There's a reason most real estate investors get their start in residential real estate: Its lower price point, ease of financing, and relatively simple management means it's far more accessible for the everyday investor. While great money can be made in residential real estate, it's fairly common knowledge that commercial real estate (CRE) is where big real estate paydays happen.
So why don't more jump into commercial real estate to begin with? It's expensive. Commercial real estate is an asset class often reserved for accredited investors who have the experience and money to back purchases in the hundreds of thousands to millions of dollars at a time. But thankfully, investors no longer have to wait years to decades to build up a sizable enough portfolio to trade up. Instead, there are a number of ways everyday investors can participate in commercial real estate for far less time, money, and effort.
Breaking barriers to commercial real estate investing
Real estate investment trusts (REITs) are by far the most popular method of investing in commercial real estate in an affordable, hands-off manner. There are real estate investment trusts for every asset class in commercial real estate, including real estate debt. Investors can purchase shares in these companies, which provides access to investment-grade commercial properties in a diversified geographic area that is professionally managed. Not every REIT is a winner, meaning investors need to conduct their due diligence on the company and the market opportunities carefully before investing.
Crowdfunding real estate has grown into an increasingly popular method of investing in commercial real estate without having to put massive amounts of capital or time into underwriting and managing the investment. Various crowdfunding platforms will host different investment opportunities for funding. The investment is managed by a third-party sponsor, who is responsible for overseeing the investment and pays an agreed-upon rate of return or profit split to the participating investors.
Each investment platform can dictate any requirements for the investor, such as a minimum amount or having to be an accredited investor, but some allow investors to participate for a few thousand dollars. This provides access to big commercial deals that more commonly would be inaccessible to smaller investors.
You have to pay to play in CRE
The barriers are high for commercial real estate, but that's because the risk and rewards are higher with it. If your goal is to own and manage your own commercial property, it's important to understand what it takes to accomplish that goal. Having enough capital for a down payment and being financeable are two of the most important components.
Most investors play by the rules of Monopoly, eventually buying enough houses to later trade up to a hotel, multifamily, industrial property, self-storage facility, or other commercial real estate investment, but there are ways to jump right into a CRE investment.
While the majority of commercial real estate is expensive when compared to residential property, affordable commercial properties can be found in a number of markets across the country. It's a matter of determining what type of asset you want and focusing on where the opportunity lies for that asset class.
Knowing how to manage a property professionally, especially at the scale of most commercial real estate investments, conduct due diligence, and work with tenants is crucial. If you don't have the time or experience to back you, consider investing in one of the more accessible and passive methods of CRE investing.