Investing in commercial property can provide a lucrative way to grow your wealth. However, with any investment there are risks, not to mention stresses that can make the idea of commercial real estate investment seem a little scary.
There are many good reasons to consider real estate investing. There is also more than one way for you to invest in real estate. Here we take a look at how you can buy commercial property without being an active investor.
What is Active Investing?
First, you should understand the basics of active investing. An active real estate investor not only purchases real estate but also is actively involved in its management. This can mean you manage properties for rental income, or you might purchase a property to renovate and flip for a profit. That’s not all. You can also build new homes.
Basically, you are involved every step of the way from the selection of the property to getting the financing, and from being personally responsible for the loan to managing your investment. It is the hands-on approach to investment, with your actions focused on getting the best possible ROI.
This is a very intense form of investment as you are looking at remaining involved in the property in some form or fashion. However, when looking specifically at commercial property, you can invest less time by hiring a property management company. Just keep in mind this will eat into your earning potential. You can manage your own rental properties if you are handy and willing to invest your time as opposed to investing more money to manage the property. Either way, as an investment the goal is to maximize your profits.
Pros and Cons
All of this sounds like a lot of work, but there are some pros to active investing. You will always have more control over your investment from the selection of the property, to how it is managed. You choose the type of property whether it is a single unit property, or a large tower or industrial property.
The major con for active investing is ongoing management. Active investing in commercial property can limit how many properties you can invest in, as each property will place demands on your time. You can also be faced with ongoing challenges whether it is complaining tenants or maintenance of the property. You can even face lawsuits if someone injures themselves on the property, or if a tenant feels there is a breach of contract.
Becoming a Passive Investor
As you can see, active investing is not for everyone. However, you do have the option to become a passive investor. In this case, you are investing in real estate-related mutual funds and real estate investment trusts (REITs). This is appealing to many real estate investors as the only effort you have to worry about is finding the funds for your investment.
If you have a bigger budget at your disposal you can invest in a real estate syndicate that accepts private placements. There are also real estate private equity groups.
There is a minimum investment required if you wish to become a passive investor. However, this varies so you are likely to find something that suits your budget. For example, you can purchase publicly-traded REITs with an investment as low as a few thousand dollars. If you are looking at private placement offerings you will require minimum investments much higher ranging from $50,000 to $100,000 or more.
You have many choices for the funds you wish to invest in with some specialized for commercial properties, while private placements are often highly focused on location and property type. There are also other options available including:
- Mortgage-backed securities
- Buying property liens
- Buying the stock of home developers
- Investing in mineral rights
The passive investor controls when they buy and sell their investments. There are fewer demands, but you have little to no say in how the investment is managed once you make your investment.
Crowdfunding for Real Estate Investment
There is one other way you can invest without being an active investor: Crowdfunding. This is only available for accredited investors, but there are new SEC regulations imminent.
A crowdfunded real estate investment brings investors together via a portal that allows you to choose specific properties. The portal is responsible to perform due diligence and handle the transaction. Investments can be as low as $5,000.
With crowdfunding, you have the benefits of passive investing, with limited management required. It also provides the opportunity to diversify into several crowdfunded deals to reduce risk.
You have 2 potential options to buy a commercial property without being an active investor. If you are interested in pursuing investments in commercial property, call us today.