7 Ways To Invest In Commercial Real Estate Online
The growth of the real estate market has proven to be a reliable investment tool for many investors. Commercial real estate has developed tremendously in recent years. And nowadays, the internet allows investors to buy commercial real estate online and earn passive income.
The good news is that you don’t have to deal with traditional processes when investing in commercial properties online. What’s more? You get a variety of options to select from. Commercial real estate investment is now more convenient with an online brokerage account.
From ETFs to company shares, many options exist to suit your preferences. Ensure to consider factors like capital and risk assessment when exploring these options. This post will explain seven profitable ways you can invest in commercial real estate online.
What Is Commercial Real Estate Investing?
To begin at the basics, commercial real estate means buying commercial properties. Commercial property is any property that is leased or used for business purposes. It differs from residential real estate properties, which are for human habitation only.
Commercial real estate is a broad and diverse aspect of real estate. It could range from investing in a small shop or restaurant to a large warehouse. Office spaces, hotels, and industrial structures are some examples of commercial properties.
You can invest in commercial real estate through direct and indirect investment. In direct investment, you become a landlord by buying the physical property.
While in indirect investment, you purchase market securities invested in commercial properties. Examples of securities are real estate investment trusts (REITs) and exchange-traded funds (ETFs). Investing in companies that deal with commercial real estate is also an indirect investment.
In both investment methods, you can earn money by leasing, holding, or reselling your property or security.
Indirect investment is the most common method used in online commercial real estate. This way, investors don’t have to become landlords or have huge capital to get started.
Types of Commercial Real Estate Investment
1 Land Investments
Land property is one of the most lucrative assets to invest in real estate. It is subdivided into infill, agricultural land, and brownfield land types. Infill land is empty land with no buildings on it. It is found in urban areas, and profit is made when a building is erected on it.
Agricultural land is usually located in a rural area. It is used for agricultural purposes like farming or pasture. It is typically vacant and relatively affordable. Lastly, a brownfield is an environmentally impaired land that is relatively affordable. But it can be costly to remediate.
2 Retail Property
Retail property is a space leased to businesses that sell directly to consumers. Retail real estate is profitable because tenants tend to agree to and sign long-term leases.
But the profit depends on the high and steady traffic of consumers. Location and commodity type are essential factors when investing in retail property. Shopping malls and community retail centers are some examples of retail properties.
Hotel spaces are a special type of retail property that rents space to consumers for a short period.
3 Office Buildings
Like retail spaces, office buildings are leased to firms or companies to conduct their businesses. They come in four classes graded A to D. Class A spaces are luxurious, well-maintained, and in the best condition. Class B and C are average and manageable. While Class D properties are not as good as Classes A, B, and C.
Office buildings are in high demand in urban and suburban areas. In metropolitan areas, they are found in central business districts. They can also be erected in suburban locations and smaller cities.
4 Multifamily Housing
Multifamily housing is an exception in commercial real estate. This is because it is a residential property. It consists of two or more residential spaces within the same building. Good examples are apartments and duplexes. Multifamily investors can profit from high rent prices and demand.
5 Industrial Property
Industrial properties accommodate industrial goods used for logistics, manufacturing, and/or distribution. Investing in industrial properties can be profitable depending on demand and product type. But it can be challenging to measure the demand and speculate on future returns.
6 Special Purpose Spaces
These are commercial properties built for specific purposes. Examples are zoos, amusement parks, movie theaters, e.t.c. Special purpose spaces may have a different market structure than other types of commercial properties.
Benefits of Commercial Real Estate Investment
1 Provides Substantial and Steady Cash Flow
Commercial real estate can give impressive returns and a steady stream of income. Long lease contracts with tenants can give you an assured passive cash flow. This makes it a stable and reliable investment.
2 Offers Potential for Capital Appreciation
Unlike other hard assets, the value of real estate properties appreciates with time. Raw land is an excellent example of a property that can increase in value. Commercial properties like offices and retail spaces need regular renovation to maintain value.
3 Gives You High Leverage
Commercial real estate properties helps investors to build their equity over time as in mortgage REITs. This equity allows investors to leverage other real estate assets and develop their portfolios.
