October 22, 2021
Commercial real estate offers a fantastic avenue to invest your money. Unlike other asset classes, real estate can provide you with certain tax write offs such as depreciation, property taxes, capital improvements, interest etc. Real estate also enables you to own a tangible asset. You can see it, touch it and sometimes even smell it. You can directly and positively impact your community by offering a place for them to live, work, shop or store their family’s precious items. You can also offer a place for employment, providing a job source for a community. Commercial real estate is a great option for an investor needing to place capital. So, how can you get into commercial real estate investment?
Sole Owner/Operator – The first option is to purchase the property directly as the sole owner and operator. This is a great option as it can offer you the best return on investment. It also requires the most capital and time. It can be a riskier proposition, especially if you do not have prior experience managing the asset you are purchasing. This is a great option for an entrepreneur that has the time, capital and knowledge to manage the property effectively.
Sole Owner/Third Party Manager – The second option is to purchase the property and hand over its management to a third-party manager. Many managers will manage an asset for a percentage fee of the gross revenue they collect on your behalf. This allows you to collect a monthly or quarterly payout while eliminating the potential headache of managing the asset by yourself. It also helps reduce the risk by placing the asset in the hands of a qualified and experienced third-party manager. This is a great option for someone that is retired, looking to retire or has a full-time job.
Partnership – The third option is to invest your capital into a syndication or partnership. Here, you become a limited partner. The general partner is the person responsible for locating, purchasing and managing the asset during the hold period. You receive a preferred return payout. This return is generally not as high as the first two options above, but the risk is generally lower and requires less capital input as there are multiple investors for a single project. This is an excellent option for someone that is more risk averse or does not have as much capital or time to invest.
REIT – The last option is a REIT. A real estate investment trust (REIT) is very similar to purchasing stock that pays a dividend. You pay to purchase shares in a Trust. The Trust uses the investors money to go out and purchase real estate. Unlike the 3 options above, you do not know where your money is being invested. You also are not able to receive any tax benefits. The upside is your money is much more liquid, meaning it can be pulled out when you want to. It is also the most risk averse option. As you can invest as much or as little capital as you want. Additionally, there are funds that invest in multiple REITs. For example, one fund might invest in multiple REIT’s that may invest in various asset types such as Multi-Family, Self-Storage and Industrial spreading your risk out across hundreds or even thousands of properties and industries.
While we cannot help with REITs, we would be more than happy to continue the discussion on the first 3 options. Please reach out to us with any questions. We look forward to hearing from you soon.
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