3 Benefits of Passive Investing in Commercial Real Estate
May 30, 2022
It’s a fact that Commercial Real Estate Investing offers a number of advantages that other types of investments, such as stocks, bonds, and futures, simply do not. Investors putting their money into commercial real estate gain passive income from their investment, but in addition, they gain a unique diversification of risk, tax advantages, and increased purchasing power.
Working with a proven firm like us at CRE is helpful because you will get a strategy from someone who knows commercial real estate space, can show actual returns, and is able to educate you on topics like we are sharing here.
Here we go deep into the top 3 benefits of passive investing in commercial real estate so you can decide for yourself if this is an investment you would want to make.
Passive CRE Investing Increases Buying Power Through Leverage
Why is leverage so important when it comes to investing in commercial real estate? This is a great question with a relatively simple answer. Leverage allows skilled investors to build extreme wealth over time by increasing both their investment return and their purchasing power. In the same way that a down payment is used to acquire a mortgage to buy a home, this also holds true for commercial real estate investing.
Instead of putting down cash to purchase a property, an investor can use the equity in a property or the cash flow a property generates to buy another property. Leverage enables an investor to significantly enhance their rate ability to purchase commercial real estate, invest in larger projects, and increase their return.
And, as a passive investor in a commercial real estate project, you can also pool your funds with other investors to acquire a larger, more stable asset than you can invest in on your own.
Diversify Risk with an Investment in Commercial Real Estate
If you are looking into the benefits of passively investing in commercial real estate, then you’ve almost definitely come across the fact that it’s an easy way to diversify your risk. There are a number of methods you can use to invest in commercial real estate.
Here we are listing a handful of ways that CRE investments diversify risk.
- Different Asset Types – Commercial real estate comes in a variety of shapes and sizes. There are not only numerous kinds, but also different real estate classes within those categories. With so many asset types to choose from, it’s simple to diversify your CRE portfolio and protect it from volatility.
- Different Investment Strategies – There are several methods to invest passively in commercial real estate. You may go the “stocks and bonds” route and buy shares through crowdfunding, REITs, and real estate ETFs, you can be a limited partner or hard money lender. Using many of these tactics to diversify your CRE portfolio will help you spread out your risk and improve the number of passive income streams you have.
- Multiple Tenants – Unless you buy a single-tenant net investment, you’ll almost certainly have many renters in your selected property. The more tenants you have paying your rent, the less risk you have if one of them goes out or fails to make lease payments. More income streams = less risk.
- Different Markets – Depending on your investing plan, you may be able to invest in commercial real estate around the country. If one market fails for whatever reason, you don’t have all of your eggs in one basket and may rely on the rest of your portfolio to sustain that suffering asset.
Different markets provide various opportunities. By investing in many properties in different markets, you can spread your risk. Perhaps you hold a single-tenant net lease in Louisville, a mid-rise office tower in Atlanta, and a strip mall in Dallas. As a result, if the rental market in Kentucky collapses, you will be able to offset losses caused by the thriving retail real estate market in Dallas.
Private Equity Groups Enable you to Invest with Seasoned Professionals
Working with a private equity firm or group that has a long history of experience working with investors like you on commercial real estate projects is essential to your success. Investing in commercial properties isn’t like pulling up your Robinhood App and putting money into stocks. And when using those other crowdfunding platforms you have no way to vet the credibility of those offering that investment.
We consider this a big benefit to investors who get into commercial real estate. You get the best education, deals, projects, and returns by working with firms that have proven themselves in this space.
If you want to learn more about how you can get into a commercial real estate deal, we would love to talk and show you how easy it is and will give us the chance to share with you how we at CRE Income Fund are successfully generating returns for investors like you.