What are commercial properties?
Unlike residential properties, commercial properties are properties that conduct business instead of being places to live. However, apartment buildings are considered to be commercial properties (or mixed-use properties) because it is a place of business, even though it is also a dwelling space. In addition to apartment complexes and office buildings, commercial properties also include shopping malls/outlets, industrial buildings, warehouses, hotels, restaurants, schools, hospitals, and churches.
Investing in REITs
Investing in REITs (Real Estate Investment Trusts) is the most popular way many people invest in commercial properties. REITs are companies that own commercial properties, which offer something similar to shares of stock for investors to buy. Because you’re only buying a share of the commercial property owned by REITs, it is much less expensive than buying an actual commercial property.
REITs can be in one of two forms: publicly traded or non-traded. Publicly traded REITs can be bought and sold whenever the investor pleases, but they are subject to rising interest rates. Non-traded REITs may not be subject to interests the same as publicly traded REITs, but they are also more difficult to sell. There are also two types of REITs.
The Two Types of REITs
Equity REITs are the most common types that people invest in, as they are the ones that own commercial properties. Some equity REITs own different types of commercial properties, where others may specialize in one area, such as hotels.
Mortgage REITs grant financing for residential mortgages. They can also provide financing for commercial mortgages. This type of REIT focuses more on the mortgage, rather than the property. Both mortgage REITs and equity REITs give 90% or more of their income to their investors.
Crowdfunding is an investment platform where money is raised by many people in order to raise money for businesses. This method allows the allocation of money that otherwise may have never been raised to fund investments. In the past, this method was only used by accredited investors, but with the help of social media platforms, many more investors have the means to be a part of crowdfunding.
Buying Commercial Properties
Another way to invest in commercial properties is to actually buy one or more. Commercial properties are more often bought by businesses rather than individuals— though it’s not impossible for an individual to own a commercial property. There’s a lot more capital to put up, and the process can be a little difficult— even for experienced real estate investors. New investors don’t usually start off buying commercial properties. They usually start with residential properties or REITs.
Seasoned real estate investors may have had some experience with rental properties and smaller multi-family homes, such as duplexes, and may have the knowledge and money available to invest in bigger commercial properties, such as retail malls and hotels.
Since most people don’t have the money to buy commercial properties, many turn to lending companies that specialize in commercial or mixed-use properties. Commercial properties are some of the best types of properties to see a return on investment. So not only will you be able to pay back the loan, but you’ll also be able to make passive income.
When investing in mixed-use properties, such as an apartment building, you’re likely to see less risk than when investing in a single-family rental home. With an apartment complex, you’re not likely to have a 100% vacancy rate like you could with a rental home. Also, many cities have strict policies on short-term rentals, and most apartment leases don’t fall into the short-term rental category. According to HML from Florida, loan acquisition is a great way to get started in commercial real estate investing.
If you’re just starting out in real estate investing and you want to invest in commercial properties, you should start with a loan ( as it’s the most common way to acquire funds and receive the best return on your investment) and educate yourself more in the real estate market. Once you feel that you’re ready, you can start investing in the commercial building of your dreams!