Why Commercial Real Estate Investment Can Be a Lucrative Investment Option
Whether you are an individual investor or representing a company, many people begin their investment property journey with residential real estate. Switching over to commercial real estate can prove lucrative for many reasons. Not only does commercial real estate open you up to new investment opportunities but it can provide you with a less management intensive way to invest.
Don't just take our word for it, let's dive into the three reasons you should consider investing in commercial real estate over residential real estate and how the two worlds are completely different. In the end we encourage you to make the decision that's best for your individual financial needs.
Commercial Real Estate Investing Opens You Up to New Methods of Investing
Investing in residential real estate can be done in multiple ways. However, expanding into commercial real estate opens up a whole new TYPE of investing. The most common commercial real estate investing is buying a property outright and renting it to a tenant. This is the most traditional method and generally what most people mean when they say they are a commercial real estate investor. This is not the only option though.
In property ownership you are responsible for the maintenance of the building, care of the tenant and all legal liabilities. Most often these things are negotiated into a contract and sometimes the tenant takes responsibility for these, but unless specified, you are the responsible party.
YOU are also responsible party for finding the tenants. It is an option to outsource this task to a commercial real estate broker but it is ultimately your responsibility to find a tenant for your property.
The second most common way to invest in commercial real estate is through pooled investments. A pooled investment is a group of people or companies who have pooled their funds to make a larger property purchase and then split the profits….and share the risks.
This can be a beneficial method for expanding into a larger property without having to front all the money yourself. The downside is now you have to make decisions as a group, meaning you the individual has less control over the decisions made. An example, is a group of 5 industrial or office buildings that have 5 tenants or more each. Generally thought of as too expensive for one investor to purchase on their own, you can then participate in ownership of a professionally managed building(s). This allows the individual investor to participate in the efficiency of scale that comes with such a large property and not have to be involved in the day to day time commitments of property management.
The third commercial real estate investment method is publicly or privately traded real estate investment trusts (REITS). A real estate investment trust owns a wide variety of profitable commercial properties and sells shares of the trust.. You are still an owner with this method, but an owner of shares not property. As an investor you do not get to choose which properties are bought and sold.
Lastly is a relatively new tool called Crowdsourcing. With crowdsourcing you have the option to participate with a group of investors on a smaller scale. . Crowdsource funding is where the buying sponsor raises funds to buy commercial properties through an online marketplace. In this marketplace investors can handpick what they want to invest in. The main benefit of this type of commercial real estate investment is that it has a low barrier to entry as it does not require someone to be what is termed an “accredited” investor.
Increased Income Security Through Longer-Term Contracts
Investing in commercial or residential properties has risks. Commercial real estate investing tends to provide tenants with longer-term leases which helps to bring more stability to a property.
Negotiating longer term contracts provide you, the investor, increased income security and better credit risks behind each lease.
Commercial real estate investment properties seemed to be the smart choice when trying to decide investment vehicles, but not everyone is able to jump into commercial real estate. In general, commercial real estate buildings costs more, require more down to finance and require the help of a professional organization to handle the day to day management.
Taking into the consideration the headaches of managing and maintaining residential properties, commercial and industrial real estate can provide a welcome relief from the time demands of residential property ownership. At IAG Commercial we like it because it allows us the opportunity to improve a community through “better buildings and gathering places”, part of our core mission.