Buy and manage your own CRE investment
If you have the time and capital, the best bang for your buck will almost always be buying and managing your own CRE investment. This option isn't realistic for everyone -- just because someone has the money doesn't mean they will make a successful investment. Nor does everyone want to become a landlord.
However, becoming an active commercial real estate investor lets you take advantage of tax incentives, earn passive income, and enjoy appreciation and equity capture.
To become a successful commercial real estate investor, there is a substantial amount of knowledge needed on a multitude of subjects such as local building codes, management policies, or crafting legal documents to name a few. While experience in residential investing can give you a nice foundation, there are several other concepts you might need to brush up on, such as:
- Common CRE concepts and terms like cap rate, net operating income (NOI), debt service coverage ratio (DSCR), and lease structures.
- The supply and demand for the various CRE sectors in the specific markets you are targeting.
- Determining your funding structure.
Becoming an active CRE investor takes a lot of time, knowledge, and active management. This avenue of requires a lot of work, but the payoff can be well worth it.
Partner on an investment
One of the less common ways to start investing in commercial real estate is by partnering on a CRE investment. It’s a passive investment opportunity similar to crowdfunding in that it is a pooled investment, but the number of partners is lower and the returns (and risk) tend to be higher.
Equity partners are common in the CRE world, but you must build relationships with active real estate investors to find opportunities. It's extremely important to conduct your own due diligence on the investment and the investor. They're managing the LLC, property, and ultimately your money -- so you have to be sure about them.
Investing in CRE takes work
If you want to invest in CRE, remember that there's no perfect market or sector. Opportunities in CRE change throughout market cycles and area. Know the risks of your investment avenue, and remember, all investments take work -- even the most passive ones. CRE is an incredible market that has tremendous potential for income and growth. But you'll need to invest a lot of time and effort into it.