How to Invest in Commercial Real Estate
Updated: Mar 30, 2020
Commercial property types include retail, industrial, office, and multifamily apartments of five units or more. Apartments with one-to-four units are considered residential property. Some investors choose to begin by investing in residential property and then, as the value increases, trade up into larger commercial properties.
There are three ways to invest in commercial real estate: (1) through direct investment; (2) through a syndication; (3) through a crowdfunding site. Some people consider purchasing stock in a Real Estate Investment Trust (REIT) as investing in commercial real estate, but it is not. A REIT is a stock whose income is derived from real estate holdings.
Direct investment means you have the cash to purchase a commercial property directly. You can usually borrow about 70% of the cash you need. It’s difficult to get into these larger commercial investments unless you have a few hundred thousand dollars of liquid cash.
A syndication is a group of individuals pooling their financial resources to purchase a larger commercial property. This requires the formation of an entity like a limited liability company or S-corporation. A syndication is helpful if you want to purchase larger commercial investments and spread the risk of ownership but realize that it’s a security regulated by the Securities and Exchange Commission (SEC).
Crowdfunding is the practice of raising venture capital in small amounts from several accredited investors. Some crowdfunding companies have been very successful raising this type of capital over the internet. Often, you’re purchasing a small interest in a property or participating in a mortgage pool.
Regardless of which type of commercial real estate you invest in, it’s always wise to engage a commercial real estate advisor to help you with the acquisition and to guide you through the process.
ABOUT THE AUTHOR
Ken has been in the real estate business for over 40 years and has personally overseen the development and management of over $350 million worth of assets. Ken holds a B.S. degree in Accounting from Brigham Young University, a MBA from the University of Utah. Licensed real estate broker since 1976. He holds the following designations: CCIM, CPM, CRS,CCA. Served as the president of the Utah Apartment Association.