There are various ways to make money through investing in commercial real estate. Examples of commercial real estate include retail space, residential/multi-family space, office space and industrial/warehouse space. You can also earn income or appreciation either passively or actively. Here are a few tips and tricks for how to get the most bang for your buck in the industry.
Benefits of Investing in Commercial Real Estate
There are many reasons for investing in commercial real estate. It could be to gain extra income, for tax benefits or to expand your portfolio. Investing in CRE is a great decision because it typically has a higher ROI with a steady cash flow. Additionally, commercial real estate leases are usually longer, providing more security and stability.
What to know about investing
Investing in commercial real estate is much different than investing in residential real estate. Leases are typically longer and income is determined by the usable square footage of the property. Location and tenant type are also important factors that need to be taken into consideration. Additionally, be sure to analyze things like size, style and location of similar properties that sold near where you are looking. This will help you get a better idea of what the market value of your property of interest is. It is also very important to understand and use the correct success/ROI metrics. Net Operating Income (NOI), Capitalization Rate (Cap Rate), Cash on Cash, and Internal Rate of Return (IRR) are all important terms that you should be familiar with to be able to calculate your commercial real estate investment return potential.
Investing Strategies
As mentioned before, you can generate returns either through collecting rent from tenants, or by collecting appreciation from the property over time. One of the most common ways to make money in commercial real estate is through investing in rental properties. Rental properties are a great way to leverage income, because people are always going to need a place to live, just make sure the location of the property is ideal. Purchasing a multi-family complex and renovating it allows you to increase rent for tenants, increasing your cash flow and the appreciation of the property. Secondly, you could buy and flip a property. This route is a little more tricky than others, but purchasing the right property could give you a great ROI.
Third, you could invest in vacant land in an area that is ideal for economic and population growth. That way, down the road, there is a good chance that the property will be purchased by a developer, giving you profit. Last on this list, but definitely not last in overall possibilities, is investing in industrial space that has the opportunity for redevelopment. You could purchase industrial space in an area that has growth potential and then get it rezoned for redevelopment. After that, you can either sell the property or rent it out to tenants for a more passive income.
You can find information about the different types of investment properties as well as a list of our active listings over on our website.