How Investors Can Make Money in Commercial Real Estate
Real estate, in many ways, represents one of the most solid investments for the person seeking a place to make their money work for them. Purchasing a home is just one example of this principle, which delivers, after a standard 15 to 30 year contract, a property that belongs to you and that you can likely sell for a fair amount of return. However, this is one of the slowest ways to invest in real estate. By putting your money into REITs (real estate investment trusts) or investing in or purchasing commercial real estate on your own behalf, you stand to see some return on your investment far sooner. So how exactly do you go about making money by this method? Here are a couple of things you’ll want to consider.
The first thing you’ll want to do is learn a little bit about the types of commercial real estate available and the types of investments connected to them. For example, the umbrella of commercial real estate could cover not only retail stores, restaurants, and strip malls, but also farms, corporate offices, and rental properties – it’s any sort of property that generates a profit through its land, buildings, or both. But you won’t be investing in the businesses that use them. Rather, you’ll be putting your money into the property itself, regardless of who is currently using it. And there are several ways you might choose to invest in commercial interests.
For one thing, you can look forward to the passive income provided by owning rental properties, whether you’re renting out homes or apartments to private citizens to live in or you’ve purchased land or buildings zoned for commercial use and you’ve allowed for businesses to lease. While you stand to see a significant return by this method (supposing you can keep all of the properties rented out and generating a profit), there are some drawbacks, mainly that you’ll either have to manage the properties yourself (eating into your time) or hire a management company to do it for you (eating into your profits). But there is at least one other good option available to you.
You might also put your money into a REIT. There are many to choose from, so you should be able to find one that invests in the type of property you prefer, be it office buildings, apartments, or farm land, for example. In a way, it’s like buying stock in real estate rather than the businesses that use it. You’ll give your money to a corporate management company that owns and operates a number of commercial interests. The company uses investor’s money to purchase and maintain properties they own and when they receive money back through lease payments and such they return it to their shareholders as dividends. In fact, a REIT is required to return 90% of annual taxable income to shareholders, although most distribute 100%.
When you choose this method of investing in commercial REO you won’t get as much money back as you might through private ownership, but you won’t have to worry about property management, which is a nice bonus. You’ll also gain liquidity since such investments are often easy to trade or sell (thanks to the solid assets attached to them). For most investors interested in the benefits of commercial real estate, this is the best option.