7 Ways You Can Invest in Commercial Real Estate Online
By Adam Gower Ph.D.
According to the research site, Statista, commercial real estate development in the United States has been steadily growing since 2010. Meanwhile, vacancy rates for these properties have been declining. What that tells us is there is continued demand for commercial property, and that new space is being absorbed as it gets built.
There was once a time where the only way to invest in any kind of property was by purchasing it directly or through closed private groups. Nowadays, the Internet has made it possible for anyone to invest in commercial property online. When it comes to such real estate investing, by making a passive investment online you have several advantages over traditional methods – perhaps the most significant of which is that you don’t have to deal with tenants or carry out many of the duties a landlord must undertake.
So, if you’ve got some money you’d like to invest in commercial property, how can you do so without buying a physical property? Take a look at the following ideas to give you some inspiration:
1. Commercial property real estate ETFs
An ETF is short for an exchange-traded fund. In a nutshell, this is where a variety of stocks or bonds (or a mixture of the two) become merged as a single fund. ETFs are very much like index and mutual funds in two ways. First, they have a broad diversification of stocks and bonds, and second, they are relatively low-cost investment vehicles.
Investing in a commercial property real estate ETF can be a smart way to make your money work for you. It is ahighly liquid way to invest in new commercial construction projects, for example. When you invest your money, it should be noted that you aren’t investing in specific projects. Rather, you are investing in the equity of real estate companies and real estate investment trusts (REITs).
2. Commercial property real estate mutual funds
Another interesting way to invest is by putting your money in commercial property real estate mutual funds. Again, they are highly liquid and often come with low management costs. Some mutual funds, such as DFA Real Estate Securities Portfolio (DFREX), claim to offer consistent returns due to following a strategy backed by decades of academic research.
You should bear in mind that some real estate mutual funds have a diversification of both residential and commercial interests. But the good news is there are some that specialize only in commercial property investments. It’s worth researching which holdings focus on commercial property, and then on top-performing mutual funds whose portfolios comprise of such holdings.
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3. Commercial property REITs
REITs (real estate investment trusts) operate in much the same way as mutual funds. The only significant difference here is you can diversify your holdings based on the type of real estate class the REIT invests in. In other words, you have a lot more flexibility with where your money goes when you invest in a REIT.
REITs are another extremely popular way of investing in commercial property without needing to be a landlord. When you research the market, you’ll come across a plethora of commercial property REITs that will best suit your needs. Be sure to steer clear of REITs that aren’t publicly-traded, because they often have a lack of liquidity, high costs, and low transparency.
4. Commercial property real estate company shares
You might not be aware of this, but there are some companies out there that specialize in buying and managing commercial properties and that accept individual investors in their projects. Depending on your needs, it could make sense to invest in one or more companies like that individually rather than into the pooled money structures of a mutual fund or REIT.
The companies in question often focus on assets like apartments, office buildings, senior housing projects, student housing, etc. As you can appreciate, there can be some downside to such investments. The biggest is probably that while the return on investment is among the highest in the industry, the risk is also commensurately high.
And as there are very few formalized ratings of these kinds of investments, you’ll need to scrutinize the company’s offering yourself before buying any shares. Still, with that said, you have even more flexibility over your investment diversifications than with ETFs, mutual funds, and REITs.
5. Commercial property construction company shares
Would you prefer to invest your money solely in brand new construction projects? If so, buying shares in commercial construction companies might be the way forward for you. As mentioned earlier, commercial construction has experienced steady growth since 2010. Due to that fact, there are opportunities to invest in large scale commercial construction projects.
You can obviously do that by purchasing shares in the companies that make those projects happen. There will always be a need for brand new commercial properties, whether they are retail units or office blocks in expanding central business districts of major cities.
6. Loaning money to real estate investors
Sometimes you might come across opportunities on a smaller scale that are likely to offer a relatively high ROI. Opportunities for this kind of investing can be found on sites like Patch of Land and Zeus Crowdfunding.
The pros of using such websites are they make borrowing easy for real estate investors, and also costs them less due to lower fees. But the cons are that peer-to-peer lending such as this is inherently risky. Plus, some lenders only allow a low LTV (loan-to-value) ratio such as 65%. That said, Zeus Crowdfunding offers the only guarantee (that I know of) in the real estate industry and you can listen to my podcast conversation with Steven Kaufman, Zeus’ founder, where he discusses how he does that.
Do you personally know a real estate investor with a knack for spotting the next big thing in commercial real estate? If so, you could also consider lending some money to them. It’s a mutually beneficial arrangement, and you’ve got a more direct involvement with the investment.
7. Commercial property crowdfunding
Last, but not least, you might also consider investing your money in commercial property crowdfunding projects. It’s a relatively new way for real estate investors to raise the capital they need for commercial property projects. Examples of the main platforms include CrowdStreet, RealCrowd and Fundrise, to name but a few.
You also get the opportunity to determine what commercial property investment verticals you like the sound of. For example, CrowdStreet specializes in commercial real estate in major U.S. cities, RealCrowd provides access to industrial and multi-focus offerings, and Fundrise also accepts investments from non-accredited investors.
These kinds of crowdfunding investment websites let you manage your investments on a user-friendly online portal. Many growing commercial real estate investment companies often use crowdfunding as a means of marketing their brand to potential investors. Crowdfunding is a new concept; it has only been around for a few years. But, while the idea of commercial property crowdfunding is relatively new, the science behind the investment vehicle is proven.
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