5 Ways to Invest in Commercial Real Estate in 2017

Tim Milazzo
August 31, 2017

Investing is a game balancing risk and reward. In the past, investments in commercial real estate, a relatively high risk high reward market, have been accessible to an elite few that had sufficient resources, relationships, and knowledge. However, in 2017, there are more ways to get involved in commercial real estate than ever before, covering more risk/reward profiles than we’ve ever seen. Here we’ll cover five common ways for an individual investor to get involved in commercial real estate investing.

Develop commercial properties

Risk/Reward: Very High | Skill Level: Very High | Capital Required: Intensive

This method of investing in commercial real estate is the highest risk, highest reward, and has the highest barriers to entry. Developing a new commercial property like an apartment complex or an office building requires deep experience in development, knowledge of the target market, and understanding of all the steps involved from planning, approvals, financing, construction, and leasing. Developers are often shooting for a 20%+ rate of return to take on the risks involved. Enter this arena only when you have direct experience and know what you’re doing.

Acquire commercial properties

Risk/Reward: High | Skill Level: High | Capital Required: Intensive

Taking one step down the risk ladder leads us to acquiring a commercial property. After a property has been developed and has proven to provide cash flow, this method of investment aims to preserve and/or increase that property’s valuation and cash flow by managing, leasing, and financing well. The investor can still lose their shirt here through mismanagement and mistakes, but can also make a hefty profit through smart investing.

Private Equity/LP

Risk/Reward: Moderate | Skill Level: Low/Mid | Capital Required: Moderate

Having an expert manage your money within commercial real estate for you through both developing and acquiring properties is the next step down the risk ladder. Here, you invest your assets into a private fund, or as a limited partner, with a team of investors, who are tasked with preserving and increasing capital in the real estate market. You may not see immediate liquidity, but the time and skill requirements are low.

This is still a traditional method of investment, and is accessible only to investors with a significant amount of capital to deploy.

Real Estate Investment Trusts

Risk/Reward: Moderate | Skill Level: Low/Mid | Capital Required: Light

REITs can be publicly traded or non-traded, but as a corporate structure with shareholders, there’s a prospectus for what will be done with the end investor’s money, regulated reporting structures for performance, and usually a clear exit path. A REIT’s management is subject to a board of directors that represents the shareholders. Trading REIT shares is a lot like investing in non-real estate companies in those regards, so it’s familiar structure for the every-day investor.

Online investing

Risk/Reward: Moderate | Skill Level: Low/Mid | Capital Required: Light

This is the newest of the bunch, and represents the easiest way to get into commercial real estate investments today. As online investing goes, you set up an account with an investing platform, deposit funds, and then choose your investments through an interactive platform, receiving updates on your investment performance through an online dashboard, email, etc.

There are a couple of different flavors of online real estate investment platforms today:

  • Crowdfunding — accredited investors can pick individual property deals to invest in.
  • eREIT — investments enter a pool of capital that invests in multiple deals, generally without an accreditation requirement.
  • Auto-invest/robo-advisor — you pick an investment goal, like Income or Growth, and the platform deploys your capital automatically over time.

So there you have it, five different ways to jump into the commercial real estate investment game. How will you get in?

Find the right commercial real estate financing with StackSource by getting instantly matched to the best debt and equity options for your project from our nationwide network of capital sources. 

Our expert Capital Advisors help you secure your ideal capital stack, resulting in a lower cost of capital for your investments in less time and with more transparency than a traditional commercial mortgage brokerage. Learn more at StackSource.com.