Is Commercial Real Estate a Good Investment

Have you been asking yourself, “Is commercial real estate a good investment?” If on many occasions, this has been true for you, you’ve come to the right place. For many people, figuring out how investments work can be daunting. Others may understand how it is beneficial in the long run, but do not know where to start.

We will begin with this: “Investment in real estate is an amazing way to accumulate wealth.” You’ve likely heard this statement shared before. But, oftentimes, trying to find what to invest in is usually the hardest part. So, we’re here to fix that for you. 

In this article, we propose looking into commercial real estate and investigating how to reap its benefits without the high capital requirement.

What is Commercial Real Estate?

Before we begin to talk about how to start investing in commercial real estate (CRE), let’s familiarize ourselves with the term. Commercial real estate is any kind of property that is leased out to businesses or retailers. The tenants in question will always be using the property for commercial or business purposes, hence the name.

Generally, there are five types of commercial real estate:

1. Office: the most common type, with a focus on providing an office space
   
   
2. Retail: these buildings are leased by brick-and-mortar retailers to sell goods or services  
   
   
3. Industrial: this type of real estate relies on businesses wanting a warehouse to store their goods
   
   
4. Multifamily: apartment buildings are often (and at times controversially) considered a form of commercial real estate, especially when they consist of five or more units as the main goal is then to turn a profit
   
   
5. Special Purpose: these are buildings that have specific purposes and may not be removed from the premise. This can include car washes, hotels, storage, or schools, etc.

Commercial Real Estate Market Trends

Let’s talk about some trends for commercial real estate and why they may entice you to invest sooner. While investment inherently comes with risks and is uncertain, the industry faces many transformational shifts  We’re going to start off with the most easily digestible trend:  

Growth of Rentals Across Many Major Property sectors

Rent across various property sectors are showing trends of growth. Industrial and apartment properties are showing growth above 10% in the first quarter of the financial year 2022.

Return to Work and the Metropolitan

Returning to work has bolstered the need to repopulate and reinvigorate the cities, especially in the post-pandemic era. Central districts that have business centers are now becoming more populated, which means more people need homes or office spaces.

Increased Demand for Operational Properties 

The demand focuses on niche markets such as storage, student housing, and senior living. Between 2020 to 2021, it was seen to have grown by 12.3%. 

Positive Shifts in Multifamily Markets

Traditionally seen as a low-risk investment, multifamily units are seeing a growth in their numbers. This can be attributed to workers returning to workplaces, and having to move back near their offices after moving away or home due to the pandemic. This sector saw a 56% increase in YOY growth in 2022.

How to Invest in Commercial Property

There are two major ways of investing in commercial properties: direct and indirect. The difference between the two is who is actively managing the property and portfolio. 

Direct investment means that the investor solely manages and purchases the property. In indirect investment, the investor pools with other investors or contributes to a diverse portfolio, and, thus, receive returns based on the amount of money that was contributed.

Following are some types of investment to be aware of:

• Rental Properties: This involves owning a property with the potential to rent it out to individuals. You become the sole owner and have to be responsible for covering the high capital it costs to purchase the real estate. This is a direct method of investing. 
• Pros:
• Tax deductions available
• Capital can be maximized by leverage
• Cons
• Owner responsible for tenant management and property maintenance
• Damage to property caused by tenants
• Reduced income if vacancies are not curtailed soon enough

• Real Estate Investment Trusts (REITs): REITs are suited to investors who want to have a portfolio that includes real estate, but is void of a traditional real estate transaction. It is created when an agent manages the purchase and operation of the properties. The transactions related to REITs happen at major exchanges, much like stocks. This method is an indirect investment.
• Pros
• Relies on dividend payments
• Long-term, the lease produces quick cash
• Cons
• No leverage is possible, unlike traditional rentals

• Real Estate Investment Groups (REIGs): REIGs are another indirect investment method where you can own a rental property but do not have to run it at all. However, REIGs are dependent on a large financial and capital cushion to partake in it. 
• Pros
• No need to manage and maintain
• Provides regular income as well as the appreciation of the property
• Cons
• Risk of empty rentals
• Corruption of managers

• House Flipping: With significant experience in valuing real estate, individuals can flip houses for quick returns after improving the property to increase value and purchasing at a lower price. Real estate flippers usually don’t hold these properties for longer than a year. This is a direct method of investing. 
• Pros
• Capital can be liquidated quickly
• Short-term, quick returns
• Cons
• Requires experience and deep market knowledge
• Unstable since markets considered hot can cool unexpectedly

• Online Real Estate Platforms: Like crowdfunding, these are platforms that bring together multiple investors in a bigger commercial deal. Investors pool in together towards a single deal. It is best for diversification and is an indirect method of investing. An example of such a platform is Connect Invest, which uses its flagship product, Short Notes, to help investors build a portfolio with as little as $500. 
• Pros
• Freedom to invest in a single offering or create a portfolio with multiple
• Diversification based on location
• Easy to sign up and start investing
• Cons
• Can be difficult to liquidate before maturity (still, a great way to earn a return for money that you won't need to have accessible for a designated and known period of time).
• Generally requires management fees (frees up your time to focus on whatever you want/more investment opportunities).

Get Started Investing in Commercial Real Estate (without Excess Capital)

Needless to say, if you do not want to invest high capital in commercial real estate, then try the indirect method. Now you may be wondering, “How do I do that?” Connect Invest Short Notes is the solution! 

Short Notes is an innovative investment that allows you to participate with a minimum of $500. Its diverse portfolio can be personalized and optimized to meet your risk tolerance, investment amount, and length of time. You get paid out every month with passive income from the comfort of wherever you are with Short Notes’ powerfully curated fund. 

Try investing with the minimum for a period between 6 to 24 months. Get started with Connect Invest’s Short Notes and invest today to secure your future by signing up here. 

Wrap Up

As you have read, there are plenty of options when it comes to commercial real estate investing. It doesn’t matter if you are a first-time investor, a seasoned investor, or someone looking to invest without access to high capital, many options are available for short-term and long-term real estate investment strategies. 

With Connect Invest, you can begin to earn passive income through real estate and other options. Ready to get started? Join other investors by signing up.