy multiple streams of cash flow. For example, if you invest in an office building, you can rent parking spaces separately if you wish.
- Commercial tenants often sign a “triple net lease.” This means that they’ll pay other expenses, such as real estate taxes and property insurance, in addition to rent.
- Commercial tenants usually sign leases and agreements that are much longer than non-commercial rental properties.
- Without the right tools and guidance, CRE can be a difficult market to break into. This means less competition in the long run.
Diversifying your risk will be automatic if you purchase a property with multiple tenant options. For example, if your warehouse/shipping property can handle up to 20 companies, one or two non-rented warehouse spaces will be more easily managed than if you were renting to a single tenant.
Now that you’re familiar with the advantages of choosing to invest in commercial real estate, it’s time to learn more about the actual “how-tos,” including choosing the right property, negotiating the ideal financing for your property, and finding the ideal tenants.
Choosing the Ideal Property
While it’s important to study your financing options, it’s equally important to learn about the different types of commercial properties, especially those that are currently the most popular with this year’s investors, and why.
Perhaps the most important factor to study is the evolution of commercial real estate since the arrival of the COVID-19 pandemic. This has changed the face of real estate more than you may realize.
How e-Commerce Is Driving Commercial Real Estate
While commercial real estate investors favored traditional retail and office storefronts before 2020, the arrival of the COVID-19 pandemic has resulted in many investors preferring other types of real estate.
Today, warehouses and shipping portals are one of the leading performers among commercial real estate investments. This is due to an increasing number of companies expanding into e-commerce, downsizing their retail outlets, and bumping up their shipped inventory.
Conversely, investments in retail commercial real estate may be a less attractive option. This is because a fairly high percentage of consumers still prefer to buy online rather than visit a brick-and-mortar shopping mall or boutique.
Other Post-COVID Trends in Commercial Real Estate
Commercial real estate for business offices may also be suffering from the trend to 100% remote work. As more business staff remain working at home, employers are realizing how their businesses can save money by downsizing their office space.
While this doesn’t mean you must avoid looking at commercial office properties, you’ll want to study the local employment trends with the help of a CRE broker. This will help you decide if you want to pursue this path.
For example, some employers are now insisting on a hybrid work schedule. This means that, while 100% remote work is discouraged, staff are only required to work in an office space for part of the workweek.
If one or more major employer has opted for the hybrid workweek, you may want to consider investing in office real estate that caters to part-time workers, such as newer properties with state-of-the-art wifi and video facilities.
Now that you’ve learned about your commercial real estate choices, here’s an equally important topic: your financing options.
Options for Financing Your Purchase
If you have the cash available to purchase a commercial property, congrats!
However, chances are you don’t have access to this much cash or prefer to keep a portion of your nest egg where it is. In that case, here are two popular ways to invest in commercial real estate.
Real Estate Investment Trusts
Commonly known as REITs, these are popular with newer, smaller commercial investors.
- A REIT is a simple way to add commercial real estate to your portfolio, and it can provide a source of income. Investing is simple as you purchase ownership shares in REITs rather than complete properties.
- It’s also easy to change your investment outlook. Similar to stocks, you can just sell your shares when and if you’re ready. Also, your minimum investment can be as little as $5,000 or less.
- However, your income is limited since someone else is doing the property management. Also, some REITs charge high fees.
Want to get more creative? Take a look at online platforms that sell REIT shares. Some are set up similarly to the crowd-funding sources popular with investors but with a real estate spin.
Join the Commercial Crowd-Funding Crowd
A growing number of online crowd-funding platforms specialize in commercial real estate. Here are two that are popular with investors and investing gurus alike.
- RealtyMogul enables you to research and invest in one or more commercial real estate options across the United States. These include industrial, office buildings, self-storage, and new developments
- Streitwise describes its offerings as a “professionally-managed, tax-advantaged portfolio of real estate assets.” Investment gurus have described Streitwise as a good choice for conservative investors.
As with any investment, it’s vital that you do your research and decide upon your preferred levels of risk. Happy investing!