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How to invest in commercial real estate

On Behalf of | Aug 17, 2023 | Commercial Real Estate, Real Estate Law

In California, commercial real estate is an alternative for those looking to diversify their investments. Some individuals are looking to go beyond residential real estate while other investors find commercial property an exciting way to earn potentially lucrative profits. The following overview of commercial real estate explains how to start as a commercial real estate investor.

What does commercial real estate cover?

Commercial real estate covers properties intended to generate a profit, such as multi-unit apartment buildings and those designed for business operations, like industrial or warehouse space. The category includes office buildings, retail shopping centers, mobile home parks and more.

How to start investing

It is difficult for many individuals to invest in commercial real estate because of the capital requirements. Commercial buildings often come with higher prices than a residence and usually require a 30% down payment.

Instead, investors can buy shares in commercial real estate buildings through online real estate crowdfunding platforms. You must meet specific investing criteria and perform your due diligence on the available investment opportunities.

Real estate investment trusts (REITs) are another popular investment alternative. These funds hold various real estate types, and you can buy their shares on a stock exchange. REITs must legally distribute 90% of their income to shareholders, although some may come with high front-end fees or loads.

Why invest in commercial real estate?

Many investors find commercial real estate attractive because of the potential for higher rental income per unit and the ability to own multiple units. Commercial properties also generally have longer lease durations, which reduces the risk of losing tenants and cash flow.

Commercial property investors can also access multiple income streams from add-ons like vending machines, washers and dryers, separate rents for garage spaces, and more. Finally, commercial real estate involves higher capital requirements and more complex transactions, reducing competition from other investors.

Consumer behavior influences commercial real estate

A change in consumer behavior with increased online shopping and remote work has continued to influence the demand for certain types of commercial space. The need for logistics and warehousing real estate space has grown with the increase in online shopping. Repurposing vacant retail space into distribution centers and warehouse space for e-commerce use has also increased, providing new options for adaptive uses, so commercial space remains occupied and profitable.

Commercial real estate holds promise as a valuable way for investors to diversify. By staying informed and understanding changes in the landscape, you can align your investing strategies with current market trends.