In an era marked by decentralized, rapidly appreciating assets like Bitcoin, commercial real estate has fallen by the wayside. Investors are flocking to these new investment vehicles and away from the slow and steady growth and returns of commercial real estate.
It’s no wonder why, really. The entire U.S. population still has leftover real estate trauma from the 08’ crash. That means fewer real estate investors and more Bitcoin pushers.
Still, the reality is there isn’t a single billionaire on this planet who made their money in Bitcoin or any other decentralized asset. There are hundreds, on the other hand, who made their money in commercial real estate. In fact, according to Forbes out of the 2,604 billionaires on the planet in 2019, 184 made their fortunes entirely, or nearly entirely, from real estate.
Investing in commercial real estate is one of the best things you can do for your financial future, and thankfully in 2020, you don’t have to be a millionaire to do it.
Real Estate Investment Trusts (REITs)
The first, and easiest, way to invest in commercial real estate without spending millions is to buy shares of a Real Estate Investment Trust (REIT) on the stock market.
REITs are a type of publicly traded or privately held trust that owns income-producing—and hopefully appreciating—commercial real estate properties. These properties could include anything from office and apartment buildings to warehouses, hospitals, shopping centers, hotels, and even farms and timberlands.
There are two main types of REITs, the first is a normal REIT, these own equity in properties directly. The second is called a Reit, these REITs purchase mortgage debt through collateralized mortgage-backed securities.
Now, hearing collateralized mortgage-backed securities may scare you, because these were the type of investment vehicles that played such a large role in taking down the American economy in 07’/ 08’, but thankfully these days new regulations mean mREITs are much safer. Still, in my opinion, if you’re going to invest in a REIT it’s better to go with a regular equity REIT.
REITs were originally created in the United States by President Dwight D. Eisenhower when he signed Public Law 86-779, also known as the Cigar Excise Tax Extension into law in 1960. Eisenhower was looking for a way to allow average Americans to further diversify their investment portfolios by investing in commercial real estate.
Since then, REITs have exploded in value. The total value of REITs in the stock market surpassed 2 trillion in 2017. Companies like Omega Healthcare Investors (OHI), Stag Industrial (STAG), Realty Income (O), and others have all found success in the stock market, creating huge returns for investors over the past decade.
Exchange-Traded Funds (ETFs) that carry a variety of commercial real estate investments have also begun hitting on all cylinders after the 08’ crash. The most popular of these, the Vanguard Real Estate ETF which trades under the ticker VNQ has an annual return since 2008 with dividends reinvested and including fees of 8.36%, that’s not bad at all considering you have the safety and stability of a real asset backing up those gains.
Whether you invest in ETFs or individual stocks the easiest way to diversify your portfolio with commercial real estate is to buy equity in a REIT.
Crowd-Funded Commercial Real Estate Investing
In the past investing in commercial real estate was the purview of accredited investors and accredited investors alone. That meant that unless you had $1 million in assets or income of over $200,000 annually it was difficult, if not impossible, to get involved in a commercial real estate deal.
Now though, thanks to the JOBS(Jumpstart Our Business Startups) Act, non-accredited investors are also allowed to invest in commercial real estate through crowdfunding.
This is where a group of investors, also known as a syndicate, pools their money to invest in one or more large real estate deals. The syndicate gives money to a crowdfunding platform like Fundraise or CrowdStreet who then hand the money over to the sponsor company. It’s then the sponsor’s job to negotiate and oversee the deal.
Investing in commercial real estate through crowdfunding is no longer a pipe dream, it happens every day and the returns are admirable.
Consider Starting Small
When you think of commercial real estate you may think of giant amazon warehouses, however, not every commercial real estate deal has to be worth millions. Every year thousands of commercial real estate transactions under $500K in value go through in the country, often with the assistance of property management services to ensure everything is understood and proceeds smoothly.
If you have saved up a nest egg and want to invest in commercial real estate then you may consider starting small with an investment in a small business office or laundromat. This can be done with only a small loan.
Of course, you will need to have a good credit score, and if you don’t get credit help right away, because getting commercial real estate loans from a bank can be a challenge. After finding a property to purchase, you may need to partner with property management professionals especially if it’s your first time investing in a real estate property. They can help you with the maintenance of the property including plumbing tasks like sewer cleaning.
Thankfully, there are a number of other sources for commercial loans, including private companies like Avana Capital, which can supply the liquidity you need ASAP. All of the difficult commercial real estate transactions and loan approvals, which used to be the purview of accredited investors, are now no more difficult than an average residential real estate deal and that means opportunity for the layman.
Consider starting small in commercial real estate and then moving onto bigger and better deals as you progress. The opportunities are boundless.
Overall commercial real estate is a great investment opportunity offering outsized returns for investors. The fear of the 07’/08’ crash may still be in your minds, but the reality is real estate is nowhere near as risky as the public fears. Commercial real estate will always have its ups and downs, but if you’re in it for the long run it’s nearly impossible to go wrong.
