How To Invest in Commercial Real Estate

Real estate investing is a perennial favorite for those looking to diversify beyond stocks and bonds in a way that deals in assets with tangible value. Before you start purchasing commercial real estate with an eye toward your return, you need to understand the various niches in the market, local demand and market conditions, and the options for raising working capital when you need to close quickly on a great piece of land.

Choose Your Niche

There are a lot of ways to monetize real estate investments, and most investors do broaden their approach eventually, but to get started it helps to have focus. When you’re working on learning a new market, it’s a lot simpler if you only work on one. After you feel comfortable with that model for investment and you’ve built up some income, then it’s time to work on another. In any given market, you can focus on long or short-term income models. Typically, long-term models are based on rental income, either from tenants seeking living space in a densely populated urban setting or businesses looking for space to operate from. Short-term models are based on improving the property and returning it to the market as a turnkey-ready home for the next owner, whether it’s a person or a business.

The major commercial real estate niches you’ll find in practically every major city are fairly simple. Apartments and other multifamily housing are a major source of income, but also a site of hot competition. If you’re looking to work with businesses, it helps to choose the property type. Retail spaces, office buildings, multi-use, and light industrial spaces that can be customized by tenants are also found practically everywhere. To narrow down your field of interest from there, it’s best to pick a general market and research local conditions to find an under-serviced area for your investment. In many older cities, rehabilitating old storefronts and industrial spaces can be quite lucrative.

Financing Property Acquisitions

While you are going to have to put down a sizable chunk of your own money to close most of the time, real estate investors don’t usually draw on their reserve cash for the entire cost of a property. Even when it’s possible, often the smarter move is financing, especially if the property in question is being used as collateral. If you have more capital than needed for a down payment, consider investing in multiple properties at once instead of putting all your eggs in one basket. That’s the fastest path to a big commercial real estate portfolio with plenty of working capital.