4 A Good Way to Diversify Your Portfolio
Portfolio diversification is a widely used risk management strategy. Investors put money into different assets to reduce the risks of losing their wealth. Since real estate is relatively stable, it can be a great way to manage potential risks.
5 Protects Your Investment against Inflation
There is a risk of losing money when the value of money depreciates. Inflation is unavoidable in financial markets, and they can become volatile, making investments high-risked. However, the value of commercial real estate properties appreciates with inflation. So your investment is safer when the market prices begin to fluctuate.
Best Ways To Invest In Commercial Real Estate Online
1 Commercial Property Real Estate Investment Trusts (REITs)
REITs are a well-known way to invest in commercial real estate online. They are companies that own or deal with various types of commercial properties.
A publicly-traded REIT is the best REIT type for investors. They have liquid shares that can be bought at affordable rates and sold in public markets. They also have tax advantages and can offer shares with lower tax rates.
Before choosing a REIT, research its management, track record, dividends, and diversification. All factors should be suitable for your investment objectives.
2 Commercial Property Real Estate ETFs
Exchange-Traded Funds (ETFs) are a variety of stocks and/or bonds merged into a single fund. So, commercial real estate ETFs are various commercial real estate assets combined. Investors invest in ETFs by buying fractions of the assets.
ETFs allow investors to diversify their capital across many properties. Also, there are low management fees, and shares can be publicly traded in the market. A disadvantage is that investors can’t choose which exact properties to buy.
3 Commercial Property Real Estate Mutual Funds
Like ETFs, commercial real estate mutual funds are a pool of commercial properties. Investors can also buy fractional shares in mutual funds.
Mutual funds are like REIT shares with low management costs and diversification. But their legal structures are different and must be considered.
Some companies conduct business with commercial properties and can accept investors. It is a good alternative to ETFs, mutual funds, and REITs. You can get more flexibility with your assets and have a say in company decisions.
The companies may deal with one or various types of commercial properties. This type of investment can have high returns, but the risks are also high.
This is an indirect method of investing in commercial real estate. Investors can buy shares of companies that are involved in commercial construction projects. It’s a relatively easy and inexpensive way to invest in commercial properties. The shares have low transaction costs and are liquid and publicly traded.
However, unrelated real estate factors like skilled labor can influence this investment option. Also, share prices are not fixed and can fluctuate depending on the market.
6 Commercial Property Crowdfunding
Commercial real estate can be expensive for individual investors. So, commercial property crowdfunding projects are created to solve this problem.
Crowdfunding helps investors to buy fractional shares of commercial properties. Online platforms like REI Capital Growth, Fundrise and CrowdStreet are good examples of the best online commercial property crowdfunding platforms.
With crowdfunding, investors can choose the property they wish to invest in. But crowdfunding fees are relatively higher and can negatively impact returns.
7 Loans to Commercial Property Investors
You can get loans from other commercial property investors or through online platforms. These platforms provide a space for peer-to-peer lending (P2P). In P2P lending, lenders can meet borrowers who need funds to invest in real estate properties.
P2P lending is high-risk but can bring high returns through high-interest rates. You can get started on a P2P lending online platform like Zeus Crowdfunding.
Things To Know Before Investing In Commercial Real Estate Online
- Select a suitable investment vehicle. Ensure to assess the best vehicle that aligns with your investment goals.
- Research the market you are investing in. Check out the supply, demand, and other factors influencing the market.
- Select a reliable online brokerage or lending platform to invest in. The platform should be well regulated by necessary financial institutions.
- Commercial real estate properties differ greatly. There is a wide variety of commercial properties in the market. And some assets perform better than others depending on market factors.
Commercial real estate has been a good investment tool for many years. Nowadays, investors can invest in commercial real estate online through online platforms.
Commercial real estate ETFs, mutual funds, REITs, and REI Capital Growth commercial real estate fund are ways to start investing online. Investors can also invest in commercial crowdfunding and P2P lending. It’s always best to research important market factors before investing.