how to invest in commercial real estate

How to Invest in Commercial Real Estate

Welcome to this comprehensive guide on investing in commercial property. By the end of this article, you should clearly understand the various strategies available and know what steps to take next.

As seasoned commercial real estate investors with over a decade of experience, our team will share my knowledge and expertise with you. We will begin by examining the benefits, drawbacks, and risks of commercial real estate investing.

Is Commercial Real Estate a Good Investment?

It can be a good investment, but it has risks. Like any investment, it is crucial to carefully consider the potential benefits and drawbacks and the risks involved. Some potential benefits of commercial real estate include:

  • Potential for high returns: Commercial properties can generate higher returns than residential properties, primarily if you lease them to creditworthy tenants.
  • Potential for steady income: Commercial properties can provide a steady income stream through rent payments.
  • Potential for tax benefits: Commercial real estate investors may be eligible for certain tax benefits, such as depreciation deductions.

However, there are also risks to consider, including:

  • Market risks: The value of commercial properties can fluctuate with changes in the market, and there is always the possibility of losing money.
  • Tenant risks: If a tenant goes bankrupt or defaults on their rent, it can be challenging to find a new tenant, and the property may sit empty for a while.
  • Management risks: Owning and managing a commercial property can be time-consuming and require significant effort and resources.

It is essential to assess these and other factors carefully before deciding whether commercial real estate is a good investment.

7 Pros of Investing in Commercial Property

  1. Potential for high returns: Commercial properties can generate higher returns than residential properties, especially if they are leased to creditworthy tenants.
  2. Potential for steady income: Commercial properties can provide a steady stream of income through rent payments.
  3. Potential for appreciation: The value of commercial properties may increase over time, leading to potential capital gains when the property is sold.
  4. Potential for tax benefits: Commercial real estate investors may be eligible for certain tax benefits, such as depreciation deductions.
  5. Potential for leverage: It is often possible to borrow a significant portion of the purchase price of a commercial property, which can potentially increase the return on investment.
  6. Potential to diversify a portfolio: Adding commercial real estate to an investment portfolio can help to diversify the portfolio and potentially reduce overall risk.
  7. Potential for long-term stability: Commercial properties may be less affected by short-term market fluctuations than other types of investments.


5 Cons of Investing in Commercial Property

  1. Higher initial investment: Commercial properties generally require a larger initial investment than residential properties.
  2. Market risks: The value of commercial properties can fluctuate with changes in the market, and there is always the possibility of losing money.
  3. Legal and regulatory risks: Commercial real estate transactions can be complex and may involve various legal and regulatory requirements that must be followed.
  4. Management risks: Owning and managing a commercial property can be time-consuming and may require significant effort and resources.
  5. Higher maintenance costs: Commercial properties may require more frequent and costly maintenance due to the higher amount of use and wear and tear.

Types of Commercial Investment Properties

There are many different commercial investment properties, each with unique characteristics and potential benefits. 

Here are a few common types of commercial properties:

  • Office buildings: These are used for office space and range from small single-story buildings to prominent skyscrapers.
  • Retail properties: These include properties such as shopping centers, department stores, and standalone stores.
  • Industrial properties: These properties include warehouses, manufacturing facilities, and other types of industrial buildings.
  • Multifamily properties: These are properties that contain multiple units, such as apartment buildings or condominiums.
  • Hospitality properties: These include hotels, motels, and resorts.
  • Special purpose properties: These are properties designed for specific uses, such as self-storage facilities, senior living facilities, or childcare centers.
  • Farms: These properties are farms with a broad range of sizes used to grow crops or raise animals.

When considering which type of commercial property to invest in, it’s essential to consider factors such as the location of the property, the condition of the property, and the potential for rental income. It is also helpful to work with a commercial real estate professional to help you identify the best investment opportunity for your needs.

Commercial Real Estate Investment Strategies

There are many different strategies that investors can use when it comes to investing in commercial real estate. 

Here are a few common strategies:

  • Value-add investing: This involves purchasing a property that has the potential for improvements, such as renovations or repositioning, and then increasing the property’s value through these improvements.
  • Development: This involves acquiring land and developing it into commercial property by building an office building or a shopping center.
  • Passive investing: This involves purchasing a stake in a commercial property through a real estate investment trust (REIT) or a similar vehicle, allowing investors to own a piece of the property without the responsibilities of being a direct landlord.
  • Leasehold improvement: This involves improving a leased property to attract and retain tenants.
  • Joint venture: This involves partnering with another investor or group of investors to purchase and manage a commercial property.

The best strategy will depend on your investment goals, risk tolerance, and financial resources. Working with a financial advisor or commercial real estate professional may help you determine the best investment strategy for you.

How to Get Into Commercial Real Estate Investing

If you’re interested in getting into commercial real estate investing, here are a few steps you can take:

Educate yourself: 

It’s essential to have a good understanding of the commercial real estate market and the specific type of property you’re interested in investing in. This may involve reading books and articles, attending industry events and seminars, and speaking with other commercial real estate professionals.

Determine your investment goals: 

Consider what you hope to achieve through your investment in commercial real estate. Are you looking for steady income, long-term appreciation, or a combination? Understanding your goals can help you make informed decisions about the types of properties to invest in.

Create a financial plan: 

Investing in commercial real estate often requires a significant amount of capital. Therefore, understanding your financial resources and planning how you fund your investment is crucial. This may involve saving cash, taking out a mortgage, or seeking partners or investors.

Find a property: 

Once you understand the market and your investment goals, you can start looking for properties that fit your criteria. This may involve working with a real estate agent or broker, searching online listings, and networking with other industry professionals.

Due diligence: 

Before investing, it’s important to research the property and evaluate its potential for success thoroughly. This may involve conducting a physical inspection, reviewing financial statements and rent rolls, and speaking with the current owner or manager.

Negotiate and close the deal: 

If you decide to move forward with an investment, you’ll need to negotiate the terms of the deal and close the transaction. This may involve working with a lawyer and other professionals to ensure that all legal and financial requirements are met.

Investing in commercial real estate can be a complex process, and it’s important to take the time to consider your options and do your due diligence carefully. Working with a financial advisor and other professionals can help you navigate the process and make informed decisions about your investment.

When you know how to invest in commercial real estate, it opens up a world of opportunities. Are you ready to sell a property and reinvest your funds? Contact our buyers today!